UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995, Commission File Number 33-21220*
UNITED AIR LINES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-2675206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 East 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
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class July 31, 1995
Common Stock ($5 par value) 200
* Registrant is the wholly-owned subsidiary of UAL Corporation
(File 1-6033). Registrant became subject to filing periodic
reports under the Securities Exchange Act of 1934 as a result of
a public offering of securities which became effective June 3,
1988 (Registration Nos. 33-21220 and 22-18246).
United Air Lines, Inc. and Subsidiary Companies
Report on Form 10-Q
For the Quarter Ended June 30, 1995
Index
Part I. Financial Information Page No.
Item 1. Financial statements:
Condensed statement of consolidated 3
financial position - as of June 30, 1995
(unaudited) and December 31, 1994
Statement of consolidated operations 5
(unaudited) - for the three months and six
months ended June 30, 1995 and 1994
Condensed statement of consolidated 7
cash flows (unaudited) - for the six
months ended June 30, 1995 and 1994
Notes to consolidated financial 8
statements (unaudited)
Item 2. Management's discussion and analysis 12
of financial condition and results of
operations
Part II. Other Information
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 22
Exhibit Index 23
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
(In Millions)
June 30,
1995 December 31,
Assets (Unaudited) 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 373 $ 444
Short-term investments 1,460 857
Receivables, net 1,035 887
Related party receivables - 77
Inventories, net 307 285
Deferred income taxes 146 155
Prepaid expenses and other 259 335
3,580 3,040
Operating property and equipment:
Owned 10,712 10,811
Accumulated depreciation and amortization (4,951) (4,775)
5,761 6,036
Capital leases 1,315 1,132
Accumulated amortization (475) (447)
840 685
6,601 6,721
Other assets:
Intangibles, net 748 762
Deferred income taxes 442 479
Related party receivables 561 570
Other 472 380
2,223 2,191
$12,404 $11,952
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
(In Millions)
June 30,
1995 December 31,
Liabilities and Stockholder's Equity (Unaudited) 1994
<S> <C> <C>
Current liabilities:
Short-term borrowings $ - $ 269
Current portions of long-term debt
and capital lease obligations 415 439
Advance ticket sales 1,378 1,020
Accounts payable 646 657
Other 2,610 2,508
5,049 4,893
Long-term debt 2,536 2,849
Long-term obligations under capital leases 867 727
Other liabilities and deferred credits:
Deferred pension liability 617 520
Postretirement benefit liability 1,190 1,148
Deferred gains 1,333 1,363
Other 454 459
3,594 3,490
Minority interest 54 49
Stockholder's equity:
Common stock - -
Additional capital invested 37 -
ESOP capital 458 266
Retained earnings (deficit) (77) (214)
Unearned ESOP preferred stock (79) (83)
Other (35) (25)
304 (56)
Commitments and contingent liabilities
(See note)
$12,404 $11,952
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Statement of Consolidated Operations (Unaudited)
(In Millions)
Three Months
Ended June 30
1995 1994
<S> <C> <C>
Operating revenues:
Passenger $3,392 $3,102
Cargo 185 168
Other operating revenues 227 222
3,804 3,492
Operating expenses:
Salaries and related costs 1,147 1,216
ESOP compensation expense 108 -
Aircraft fuel 412 379
Commissions 364 360
Aircraft rent 261 230
Purchased services 266 236
Depreciation and amortization 174 177
Landing fees and other rent 213 150
Food services 135 123
Aircraft maintenance 95 118
Personnel expenses 70 65
Other operating expenses 256 267
3,501 3,321
Earnings from operations 303 171
Other income (expense):
Interest expense (91) (80)
Interest capitalized 10 9
Interest income 23 18
Equity in earnings of affiliates 13 8
Miscellaneous, net (1) (22)
(46) (67)
Earnings before income taxes 257 104
Provision for income taxes 103 50
Net earnings $ 154 $ 54
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Statement of Consolidated Operations (Unaudited)
(In Millions)
Six Months
Ended June 30
1995 1994
<S> <C> <C>
Operating revenues:
Passenger $6,312 $5,873
Cargo 360 332
Other operating revenues 452 460
7,124 6,665
Operating expenses:
Salaries and related costs 2,260 2,418
ESOP compensation expense 197 -
Aircraft fuel 790 749
Commissions 706 694
Aircraft rent 510 456
Purchased services 505 454
Depreciation and amortization 337 355
Landing fees and other rent 384 304
Food services 254 214
Aircraft maintenance 202 227
Personnel expenses 133 124
Other operating expenses 505 543
6,783 6,538
Earnings from operations 341 127
Other income (expense):
Interest expense (185) (161)
Interest capitalized 22 19
Interest income 42 29
Equity in earnings of affiliates 27 14
Miscellaneous, net (19) (44)
(113) (143)
Earnings (loss) before income taxes and
cumulative effect of accounting change 228 (16)
Provision for income taxes 91 9
Earnings (loss) before cumulative effect
of accounting change 137 (25)
Cumulative effect of accounting change,
net of tax - (26)
Net earnings (loss) $ 137 $ (51)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
United Air Lines, Inc. and Subsidiary Companies
Condensed Statement of Consolidated Cash Flows (Unaudited)
(In Millions)
Six Months
Ended June 30
1995 1994
<S> <C> <C>
Cash and cash equivalents at beginning of
period $ 444 $ 285
Cash flows from operating activities 1,209 915
Cash flows from investing activities:
Additions to property and equipment (330) (178)
Proceeds on disposition of property and
equipment 306 116
Decrease (increase) in short-term
investments (603) 47
Decrease in related party receivable 85 -
Other, net (12) 30
(554) 15
Cash flows from financing activities:
Repayment of long-term debt (407) (28)
Principal payments under capital
lease obligations (49) (63)
Decrease in short-term borrowings (269) (46)
Other, net (1) -
(726) (137)
Increase (decrease) in
cash and cash equivalents (71) 793
Cash and cash equivalents at end of period $ 373 $ 1,078
Cash paid during the period for:
Interest (net of amounts capitalized) $ 163 $ 135
Income taxes $ 5 $ 2
Non-cash transactions:
Capital lease obligation incurred $ 182 $ -
Long-term debt incurred in connection
with additions to equipment $ 12 $ 12
Unrealized gain (loss) on investments $ 4 $ (3)
See accompanying notes to consolidated financial statements.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
The Company
United Air Lines, Inc. ("United") is a wholly-owned subsidiary of
UAL Corporation ("UAL").
Interim Financial Statements
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to or as permitted by such rules and regulations, although
United believes that the disclosures are adequate to make the
information presented not misleading. In management's opinion, all
adjustments (which, except for the effects on the 1994 periods of the
employee investment transaction, include only normal recurring
adjustments) necessary for a fair presentation of the results of
operations for the three and six month periods have been made. These
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in United's Annual
Report on Form 10-K for the year 1994.
ESOP Compensation Expense
"ESOP compensation expense" in the 1995 second quarter and
six-month period represents the estimated average fair value of ESOP
convertible preferred stock committed to be released to employees for
the period, net of amounts used to satisfy dividend requirements for
previously allocated ESOP convertible preferred shares, under Employee
Stock Ownership Plans which were created as a part of the July 1994
employee investment transaction and recapitalization. ESOP compensation
expense was credited to ESOP capital during the 1995 periods.
Other Income (Expense) - Miscellaneous
Included in "Miscellaneous, net" in the 1994 second quarter and
six-month period were charges of $22 million and $41 million,
respectively, for costs incurred in connection with the employee
investment transaction and recapitalization. Also included were foreign
exchange gains of $10 million in both the 1995 and 1994 second quarters,
$2 million in the 1995 six-month period and $9 million in the 1994
six-month period. Charges for minority interests in Apollo Travel
Services were $6 million in the 1995 and 1994 second quarters and $12
million in the 1995 and 1994 six-month periods.
Income Taxes
The provisions for income taxes for the 1995 second quarter and
six-month period are based on the estimated annual effective tax rate,
which differs from the federal statutory rate of 35% principally due to
state income taxes and certain nondeductible expenses. The provisions
for income taxes for the 1994 second quarter and six-month period were
based on the actual effective tax rate for the periods, and include the
effects of nondeductible expenses related to the employee investment
transaction and recapitalization. Deferred tax assets are recognized
based upon United's history of operating earnings and expectations for
future taxable income.
Accounting Change
United adopted Statement of Financial Accounting Standards
("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits,"
effective January 1, 1994. The effect of adopting SFAS No. 112 was a
cumulative charge for recognition of the transition liability of $42
million, before tax benefits of $16 million.
Affiliates
United owns 38% of the Galileo International Partnership
("Galileo") through a wholly-owned subsidiary. United's investment in
Galileo, which owns the Apollo and Galileo computer reservations
systems, is carried on the equity basis. United also owns 77% of the
Apollo Travel Services Partnership and its accounts are consolidated.
Under operating agreements with Galileo, United purchases computer
reservation services from Galileo and provides marketing, sales and
communication services to Galileo. Revenues derived from the sale of
services to Galileo amounted to approximately $62 million in the 1995
second quarter, $59 million in the 1994 second quarter, $124 million in
the 1995 six-month period and $118 million in the 1994 six-month period.
The cost to United of services purchased from Galileo amounted to
approximately $27 million in the 1995 second quarter, $25 million in the
1994 second quarter, $52 million in the 1995 six-month period and $46
million in the 1994 six-month period.
Short-term Borrowings
In the second quarter of 1995, United repaid the entire balance of
short-term borrowings outstanding, which amounted to $269 million at
March 31, 1995. United has the ability to borrow up to $160 million
under this facility, which expires in September 1995.
Long-term Debt
In addition to scheduled principal payments in the first six
months of 1995, United repaid $150 million in principal amount of
debentures and $223 million in principal amount of secured notes,
resulting in an insignificant loss.
In May 1995, United issued $246 million of pass through
certificates under an effective shelf registration statement UAL and
United have on file with the Securities and Exchange Commission. The
pass through certificates were issued to finance or refinance certain
aircraft under operating leases. At June 30, 1995, up to $789 million
of securities could be issued under the shelf registration statement,
including secured and unsecured debt, equipment trust and pass through
certificates, equity or a combination thereof. United's ability to
issue equity securities is limited by its certificate of incorporation,
which was restated in connection with the recapitalization.
Contingencies and Commitments
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 June 30, 1995, commitments for the purchase of property and
equipment, principally aircraft, approximated $3.9 billion, after
deducting advance payments. An estimated $0.9 billion will be spent
during the remainder of 1995, $1.1 billion in 1996, $1.3 billion in
1997, $0.4 billion in 1998 and $0.2 billion in 1999 and therafter. The
major commitments are for the purchase of 29 B777 aircraft, two B747
aircraft and four B757 aircraft. The B777s are expected to be delivered
between 1995 and 1999 and the B747s and B757s are expected to be
delivered in 1996.
In addition to aircraft orders, United has arrangements with
Airbus Industrie and International Aero Engines to lease an additional
21 A320 aircraft, which are scheduled for delivery through 1998. At
June 30, 1995, United also had options for an additional 150 B737
aircraft, 33 B757 aircraft, 34 B777 aircraft, 43 B747 aircraft, 6 B767
aircraft and 50 A320 aircraft. These option amounts have been reduced
to reflect the recent confirmation of two B747 options, the replacement
of two B767 options with the B757 orders mentioned above and
cancellation of certain options. Under the terms of certain of these
remaining options which are exercisable during 1996 and 1997, United
would forfeit significant deposits on such options it does not exercise.
Related Party Transactions
In the first six months of 1995, Air Wisconsin, Inc. repaid the
entire $86 million balance of its outstanding loan from United and
extended loans to United, amounting to $32 million at June 30, 1995.
Subsequent Event
In July 1995, United gave notice of its intention to retire all
$229 million of its outstanding Japanese yen-denominated deferred
purchase certificates. The certificates, which will be retired
throughout the third and fourth quarters, were scheduled for repayment
periodically through 1998. In connection with the Japanese
yen-denominated obligations referred to above, United had entered into a
foreign currency swap contract to reduce exposure to currency
fluctuations. This swap contract, which was designated as a hedge, will
be terminated at the same time as the obligations. The retirement,
which will amount to approximately $194 million including accrued
interest but net of amounts to be received under the swap contract, will
result in an insignificant loss.
At the same time, United also gave notice of its intention to
terminate related operating leases for 39 aircraft, by exercising its
right to acquire the aircraft. Operating property and equipment will
increase by approximately $400 million by December 31, 1995 as a result
of this transaction. Termination of these leases will reduce future
minimum lease payments, as reported at December 31, 1994, by $130
million in each of 1996 and 1997 and by $166 million in 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
United's total of cash and cash equivalents and short-term
investments was $1.833 billion at June 30, 1995, compared to $1.301
billion at December 31, 1994. Cash flows from operating activities
amounted to $1,209 billion. Investing activities, excluding the
increase in short-term investments, resulted in cash flows of $49
million. Cash received from related parties in payment of loans,
including Air Wisconsin, Inc., amounted to $85 million. Financing
activities included principal payments under debt and capital lease
obligations of $407 million and $49 million, respectively, and the
repayment of $269 million of short-term borrowings.
In the first six months of 1995, United took delivery of eight
A320 aircraft under operating leases. During the period, United also
took delivery of five B777 aircraft, two under capital leases and three
which were initially purchased, then sold and leased back under
operating leases. Property additions, including the three B777s and
aircraft spare parts, amounted to $330 million. Property dispositions,
including the sale and leaseback of the three B777s, resulted in
proceeds of $306 million.
In July 1995, United gave notice of its intention to retire all
$229 million of its outstanding Japanese yen-denominated deferred
purchase certificates during the third and fourth quarters of 1995. At
the same time, United gave notice of its intention to terminate related
operating leases for 39 aircraft, by exercising its right to acquire the
aircraft. The net acquisition cost of such aircraft is expected to
aggregate $436 million after making all scheduled rent payments.
At June 30, 1995, commitments for the purchase of property and
equipment, principally aircraft, approximated $3.9 billion, after
deducting advance payments. An estimated $0.9 billion will be spent
during the remainder of 1995, $1.1 billion in 1996, $1.3 billion in
1997, $0.4 billion in 1998 and $0.2 billion in 1999 and thereafter. The
major commitments are for the purchase of 29 B777 aircraft, two B747
aircraft and four B757 aircraft. The B777s are expected to be delivered
between 1995 and 1999 and the B747s and B757s are expected to be
delivered in 1996.
In addition to aircraft orders, United has arrangements with
Airbus Industrie and International Aero Engines to lease 21 A320
aircraft, which are scheduled for delivery through 1998. At June 30,
1995, United also had options for an additional 150 B737 aircraft, 33
B757 aircraft, 34 B777 aircraft, 43 B747 aircraft, 6 B767 aircraft and
50 A320 aircraft. Under the terms of certain of these options which are
exercisable during 1996 and 1997, United would forfeit significant
deposits on such options it does not exercise.
In April 1995, United announced that, under a revised fleet plan,
it would use most of the new aircraft to be delivered through 1997 to
replace older aircraft in its fleet. As a result, the number of
aircraft in United's operating fleet is expected to increase by 19
during that time, compared to an increase of 48 aircraft called for by
United's previous fleet plan. Funds necessary to finance aircraft
acquisitions are expected to be obtained from internally generated
funds, irrevocable external financing arrangements or other external
sources.
In May 1995, United issued $246 million of pass through
certificates under an effective shelf registration statement UAL and
United have on file with the Securities and Exchange Commission. The
pass through certificates were issued to finance or refinance certain
aircraft under operating leases. At June 30, 1995, up to $789 million
of securities could be issued under the shelf registration statement,
including secured and unsecured debt, equipment trust and pass through
certificates, equity or a combination thereof. United's ability to
issue equity securities is limited by its certificate of incorporation,
which was restated in connection with the recapitalization.
In June 1995, the Indianapolis Airport Authority issued $221
million of special facility bonds, guaranteed by United, related to the
maintenance facilities being constructed at its Indianapolis Maintenance
Center. In connection with the construction of the Indianapolis
Maintenance Center, United agreed to reach an $800 million capital
spending target by the year 2001 and employ at least 7,500 individuals
by the year 2004. In the event that such targets are not reached,
United may be required to make certain additional payments under related
agreements.
RESULTS OF OPERATIONS
United's results of operations for interim periods are not
necessarily indicative of those for an entire year, as a result of
seasonal factors to which United is subject. First and fourth quarter
results are normally affected by reduced travel demand in the fall and
winter and United's operations, particularly at its Chicago and Denver
hubs, are adversely affected by winter weather on occasion.
The results of operations in the airline business historically
fluctuate significantly in response to general economic conditions.
This is because small fluctuations in yield (passenger revenue per
revenue passenger mile) and cost per available seat mile can have a
significant effect on operating results. United anticipates
industrywide fare levels, increasing low-cost competition, general
economic conditions, fuel costs, international governmental policies and
other factors will continue to affect its operating results.
The July 1994 employee investment transaction and recapitalization
resulted in wage and benefit reductions and work-rule changes which were
designed to reduce cash operating expenses. These cash expense
reductions are offset by non-cash compensation charges for stock
periodically committed to be released to employees under the ESOPs and
additional interest expense on the debentures issued at the time of the
recapitalization.
As a result of the recapitalization, United's capital structure
became more highly leveraged. With the increase in debt and reduction
in equity resulting from the recapitalization, United's exposure to
certain industry risks could be greater than might have been the case
prior to the recapitalization. In addition, the transaction resulted in
new labor agreements for certain employee groups and a new corporate
governance structure for UAL, which was designed to achieve balance
between the various employee-owner groups and public stockholders. The
new labor agreements and governance structure could inhibit management's
ability to alter strategy in a volatile, competitive industry by
restricting certain operating and financing activities, including the
sale of assets and the issuance of equity securities and the ability to
furlough employees. United's ability to react to competition may be
hampered further by the fixed long-term nature of these various
agreements. The continued success of the recapitalization will be
dependent upon a number of factors, including the state of the
competitive environment in the airline industry, competitive responses
to United's efforts, United's ability to achieve enduring cost savings
through productivity improvements and the renegotiation of labor
agreements at the end of the investment period.
United generates revenues and incurs expenses in numerous foreign
currencies. These expenses include reservation and ticket office
services, customer service, aircraft maintenance, catering, commissions,
aircraft leases and personnel costs. Changes in foreign currency
exchange rates impact operating income through changes in foreign
currency-denominated operating revenues and expenses. Despite the
adverse (favorable) effects a strengthening (weakening) foreign currency
will have on U.S. originating traffic, a strengthening (weakening) of
foreign currencies tends to increase (decrease) reported revenue and
operating income because United's foreign currency-denominated operating
revenue generally exceeds its foreign currency-denominated operating
expense for each currency. United's biggest net exposures are for
Japanese yen and Australian dollars. During the first six months of
1995, yen-denominated operating revenue net of yen-denominated operating
expense was approximately 19.9 billion yen (approximately $215 million),
and Australian dollar-denominated operating revenue net of Australian
dollar-denominated operating expense was approximately 84 million
Australian dollars (approximately $62 million).
Other non-operating income (expense) is also affected as a result
of transaction gains and losses resulting from rate fluctuation. The
foreign exchange gains and losses recorded by United result from the
impact of exchange rate changes on foreign currency denominated assets
and liabilities, primarily yen-denominated balances. To the extent
yen-denominated liability balances are predictable, United attempts to
minimize transaction gains and losses by investing in yen-denominated
time deposits to offset the impact of rate changes. In addition, United
entered into a foreign currency swap contract in 1994 to reduce exposure
to currency fluctuations in connection with other long-term
yen-denominated obligations. Where no significant liability exists to
offset, United mitigates its exposure to foreign exchange rate
fluctuations by converting excess local currencies generated to U.S.
dollars. At June 30, 1995, yen-denominated assets were approximately
equal to yen-denominated liabilities.
United expects that it will continue to be affected by the above
mentioned factors, but cannot predict how foreign currency exchange
rates will move in the future.
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 is scheduled to become effective October 1, 1995, and continue
until October 1, 1998. Based on United's 1994 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. United, through the Air Transportation Association, is
actively lobbying for repeal of this tax.
In the first quarter of 1995, United implemented a new travel
agency commission payment plan that offers a maximum of $50 for
round-trip domestic tickets and a maximum of $25 for one-way domestic
tickets. The new commission plan resulted in a reduction of
approximately $30 million in United's commission expense for the first
six months of 1995; however, United estimates the reduction of
commission expense in the second half of 1995 will be between $50
million and $60 million. Litigation challenging this payment plan is
pending. A decision on the defendant airlines' motion for summary
judgment and the plaintiff travel agencies' motion for preliminary
injunction is expected during the third quarter of 1995. (See Part II,
Item 1. Legal Proceedings)
Summary of Results
United's earnings from operations were $341 million in the first
six months of 1995, compared to operating earnings of $127 million in
the first six months of 1994. United's net earnings in the 1995
six-month period were $137 million, compared to a net loss of $51
million in the same period of 1994. The 1994 loss includes a $26
million after tax charge for the cumulative effect of adopting Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," which United adopted effective January 1, 1994.
In the second quarter of 1995, United's earnings from operations
were $303 million, compared to $171 million in the second quarter of
1994. United's net earnings in the second quarter of 1995 were $154
million, compared to net earnings of $54 million in the first quarter of
1994.
Specific factors affecting United's consolidated operations for
the second quarter and first six months of 1995 are described below.
Second Quarter 1995 Compared with Second Quarter 1994.
Operating revenues increased $312 million (9%). United's revenue
per available seat mile increased 5% to 9.68 cents. Passenger revenues
increased $290 million (9%) due to a 5% increase in yield to 11.97 cents
and a 4% increase in revenue passenger miles. Domestic revenue
passenger miles increased 5% and Pacific increased 6%. Atlantic revenue
passenger miles decreased 1% and Latin America was relatively unchanged.
Available seat miles increased 4% systemwide, as increases of 11% and
3% on Pacific and Domestic routes, respectively, were partially offset
by a 4% decrease in the Atlantic and a 1% decrease in Latin America.
United's system passenger load factor increased 0.3 points to 71.9%.
Cargo revenues increased $17 million (10%), as both freight and
mail revenues increased due to higher cargo volumes. Other operating
revenues increased $5 million (2%).
Operating expenses increased $180 million (5%); however, United's
cost per available seat mile increased only 2% from 8.77 cents to 8.91
cents, including ESOP compensation expense. Without the ESOP
compensation expense, United's 1995 second quarter cost per available
seat mile would have been 8.64 cents, a decrease of 1% from 1994. ESOP
compensation expense of $108 million in the 1995 second quarter
represents the estimated average fair value of ESOP stock committed to
be released to employees for the quarter, net of amounts used to satisfy
dividend requirements for previously allocated ESOP convertible
preferred shares. Landing fees and other rent increased $63 million
(42%) due to increased facilities rent, particularly due to new
facilities at Denver. Aircraft fuel expense increased $33 million (9%)
due to a 4% increase in consumption and a 4% increase in the average
price per gallon of fuel to 58.9 cents. Aircraft rent increased $31
million (13%) as a result of new aircraft acquired on operating leases.
Purchased services increased $30 million (13%) due principally to
volume-related increases in computer reservations fees and credit card
discounts. Food services increased $12 million (10%) due to the new
catering arrangements resulting from the 1994 sale of flight kitchens
and increased passenger volumes.
Salaries and related costs decreased $69 million (6%) primarily
due to savings resulting from wage and benefit concessions made by
employees participating in the ESOPs, partially offset by higher average
wage rates for other employee groups. Aircraft maintenance decreased
$23 million (19%) due principally to the removal of certain older
aircraft from United's operating fleet and the timing of maintenance
cycles.
Other expense amounted to $46 million in the second quarter of
1995 compared to $67 million in the second quarter of 1994. Interest
expense increased $11 million (14%) due primarily to interest on the
debentures issued in connection with the recapitalization. Included in
the second quarter of 1994 was a charge of $22 million for costs
incurred in connection with the employee investment transaction. In
addition, both the 1995 and 1994 periods included foreign exchange gains
of $10 million.
Six Months 1995 Compared with Six Months 1994.
Operating revenues increased $459 million (7%). United's revenue
per available seat mile increased 2% to 9.27 cents. Passenger revenues
increased $439 million (7%) due principally to a 6% increase in revenue
passenger miles and a 1% increase in yield to 11.77 cents. Domestic and
Pacific revenue passenger miles increased 7% and Latin America increased
1%. Atlantic revenue passenger miles decreased 3%. Available seat
miles increased 5% systemwide, as increases of 13% and 4% on Pacific and
Domestic routes, respectively, were partially offset by a 4% decrease in
the Atlantic. As a result, the system passenger load factor increased
0.9 points to 69.5%.
Cargo revenues increased $28 million (8%), as both freight and
mail revenues increased due to higher cargo volumes. Other operating
revenues decreased $8 million (2%) due primarily to a decrease in fuel
sales.
Operating expenses increased $245 million (4%); however, United's
cost per available seat mile decreased 1% from 8.90 cents to 8.82 cents,
including ESOP compensation expense. Without the ESOP compensation
expense, United's 1995 six month cost per available seat mile would have
been 8.57 cents, a decrease of 4% from 1994. ESOP compensation expense
of $197 million in the first six months of 1995 represents the estimated
average fair value of ESOP stock committed to be released to employees
for the period, net of amounts used to satisfy dividend requirements for
previously allocated ESOP convertible preferred shares. Landing fees
and other rent increased $80 million (26%) due to increased facilities
rent, primarily due to new facilities at Denver, and increased landing
fees as the number of departures increased 9%. Aircraft rent increased
$54 million (12%) as a result of new A320 and B777 aircraft on operating
leases. Purchased services increased $51 million (11%) due principally
to volume-related increases in computer reservations fees and credit
card discounts. Aircraft fuel expense increased $41 million (5%) as
fuel consumption increased 5% and the average price per gallon of fuel
remained relatively unchanged at 57.9 cents. Food services increased
$40 million (19%) due to the new catering arrangements resulting from
the 1994 sale of flight kitchens and increased passenger volumes.
Salaries and related costs decreased $158 million (7%) primarily
due to savings resulting from wage and benefit concessions made by
employees participating in the ESOPs, partially offset by higher average
wage rates for other employee groups. Aircraft maintenance decreased
$25 million (11%) due principally to the removal of certain older
aircraft from United's operating fleet and the timing of maintenance
cycles. Depreciation and amortization expense decreased $18 million
(5%), as certain assets, principally B727 aircraft, are now fully
depreciated. Other operating expenses decreased $38 million (7%) due
mainly to lower fuel sales.
Other expense amounted to $113 million in the first six months of
1995 compared to $143 million in the same period of 1994. Interest
expense increased $24 million (15%) due primarily to interest on the
debentures issued in connection with the recapitalization. Included in
"Miscellaneous, net" in the 1994 six-month period was a charge of $41
million for costs incurred in connection with the employee investment
transaction. In addition, the 1995 and 1994 periods included foreign
exchange gains of $2 million and $9 million, respectively. Charges for
minority interests in Apollo Travel Services were $12 million in both
the 1995 and 1994 six-month periods.
The income tax provision for the first six months of 1994 was
significantly impacted by the nondeductibility of certain
recapitalization costs.
Part II
Other Information
Item 1. Legal Proceedings.
In Re Airline Travel Agency Commission Litigation. On
February 13, l995 and dates thereafter United Air Lines, Inc.
("United") and six other airlines were sued in various courts
around the nation by travel agents and the American Society of
Travel Agents claiming as a class action that the carriers acted
collusively in violation of federal antitrust laws when they
imposed a cap on ticket sales commissions payable to travel
agencies by the carriers. As a result of an order by the multi-
district panel, the suits are now consolidated before the federal
court in Minneapolis. A discovery and motion filing schedule has
been established by this court, under which a hearing was held on
July 7, 1995, on plaintiffs' motion for a preliminary injunction
and the carriers' motion for summary judgment. As relief, the
plaintiffs seek an order declaring the carriers' commission cap
action to be illegal and the recovery of damages (trebled) to the
agencies resulting from that action.
Summers et al. v. State Street Bank and Trust Company et al.
On April 14, 1995, plaintiffs filed a class action complaint
against State Street Bank and Trust Company ("State Street"), the
UAL Corporation Employee Stock Ownership Plan and the UAL
Corporation Supplemental Employee Stock Ownership Plan (together,
the "Plans") in the United States District Court for the Northern
District of Illinois. The complaint is brought on behalf of a
putative class of all persons who are, or were as of July 12,
1994, participants or beneficiaries of the Plans. Plaintiffs
allege that State Street breached various fiduciary duties under
the Employee Retirement Income Security Act of 1974 ("ERISA") in
connection with the 1994 purchase of UAL Corporation ("UAL")
preferred stock by the Plans. The Plans are nominal defendants;
no relief is sought from them. The complaint seeks a declaration
that State Street violated ERISA, restoration to the Plans by
State Street of the amount of an alleged "overpayment" for the
stock, and other relief. United is obligated, subject to certain
exceptions, to indemnify State Street for part or all of an
adverse judgment and State Street's defense costs. On July 12,
1995, the defendants filed a motion to dismiss the complaint in
its entirety. A ruling is expected on that motion on or before
the September 20, 1995 hearing set by the presiding judge.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.1 - Side Letter Agreement dated June 8, 1995
to Letter Agreement No. 6-1162-DLJ-1123 to the Agreement
dated December 18, 1990 between Boeing and United (and
United Worldwide Corporation) for acquisition of 777-200
aircraft (as previously amended and supplemented, the
"777-200 Purchase Agreement" (filed as Exhibit 10.7 to
UAL's Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference; supplements thereto
filed as (i) Exhibits 10.1, 10.2 and 10.22 to UAL's Form
10-Q for the quarter ended June 30, 1993, (ii) Exhibit
10.2 to UAL's Form 10-K for the year ended December 31,
1993, (iii) Exhibit 10.14 to UAL's Form 10-Q for the
quarter ended June 30, 1994, (iv) Exhibits 10.27 and
10.28 to UAL's Form 10-K for the year ended December 31,
1994, and (v) Exhibits 10.2 and 10.3 to UAL's Form 10-Q
for the quarter ended March 31, 1995)). (Exhibit 10.1
hereto is filed as Exhibit 10.4 to UAL's quarterly report
on Form 10-Q for the quarter ended June 30, 1995, and is
incorporated herein by reference with a request for
confidential treatment of certain portions thereof.)
Exhibit 10.2 - Change Order No. 6 dated February 21, 1995
to the 777-200 Purchase Agreement. (Exhibit 10.2 hereto
is filed as Exhibit 10.5 to UAL's quarterly report on
Form 10-Q for the quarter ended June 30, 1995, and is
incorporated herein by reference with a request for
confidential treatment of certain portions thereof.)
Exhibit 10.3 - Letter Agreement No. 6-1162-RCN-916 dated
May 23, 1995 to the 777-200 Purchase Agreement. (Exhibit
10.3 hereto is filed as Exhibit 10.6 to UAL's quarterly
report on Form 10-Q for the quarter ended June 30, 1995,
and is incorporated herein by reference with a request
for confidential treatment of certain portions thereof.)
Exhibit 10.4 - Side Letter Agreement dated June 8, 1995
to Letter Agreement No. 6-1162-DLJ-1124 to the Agreement
dated December 18, 1990 between Boeing and United (and
United Worldwide Corporation) for acquisition of 747-400
aircraft (as previously amended and supplemented, the
"747-400 Purchase Agreement" (filed as Exhibit 10.8 to
UAL's 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 Form 10-K
for the year ended December 31, 1991, (ii) Exhibits 10.3,
10.4, 10.5, 10.6 and 10.22 to UAL's Form 10-Q for the
quarter ended June 30, 1993, (iii) Exhibit 10.3 to UAL's
Form 10-K for the year ended December 31, 1993, (iv)
Exhibit 10.14 to UAL's Form 10-Q for the quarter ended
June 30, 1994, (v) Exhibits 10.29 and 10.30 to UAL's Form
10-K for the year ended December 31, 1994, and (vi)
Exhibits 10.4 through 10.8 to UAL's Form 10-Q for the
quarter ended March 31, 1995)). (Exhibit 10.4 hereto is
filed as Exhibit 10.7 to UAL's quarterly report on Form
10-Q for the quarter ended June 30, 1995, and is
incorporated herein by reference with a request for
confidential treatment of certain portions thereof.)
Exhibit 10.5 - Change Order No. 1 to the 747-400 Purchase
Agreement. (Exhibit 10.5 hereto is filed as Exhibit 10.8
to UAL's quarterly report on Form 10-Q for the quarter
ended June 30, 1995, and is incorporated herein by
reference with a request for confidential treatment of
certain portions thereof.)
Exhibit 10.6 - Amendment No. 3 dated as of March __, 1995
to the 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 Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference; supplements thereto
filed as (i) Exhibits 10.4 and 10.5 to UAL's Form 10-K
for the year ended December 31, 1993, (ii) Exhibits 10.15
and 10.16 to UAL's Form 10-Q for the quarter ended June
30, 1994, and (iii) Exhibit 10.31 to UAL's Form 10-K for
the year ended December 31, 1994)). (Exhibit 10.6 hereto
is filed as Exhibit 10.9 to UAL's quarterly report on
Form 10-Q for the quarter ended June 30, 1995, and is
incorporated herein by reference with a request for
confidential treatment of certain portions thereof.)
Exhibit 12.1 - Computation of Ratio of Earnings
to Fixed Charges.
Exhibit 27 - Financial Data Schedule.
(b) Form 8-K dated May 2, 1995 to report certain documents
relating to United Airlines Pass Through Certificates,
Series 1995-A.
SIGNATURES
Pursuant to the requirements 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/ Gerald Greenwald
Gerald Greenwald
Chairman and Chief
Executive Officer
By: /s/ Douglas A. Hacker
Douglas A. Hacker
Senior Vice President-Finance
(Principal Financial Officer)
By: /s/ Frederic F. Brace
Frederic F. Brace
Vice President - Financial
Analysis and Controller
(Principal Accounting Officer)
Dated: August 9, 1995
Exhibit Index
Exhibit No. Description
10.1 Side Letter Agreement dated June 8, 1995 to Letter
Agreement No. 6-1162-DLJ-1123 to the Agreement dated
December 18, 1990 between Boeing and United (and United
Worldwide Corporation) for acquisition of 777-200
aircraft (as previously amended and supplemented, the
"777-200 Purchase Agreement" (filed as Exhibit 10.7 to
UAL's Form 10-K for the year ended December 31, 1990,
and incorporated herein by reference; supplements
thereto filed as (i) Exhibits 10.1, 10.2 and 10.22 to
UAL's Form 10-Q for the quarter ended June 30, 1993,
(ii) Exhibit 10.2 to UAL's Form 10-K for the year ended
December 31, 1993, (iii) Exhibit 10.14 to UAL's Form 10-
Q for the quarter ended June 30, 1994, (iv) Exhibits
10.27 and 10.28 to UAL's Form 10-K for the year ended
December 31, 1994, and (v) Exhibits 10.2 and 10.3 to
UAL's Form 10-Q for the quarter ended March 31, 1995)).
(Exhibit 10.1 hereto is filed as Exhibit 10.4 to UAL's
quarterly report on Form 10-Q for the quarter ended
June 30, 1995, and is incorporated herein by reference
with a request for confidential treatment of certain
portions thereof.)
10.2 Change Order No. 6 dated February 21, 1995 to the 777-
200 Purchase Agreement. (Exhibit 10.2 hereto is filed
as Exhibit 10.5 to UAL's quarterly report on Form 10-Q
for the quarter ended June 30, 1995, and is
incorporated herein by reference with a request for
confidential treatment of certain portions thereof.)
10.3 Letter Agreement No. 6-1162-RCN-916 dated May 23, 1995
to the 777-200 Purchase Agreement. (Exhibit 10.3
hereto is filed as Exhibit 10.6 to UAL's quarterly
report on Form 10-Q for the quarter ended June 30,
1995, and is incorporated herein by reference with a
request for confidential treatment of certain portions
thereof.)
10.4 Side Letter Agreement dated June 8, 1995 to Letter
Agreement No. 6-1162-DLJ-1124 to the Agreement dated
December 18, 1990 between Boeing and United (and United
Worldwide Corporation) for acquisition of 747-400
aircraft (as previously amended and supplemented, the
"747-400 Purchase Agreement" (filed as Exhibit 10.8 to
UAL's 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
Form 10-K for the year ended December 31, 1991, (ii)
Exhibits 10.3, 10.4, 10.5, 10.6 and 10.22 to UAL's Form
10-Q for the quarter ended June 30, 1993, (iii) Exhibit
10.3 to UAL's Form 10-K for the year ended December 31,
1993, (iv) Exhibit 10.14 to UAL's Form 10-Q for the
quarter ended June 30, 1994, (v) Exhibits 10.29 and
10.30 to UAL's Form 10-K for the year ended December
31, 1994, and (vi) Exhibits 10.4 through 10.8 to UAL's
Form 10-Q for the quarter ended March 31, 1995)).
(Exhibit 10.4 hereto is filed as Exhibit 10.7 to UAL's
quarterly report on Form 10-Q for the quarter ended
June 30, 1995, and is incorporated herein by reference
with a request for confidential treatment of certain
portions thereof.)
10.5 Change Order No. 1 to the 747-400 Purchase Agreement.
(Exhibit 10.5 hereto is filed as Exhibit 10.8 to UAL's
quarterly report on Form 10-Q for the quarter ended
June 30, 1995, and is incorporated herein by reference
with a request for confidential treatment of certain
portions thereof.)
10.6 Amendment No. 3 dated as of March __, 1995 to the
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 Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference; supplements
thereto filed as (i) Exhibits 10.4 and 10.5 to UAL's
Form 10-K for the year ended December 31, 1993, (ii)
Exhibits 10.15 and 10.16 to UAL's Form 10-Q for the
quarter ended June 30, 1994, and (iii) Exhibit 10.31 to
UAL's Form 10-K for the year ended December 31, 1994)).
(Exhibit 10.6 hereto is filed as Exhibit 10.9 to UAL's
quarterly report on Form 10-Q for the quarter ended
June 30, 1995, and is incorporated herein by reference
with a request for confidential treatment of certain
portions thereof.)
12.1 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
<TABLE>
<CAPTION>
Exhibit 12.1
United Air Lines, Inc. and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
Six Months Ended
June 30
1995 1994
(In Millions)
<S> <C> <C>
Earnings:
Earnings (loss) before income taxes $ 228 $ (16)
Fixed charges, from below 569 493
Undistributed earnings of affiliates (23) -
Interest capitalized (22) (19)
Earnings $ 752 $ 458
Fixed charges:
Interest expense $ 185 $ 161
Portion of rental expense
representative of the
interest factor 384 332
Fixed charges $ 569 $ 493
Ratio of earnings to fixed charges 1.32 (a)
(a) Earnings were inadequate to cover fixed charges by $35 million in the
first six months of 1994.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
AIR LINES, INC.'S STATEMENT OF CONSOLIDATED OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL
POSITION AS OF JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 6-MOS
<CASH> 373
<SECURITIES> 1,460
<RECEIVABLES> 1,035
<ALLOWANCES> 0
<INVENTORY> 307
<CURRENT-ASSETS> 3,580
<PP&E> 12,027
<DEPRECIATION> 5,426
<TOTAL-ASSETS> 12,404
<CURRENT-LIABILITIES> 5,049
<BONDS> 3,403
0
0
<COMMON> 0
<OTHER-SE> 304
<TOTAL-LIABILITY-AND-EQUITY> 12,404
<SALES> 0
<TOTAL-REVENUES> 7,124
<CGS> 0
<TOTAL-COSTS> 6,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 228
<INCOME-TAX> 91
<INCOME-CONTINUING> 137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
