<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-90657
Prospectus Supplement to Prospectus dated July 19, 2000
$801,236,000
[UAL LOGO] United Airlines
Pass Through Certificates, Series 2000-1
----------------
This prospectus supplement relates to new pass through certificates to be
issued by three separate pass through trusts formed by United Air Lines, Inc.
Each pass through certificate will represent an interest in a pass through
trust. The pass through certificates do not represent interests in or
obligations of United or any of its affiliates. The pass through trustee of
each pass through trust will use the proceeds of the sale of the pass through
certificates to acquire the following trust property:
. 747 leased equipment notes issued by an owner trustee for one Boeing
747-422 aircraft leased to United in a leveraged lease transaction;
. notes issued by AFE Trust, a special purpose Delaware business trust,
secured by 757 leased equipment notes issued by an owner trustee for six
Boeing 757-222 aircraft leased to United in six separate leveraged lease
transactions and having the benefit of secured swap transactions
provided by United; and
. owned equipment notes issued by United to refinance all or a portion of
the purchase price of 13 aircraft owned by United.
The pass through trustee will distribute to the holders of pass through
certificates the interest paid on the 747 leased equipment notes, AFE Trust
notes and owned equipment notes held in the related pass through trust on
January 1 and July 1 of each year, beginning on January 1, 2001. The pass
through trustee will distribute the principal paid on the 747 leased equipment
notes, AFE Trust notes and owned equipment notes in scheduled amounts and on
dates specified in this prospectus supplement. We will not list the pass
through certificates on any national securities exchange. The Class A-1 and
Class A-2 pass through certificates will rank equally in right of distributions
and will rank senior to the other pass through certificates. The Class B pass
through certificates will rank junior to the Class A-1 and Class A-2 pass
through certificates.
Landesbank Hessen-Thuringen Girozentrale will provide a separate liquidity
facility for each class of pass through certificates offered under this
prospectus supplement, in each case in an amount sufficient to make three
semiannual interest payments.
See "Risk Factors" on page S-19 to read about factors that you should
consider before buying these pass through certificates.
----------------
<TABLE>
<CAPTION>
Final Expected Price
Interest Distribution to
Pass Through Certificates Face Amount Rate Date Public
------------------------- ------------ -------- --------------- ------
<S> <C> <C> <C> <C>
Class A-1.......................... $275,599,000 7.783% January 1, 2014 100%
Class A-2.......................... 325,328,000 7.730 July 1, 2010 100
Class B............................ 200,309,000 8.030 July 1, 2011 100
</TABLE>
The Class C-1 and Class C-2 pass through trusts will also issue Class C-1
and Class C-2 pass through certificates, respectively, which United is not
offering under this prospectus supplement.
The aggregate proceeds from the sale of the pass through certificates will
be $801,236,000. United will pay the underwriters a commission of $5,208,034.
The underwriters expect to deliver the pass through certificates in book-entry
form only through the facilities of The Depository Trust Company against
payment in New York, New York on July 31, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
Joint Bookrunners
Goldman, Sachs & Co. MORGAN STANLEY DEAN WITTER
Co-Managers
Banc One Capital Markets, Inc. Credit Suisse First Boston Salomon Smith Barney
Prospectus Supplement dated July 20, 2000.
<PAGE>
PRESENTATION OF INFORMATION
These offering materials consist of two documents: (1) this prospectus
supplement, which describes the terms of the pass through certificates that we
are currently offering, and (2) the accompanying prospectus, which provides
general information about our pass through certificates, some of which may not
apply to the pass through certificates that we are currently offering. The
information in this prospectus supplement replaces any inconsistent information
included in the accompanying prospectus.
We have given specified terms specific meanings for purposes of this
prospectus supplement. The "Glossary" attached as Appendix I to this prospectus
supplement defines each of these terms.
At varying places in this prospectus supplement and the prospectus, we refer
you to other sections of the documents for additional information by indicating
the caption heading of the other sections. The page on which each principal
caption included in this prospectus supplement and the prospectus can be found
is listed in the Table of Contents below. All cross references in this
prospectus supplement are to captions contained in this prospectus supplement
and not in the prospectus, unless otherwise stated.
This prospectus supplement and the accompanying prospectus include "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent United's expectations or beliefs concerning future
events. When used in this prospectus supplement and the accompanying
prospectus, the words "expects," "plans," "anticipates," and similar
expressions are intended to identify forward-looking statements. All forward-
looking statements in this prospectus supplement are based upon information
available to us on the date of this prospectus supplement. We undertake no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. Forward-looking
statements are subject to a number of factors that could cause actual results
to differ materially from our expectations. Additional information concerning
these and other factors is contained in our SEC filings, including our Form 10-
K for the fiscal year ended December 31, 1999, our Form 10-Q for the fiscal
quarter ended March 31, 2000 and our Current Reports on Form 8-K filed on May
26, 2000 and July 19, 2000, and the Current Reports of UAL Corporation on
Form 8-K filed on May 31, 2000 and on Form 8-K/A filed on June 21, 2000.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT SUMMARY.............................................. S-4
RISK FACTORS............................................................... S-19
THE COMPANY................................................................ S-24
RECENT DEVELOPMENTS........................................................ S-24
RATIO OF EARNINGS TO FIXED CHARGES......................................... S-24
SELECTED FINANCIAL DATA.................................................... S-25
USE OF PROCEEDS............................................................ S-26
DESCRIPTION OF THE PASS THROUGH CERTIFICATES............................... S-27
DESCRIPTION OF THE LIQUIDITY FACILITIES.................................... S-43
DESCRIPTION OF THE INTERCREDITOR AGREEMENT................................. S-48
DESCRIPTION OF THE AFE TRUST NOTES......................................... S-53
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS............................. S-58
DESCRIPTION OF THE EQUIPMENT NOTES......................................... S-60
DESCRIPTION OF THE SECURED SWAP TRANSACTIONS............................... S-83
FEDERAL INCOME TAX CONSEQUENCES............................................ S-85
CONNECTICUT TAXES.......................................................... S-89
ERISA CONSIDERATIONS....................................................... S-90
UNDERWRITING............................................................... S-93
LEGAL MATTERS.............................................................. S-94
EXPERTS.................................................................... S-94
INCORPORATION OF INFORMATION UNITED FILES WITH THE SEC..................... S-95
APPENDIX I: GLOSSARY....................................................... I-1
APPENDIX II: APPRAISAL LETTERS............................................. II-1
</TABLE>
<TABLE>
<S> <C>
APPENDIX III: 757 LEASED EQUIPMENT NOTES PRINCIPAL PAYMENT............... III-1
APPENDIX IV: 747 LEASED EQUIPMENT NOTE PRINCIPAL PAYMENTS, AFE TRUST NOTE
PRINCIPAL PAYMENTS AND OWNED EQUIPMENT NOTE PRINCIPAL PAYMENTS.......... IV-1
APPENDIX V: LOAN TO VALUE RATIOS OF EQUIPMENT NOTES...................... V-1
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
ABOUT THIS PROSPECTUS....................................................... 2
WHERE YOU CAN FIND MORE INFORMATION......................................... 2
INCORPORATION OF INFORMATION UNITED FILES WITH THE SEC...................... 2
REPORTS TO PASS THROUGH CERTIFICATEHOLDERS.................................. 3
THE COMPANY................................................................. 3
OUTLINE OF PASS THROUGH TRUST STRUCTURE..................................... 4
USE OF PROCEEDS............................................................. 4
FLOW OF PAYMENTS............................................................ 5
DESCRIPTION OF THE CERTIFICATES............................................. 6
DESCRIPTION OF THE EQUIPMENT NOTES.......................................... 22
FEDERAL INCOME TAX CONSEQUENCES............................................. 27
ERISA CONSIDERATIONS........................................................ 29
PLAN OF DISTRIBUTION........................................................ 30
LEGAL MATTERS............................................................... 31
EXPERTS..................................................................... 31
</TABLE>
----------------
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus and the documents incorporated by
reference in this prospectus supplement and the prospectus or to which we have
referred you. We have not authorized anyone to provide you with information
that is different. If anyone provides you with different or inconsistent
information, you should not rely on it. This document may be used only where it
is legal to sell these securities. You should not assume that the information
in this prospectus supplement and the accompanying prospectus is accurate as of
any date other than the date of this prospectus supplement. Also, you should
not assume that there has been no change in the affairs of United since the
date of this prospectus supplement.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements appearing elsewhere
in this prospectus supplement and accompanying prospectus, as well as the
materials filed with the SEC that are considered to be part of the prospectus.
Unless otherwise indicated, "we," "us," "our" and similar terms as well as
references to "United" refer to United Air Lines, Inc.
SUMMARY OF TERMS OF PASS THROUGH CERTIFICATES
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class B Class C-1 Class C-2
Certificates Certificates Certificates Certificates Certificates
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Aggregate Face Amount... $275,599,000 $325,328,000 $200,309,000 $33,130,000 $86,401,000
Ratings:
Moody's................ Aa2 Aa2 A1 NR NR
Standard & Poor's...... AAA AAA AA- NR NR
Initial Loan to Aircraft
Value Ratio
(cumulative)........... 45.0% 45.0% 60.0% 69.0% 69.0%
Expected Principal
Distribution Window
(in years)............. 0.4-13.4 9.9 0.4-10.9 0.9-7.4 7.4-13.4
Initial Average Life (in
years)................. 6.6 9.9 8.7 5.5 10.5
Regular Distribution January 1 and January 1 and January 1 and January 1 and January 1 and
Dates.................. July 1 July 1 July 1 July 1 July 1
Final Expected Regular
Distribution Date...... January 1, 2014 July 1, 2010 July 1, 2011 January 1, 2008 January 1, 2014
Final Maturity Date..... July 1, 2015 January 1, 2012 January 1, 2013 January 1, 2008 January 1, 2014
Minimum Denomination.... $1,000 $1,000 $1,000 $1,000 $1,000
Section 1110
Protection............. Yes Yes Yes Yes Yes
Liquidity Facility 3 semiannual 3 semiannual 3 semiannual None None
Coverage............... interest interest interest
payments payments payments
</TABLE>
In calculating the initial loan to aircraft value ratios, we assumed an
aggregate appraised aircraft value of $1,335,396,667. The aggregate appraised
value is only an estimate and reflects assumptions that are described in
"Description of the Aircraft and the Appraisals--The Appraisals." The
protections of Section 1110 of the U.S. Bankruptcy Code indicated above are
available to each equipment note indenture trustee as secured party under the
related owned aircraft indenture and as assignee of the related owner trustee's
rights under the related lease. In the case of the leased Boeing 757-222
aircraft, AFE Trust will assign its rights under the related leased aircraft
indenture to the indenture trustee for AFE Trust.
The Class C-1 pass through trustee and the Class C-2 pass through trustee
will issue the Class C-1 pass through certificates and the Class C-2 pass
through certificates, respectively, in a private placement concurrently with
the issuance of the other classes of pass through certificates. We are not
offering the Class C-1 pass through certificates or the Class C-2 pass through
certificates under this prospectus supplement.
S-4
<PAGE>
EQUIPMENT NOTES AND THE AIRCRAFT
The pass through trusts will hold secured equipment notes issued by the
owner trustee related to one Boeing 747-422 aircraft leased to United, secured
notes issued by AFE Trust related to six Boeing 757-222 aircraft leased to
United and secured equipment notes issued by United related to 13 aircraft
owned by United. In the case of the Boeing 747-422 leased aircraft, the related
owner trustee will issue non-recourse leased equipment notes for that aircraft.
In the case of the leased Boeing 757-222 aircraft, the related owner trustee
has issued a non-recourse leased equipment note for each aircraft, which
equipment notes will be purchased by AFE Trust. AFE Trust is a special purpose
Delaware business trust not owned by or affiliated with United. In the case of
the owned aircraft, United will issue full recourse owned equipment notes for
each of six Airbus A320-232 aircraft, one Boeing 757-222 aircraft, two Boeing
767-322ER aircraft and four Boeing 777-222ER aircraft. All of the aircraft have
been delivered to, and are being operated by, United. The applicable equipment
note indenture trustees have secured or will secure the owned equipment notes
or leased equipment note(s) issued for each aircraft with a security interest
in that aircraft and, in the case of a leased equipment note, with an
assignment of the related lease. AFE Trust will secure the notes issued by it
with a security interest in the 757 leased equipment notes and in AFE Trust's
rights under the secured swap transactions provided by United. Set forth below
is information about the aircraft and the owned equipment notes or leased
equipment note(s), as applicable, for that aircraft.
<TABLE>
<CAPTION>
Initial
Latest Outstanding
Aircraft Registration Aircraft Delivery Equipment Note Principal Appraised
Number Aircraft Type Month Maturity Date Amount Value
--------------------- ---------------- ----------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
N454UA.................. Airbus A320-232 November 1999 July 1, 2011 $29,085,625 $43,606,667
N455UA.................. Airbus A320-232 November 1999 July 1, 2011 29,087,848 43,610,000
N456UA.................. Airbus A320-232 December 1999 July 1, 2011 29,143,432 43,693,333
N457UA.................. Airbus A320-232 January 2000 July 1, 2011 29,501,388 44,230,000
N458UA.................. Airbus A320-232 February 2000 July 1, 2011 29,501,388 44,230,000
N459UA.................. Airbus A320-232 April 2000 July 1, 2011 29,728,168 44,570,000
N171UA.................. Boeing 747-422 June 1989 January 1, 2014 77,485,240 89,010,000
N567UA.................. Boeing 757-222 November 1992 July 1, 2011 29,008,498 39,226,667
N568UA.................. Boeing 757-222 November 1992 July 1, 2011 29,008,498 39,226,667
N569UA.................. Boeing 757-222 November 1992 July 1, 2011 29,008,498 39,226,667
N570UA.................. Boeing 757-222 November 1992 July 1, 2011 29,008,498 39,226,667
N571UA.................. Boeing 757-222 December 1992 July 1, 2011 29,098,597 39,280,000
N572UA.................. Boeing 757-222 December 1992 July 1, 2011 29,098,597 39,280,000
N596UA.................. Boeing 757-222 March 1998 July 1, 2011 34,706,208 52,033,333
N673UA.................. Boeing 767-322ER January 2000 July 1, 2011 56,939,524 85,366,667
N674UA.................. Boeing 767-322ER April 2000 July 1, 2011 57,257,461 85,843,333
N207UA.................. Boeing 777-222ER July 1999 July 1, 2011 86,403,116 129,540,000
N208UA.................. Boeing 777-222ER November 1999 July 1, 2011 87,130,145 130,630,000
N209UA.................. Boeing 777-222ER December 1999 July 1, 2011 87,250,205 130,810,000
N210UA.................. Boeing 777-222ER January 2000 July 1, 2011 88,546,069 132,756,667
</TABLE>
The appraised value of each aircraft provided above is based on the lesser
of the average and the median base value of the aircraft as appraised by three
independent appraisal and consulting firms, AvSolutions Inc., Aircraft
Information Services, Inc. and Morten Beyer & Agnew, Inc., each as of June 22,
2000. The appraisers based the appraisals on varying assumptions and
methodologies. An appraisal is only an estimate of value and you should not
rely on any appraisal as an estimate of realizable value.
S-5
<PAGE>
LOAN TO AIRCRAFT VALUE RATIOS
The following table provides loan to aircraft value ratios--also referred to
as LTV ratios--for each class of pass through certificates as of the issuance
date of the pass through certificates and as of each January 1 and July 1
regular distribution date. The table is not a forecast or prediction of
expected or likely LTV ratios but a mathematical calculation based on one set
of assumptions.
We compiled the following table on an aggregate basis. However, the owned
equipment notes or leased equipment note(s) issued for each aircraft are
secured by one aircraft and will not be secured by any other aircraft. This
means that any excess proceeds realized from the sale of an aircraft or other
exercise of default remedies will not be available to cover any shortfalls on
the owned equipment notes or leased equipment note(s), as the case may be, for
any other aircraft. Appendix V to this prospectus supplement sets forth LTV
ratios for the owned equipment notes and leased equipment note(s) issued for
individual aircraft, which should also be considered. The holders of the pass
through trust certificates will, however, benefit from cross-subordination of
the 747 leased equipment notes, AFE Trust notes and the owned equipment notes
issued for each aircraft. We will also secure the AFE Trust notes with all of
the 757 leased equipment notes so that we can apply the proceeds realized from
the sale or other exercise of remedies in respect of any leased Boeing 757-222
aircraft to the payment of all of the AFE Trust notes prior to the distribution
of any of these proceeds to the beneficial owners of AFE Trust.
<TABLE>
<CAPTION>
Assumed Class A-1 Class A-2 Class B Class C-1 Class C-2
Aggregate Certificates Certificates Certificates Certificates Certificates
Date Aircraft Value Pool Balance Pool Balance Pool Balance Pool Balance Pool Balance
---- -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
July 31, 2000........... $1,335,396,667 $275,599,000 $325,328,000 $200,309,000 $33,130,000 $86,401,000
January 1, 2001......... 1,299,940,056 259,644,368 325,328,000 194,991,008 33,130,000 86,401,000
July 1, 2001............ 1,288,155,934 252,679,305 325,328,000 192,963,526 33,125,332 86,401,000
January 1, 2002......... 1,256,585,523 240,134,828 325,328,000 188,487,829 33,125,332 86,401,000
July 1, 2002............ 1,244,801,401 233,244,336 325,328,000 186,368,447 33,125,332 86,401,000
January 1, 2003......... 1,213,230,991 220,625,288 325,328,000 181,984,649 33,125,332 86,401,000
July 1, 2003............ 1,201,446,868 215,322,433 325,328,000 180,217,030 28,163,722 86,401,000
January 1, 2004......... 1,169,876,458 200,661,016 325,328,000 175,474,007 25,620,473 86,401,000
July 1, 2004............ 1,158,092,335 195,812,893 325,328,000 173,713,850 25,546,945 86,401,000
January 1, 2005......... 1,126,521,925 181,003,584 325,328,000 168,827,878 20,777,311 86,401,000
July 1, 2005............ 1,113,409,295 175,705,525 325,328,000 167,011,394 20,719,111 86,401,000
January 1, 2006......... 1,081,838,885 160,896,293 325,328,000 162,074,984 15,803,534 86,401,000
July 1, 2006............ 1,068,726,255 155,598,157 325,328,000 160,308,938 15,745,334 86,401,000
January 1, 2007......... 1,037,155,844 140,789,008 325,328,000 155,372,555 8,165,335 86,401,000
July 1, 2007............ 1,024,043,214 135,490,789 325,328,000 153,606,482 8,107,135 86,401,000
January 1, 2008......... 992,472,804 120,681,729 325,328,000 148,022,658 0 85,232,800
July 1, 2008............ 979,360,174 115,383,421 325,328,000 146,904,026 0 84,830,005
January 1, 2009......... 944,809,173 99,233,191 325,328,000 131,282,288 0 66,136,642
July 1, 2009............ 931,696,543 93,934,787 325,328,000 131,168,627 0 65,733,847
January 1, 2010......... 897,145,542 70,377,107 325,328,000 113,689,603 0 64,565,085
July 1, 2010............ 882,704,405 70,377,107 0 112,441,827 0 64,162,290
January 1, 2011......... 848,153,403 31,820,819 0 108,821,245 0 62,993,529
July 1, 2011............ 33,212,687 4,300,000 0 0 0 16,663,281
January 1, 2012......... 33,212,687 2,400,000 0 0 0 10,553,307
July 1, 2012............ 26,570,149 2,400,000 0 0 0 10,553,307
January 1, 2013......... 26,570,149 1,400,000 0 0 0 9,965
July 1, 2013............ 19,927,612 1,400,000 0 0 0 9,965
January 1, 2014......... 0 0 0 0 0 0
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class B Class C-1 Class C-2
Certificates Certificates Certificates Certificates Certificates
Date LTV LTV LTV LTV LTV
---- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
July 31, 2000........... 45.0% 45.0% 60.0% 69.0% 69.0%
January 1, 2001......... 45.0 45.0 60.0 69.2 69.2
July 1, 2001............ 44.9 44.9 59.9 69.1 69.1
January 1, 2002......... 45.0 45.0 60.0 69.5 69.5
July 1, 2002............ 44.9 44.9 59.8 69.4 69.4
January 1, 2003......... 45.0 45.0 60.0 69.9 69.9
July 1, 2003............ 45.0 45.0 60.0 69.5 69.5
January 1, 2004......... 45.0 45.0 60.0 69.5 69.5
July 1, 2004............ 45.0 45.0 60.0 69.7 69.7
January 1, 2005......... 44.9 44.9 59.9 69.4 69.4
July 1, 2005............ 45.0 45.0 60.0 69.6 69.6
January 1, 2006......... 44.9 44.9 59.9 69.4 69.4
July 1, 2006............ 45.0 45.0 60.0 69.6 69.6
January 1, 2007......... 44.9 44.9 59.9 69.0 69.0
July 1, 2007............ 45.0 45.0 60.0 69.2 69.2
January 1, 2008......... 44.9 44.9 59.9 NA 68.4
July 1, 2008............ 45.0 45.0 60.0 NA 68.7
January 1, 2009......... 44.9 44.9 58.8 NA 65.8
July 1, 2009............ 45.0 45.0 59.1 NA 66.1
January 1, 2010......... 44.1 44.1 56.8 NA 64.0
July 1, 2010............ 8.0 NA 20.7 NA 28.0
January 1, 2011......... 3.8 NA 16.6 NA 24.0
July 1, 2011............ 12.9 NA NA NA 63.1
January 1, 2012......... 7.2 NA NA NA 39.0
July 1, 2012............ 9.0 NA NA NA 48.8
January 1, 2013......... 5.3 NA NA NA 5.3
July 1, 2013............ 7.0 NA NA NA 7.1
January 1, 2014......... NA NA NA NA NA
</TABLE>
In calculating the assumed aggregate aircraft values above, we assumed that
the initial appraised base value of each aircraft declines by approximately 3%
each year for the first 15 years after the year of delivery of the aircraft, by
approximately 4% each year for the next five years, and by approximately 5%
each year after that. Other rates or methods of depreciation may result in
materially different LTV ratios. We cannot assure you that the depreciation
rate and method assumed for purposes of the table are the ones most likely to
occur nor can we predict the actual future value of any aircraft.
The pool balance for each class of pass through certificates indicates, as
of any date, the portion of the original face amount of that class of pass
through certificates that has not been distributed to the certificateholders.
We obtained the LTV ratios for each class of certificates for each regular
distribution date by dividing (1) the expected outstanding pool balance of that
class together with the expected outstanding pool balance of all other classes
equal or senior in right of payment to that class after giving effect to the
distributions expected to be made on that date, by (2) the assumed value of all
of the aircraft on that regular distribution date based on the assumptions
above.
S-7
<PAGE>
[CASH FLOW STRUCTURE CHART]
S-8
<PAGE>
THE OFFERING
Pass Through Trusts..... United and State Street Bank and Trust Company of
Connecticut, National Association, as pass through
trustee, will form five pass through trusts under
five separate trust supplements to a basic pass
through trust agreement between United and the pass
through trustee.
Certificates Offered....
.Class A-1 pass through certificates
.Class A-2 pass through certificates
.Class B pass through certificates
The Class C-1 and Class C-2 pass through trusts will
also issue Class C-1 and Class C-2 pass through
certificates, respectively. We are not offering the
Class C-1 and Class C-2 pass through certificates
under this prospectus supplement, but will privately
place the Class C-1 and Class C-2 pass through
certificates with an affiliate of United. Each class
of pass through certificates will represent 100% of
the fractional undivided interests in the
corresponding pass through trust.
AFE Trust............... AFE Trust is a Delaware business trust formed to
acquire leased equipment notes issued for six Boeing
757-222 aircraft leased to United under existing
leveraged leases. AFE Trust will in turn issue the
AFE Trust notes secured by those 757 leased equipment
notes and by AFE Trust's rights under the secured
swap transactions provided by United. AFE Trust will
also issue AFE Trust certificates representing 100%
of the beneficial interests in AFE Trust. These AFE
Trust certificates are not being offered under this
prospectus supplement, but will be privately placed
with institutional investors.
Use of Proceeds......... The proceeds from the sale of the pass through
certificates of each pass through trust will be used
by the respective pass through trustee to acquire:
<TABLE>
<S> <C>
Class
A-1
pass Series A-1 747 leased equipment note
through Series A-1 AFE Trust note
trust Series A-1 owned equipment notes
Class
A-2
pass
through Series A-2 AFE Trust note
trust Series A-2 owned equipment notes
Class B Series B 747 leased equipment note
pass
through Series B AFE Trust note
trust Series B owned equipment notes
Class
C-1
pass
through
trust Series C-1 AFE Trust note
Class
C-2
pass Series C-2 747 leased equipment note
through Series C-2 owned equipment
trust notes
</TABLE>
The 747 leased equipment notes will be non-recourse
obligations of the related owner trustee for one
leased Boeing 747-422 aircraft secured by, among
other things, the related Boeing 747-422 aircraft and
an
S-9
<PAGE>
assignment of the lease of that aircraft to United.
The AFE Trust notes will be non-recourse obligations
of AFE Trust, secured by the 757 leased equipment
notes issued by the related owner trustee for six
leased Boeing 757-222 aircraft. Each 757 leased
equipment note is secured by, among other things, the
related leased Boeing 757-222 aircraft and an
assignment of the lease of that aircraft to United.
United will make rent payments under each lease
sufficient to make scheduled payments of principal
and interest on the related leased equipment note(s).
The leased equipment notes will not, however, be
obligations of, or guaranteed by, United. The AFE
Trust notes will be secured further by the rights of
AFE Trust under the secured swap transactions with
United described below. United will secure its
obligations as swap provider under each secured swap
confirmation with a security interest in an owned
aircraft, a portion of that secured obligation being
senior in right of payment and collateral security to
the Series A-1, Series A-2, Series B and Series C-2
owned equipment notes. The owned equipment notes
issued by United for the owned aircraft and United's
secured swap obligations will be full recourse
obligations of United.
United, in the case of owned aircraft, will issue the
owned equipment notes, and the applicable owner
trustee, in the case of leased aircraft, has issued
the leased equipment note(s) under 20 separate
indentures. The owner trustee for the 747 leased
aircraft will use the proceeds from the issuance of
the 747 leased equipment notes to refinance the
acquisition of the Boeing 747 leased aircraft. AFE
Trust will use the proceeds from issuance of the AFE
Trust notes and the AFE Trust certificates to acquire
the 757 leased equipment notes. United will use the
proceeds from the issuance of the owned equipment
notes to refinance its acquisition of the aircraft
that are providing security for the owned equipment
notes.
Secured Swap Interest on the 757 leased equipment notes is
Transactions............ calculated on a floating rate basis. Interest on the
Series C-1 AFE Trust note is also calculated on a
floating rate basis. However, interest on the Series
A-1, Series A-2 and Series B AFE Trust notes and the
AFE Trust certificates is calculated on a fixed rate
basis. Accordingly, AFE Trust will enter into 13
secured swap transactions with United as the swap
provider to hedge against fluctuations in payments of
interest due on the leased equipment notes.
The notional amount of the secured swap transactions
for each series of AFE Trust notes and the AFE Trust
certificates as of any date equals the then
outstanding principal amount of the Series A-1,
Series A-2 and Series B AFE Trust notes plus the
outstanding certificate balance of the AFE Trust
certificates. On each regular distribution date,
either United as swap provider or AFE Trust as swap
counterparty will pay the swap payment amounts
described under the heading "Description of the
Secured Swap Transactions."
United as swap provider will secure its obligations
to make its payments to AFE Trust for any secured
swap transaction with a security interest in an owned
aircraft. Thus, AFE Trust will have the benefit of
the security interests under the owned aircraft
indentures and will have a claim on the
S-10
<PAGE>
collateral under those indentures that, in part, is
senior in right of payment and collateral security to
principal and interest on the related owned equipment
notes.
Following any redemption of a 757 leased equipment
note, there will be a reduction in the aggregate
notional amount and termination values of the secured
swap transactions, which reduction will be made
proportionately to the confirmations evidencing such
secured swap transactions. If all of the 757 leased
equipment notes are redeemed, all of the secured swap
transactions will terminate.
Subordination Agent,
Pass Through Trustee
and Indenture Trustee...
State Street Bank and Trust Company of Connecticut,
National Association
Liquidity Provider...... Landesbank Hessen-Thuringen Girozentrale
Trust Property.......... The property of each pass through trust will include:
. For the Class A-1 pass through trust, the Series
A-1 AFE Trust note, the Series A-1 747 leased
equipment note and Series A-1 owned equipment
notes.
. For the Class A-2 pass through trust, the Series
A-2 AFE Trust note and Series A-2 owned equipment
notes.
. For the Class B pass through trust, the Series B
AFE Trust note, the Series B 747 leased equipment
note and Series B owned equipment notes.
. For the Class C-1 pass through trust, the Series
C-1 AFE Trust note.
. For the Class C-2 pass through trust, the Series
C-2 747 leased equipment note and the Series C-2
owned equipment notes.
. All rights of the pass through trust under the
intercreditor agreement described below.
. For each of the Class A-1, Class A-2 and Class B
pass through trusts, all monies receivable under
the liquidity facility for that pass through
trust.
. Funds from time to time deposited with the pass
through trustee in accounts for the pass through
trust.
Regular Distribution
Dates................... January 1 and July 1, commencing on January 1, 2001.
Record Dates............ The fifteenth day preceding each distribution date.
Distributions........... The pass through trustee will distribute all payments
of principal, make-whole amount, if any, and interest
received on the 747 leased equipment note, AFE Trust
note and/or owned equipment notes held in each pass
through trust to the holders of the pass through
certificates of that pass
S-11
<PAGE>
through trust. Distributions will be subject to the
subordination provisions applicable to the pass
through certificates.
The pass through trustee will distribute scheduled
payments of principal and interest made on the 747
leased equipment note, the AFE Trust note and/or
owned equipment notes held by each pass through trust
on the regular distribution dates. The pass through
trustee will distribute payments of principal, make-
whole amount or break amount, if any, and interest
made on any 747 leased equipment notes, AFE Trust
notes or owned equipment notes resulting from any
early redemption of any 747 leased equipment notes,
AFE Trust notes or owned equipment notes on a special
distribution date after not less than 15 days' notice
to the holders of pass through certificates.
Intercreditor The pass through trustees, the liquidity provider and
Agreement............... the subordination agent will enter into the
intercreditor agreement. The intercreditor agreement
states how the subordination agent will distribute
payments made on the 747 leased equipment notes, AFE
Trust notes and owned equipment notes and the
liquidity facilities among the pass through trusts
and the liquidity provider. The intercreditor
agreement also sets forth agreements among the pass
through trustees and the liquidity provider relating
to who will control the exercise of remedies under
the AFE Trust notes, the secured swap transactions,
the owned equipment notes, the leased equipment notes
and the related indentures and leases.
Subordination...........
Under the intercreditor agreement, after the
liquidity provider is reimbursed, if necessary, and
other specified fees and expenses are paid, the
subordination agent will generally make distributions
on the pass through certificates in the following
order:
. First, to the holders of the Class A-1 and Class
A-2 pass through certificates;
. Second, to the holders of the Class B pass through
certificates; and
. Third, to the holders of the Class C-1 and Class
C-2 pass through certificates.
However, if United is in bankruptcy or other
specified defaults have occurred but United is
continuing to meet specified payment obligations, the
subordination provisions applicable to the pass
through certificates permit distributions to be made
on junior pass through certificates prior to making
distributions in full on the more senior pass through
certificates.
Control of Indenture The holders of at least a majority of the outstanding
Trustee................. principal amount of owned equipment notes issued
under each owned aircraft indenture and the holders
of at least a majority of the outstanding principal
amount of 747 leased equipment notes issued under the
747 leased aircraft indenture will be entitled to
direct the indenture trustee under that indenture in
taking action so long as no indenture event of
default is continuing under
S-12
<PAGE>
that indenture, except for specified actions that
require the unanimous consent of the holders of these
notes. Likewise, the holders of at least a majority
of the outstanding principal amount of the AFE Trust
notes issued under the AFE Trust indenture will be
entitled to direct the indenture trustee under the
AFE Trust indenture in taking action under that
indenture (including in respect of the 757 leased
equipment notes) or under the secured swap
transactions so long as no indenture event of default
is continuing under the AFE Trust indenture, except
for specified actions that require the unanimous
consent of the holders of the AFE Trust notes. If an
indenture event of default is continuing under any
indenture, subject to specified conditions, the
controlling party will direct the indenture trustee
in taking action under that indenture, whether an
owned aircraft indenture, the 747 leased aircraft
indenture or the AFE Trust indenture (including in
respect of the 757 leased equipment notes or under
the secured swap transactions). The controlling party
will direct the indenture trustee directly, in the
case of an owned aircraft or the leased Boeing 747-
422 aircraft and through the exercise of the rights
of AFE Trust, in the case of a leased Boeing 757-222
aircraft and a secured swap transaction. The remedies
that may be exercised under each indenture include
accelerating the relevant owned equipment notes or
leased equipment note(s), as applicable, or
foreclosing the lien on the aircraft securing those
owned equipment notes, leased equipment note(s) or
(if a default exists under it) terminating the
related secured swap transaction.
The controlling party will be:
. The Class A-1 pass through trustee or the Class A-
2 pass through trustee, whichever represents the
class with the larger pool balance of pass through
certificates outstanding at the time the indenture
event of default occurs.
. Upon payment of the final distribution to the
holders of the Class A-1 or Class A-2 pass through
certificates, the other of the Class A-1 pass
through trustee or the Class A-2 pass through
trustee.
. Upon payment of the final distribution to the
holders of Class A-1 and Class A-2 pass through
certificates, the Class B pass through trustee.
. Upon payment of the final distribution to the
holders of the Class A-1, Class A-2 and Class B
pass through certificates, the Class C-1 pass
through trustee or the Class C-2 pass through
trustee, whichever represents the class with the
larger pool balance of pass through certificates
outstanding at the time.
. Upon payment of the final distribution to the
holders of the Class A-1, Class A-2, Class B and
the Class C-1 or Class C-2 pass through
certificates, the other of the Class C-1 pass
through trustee or the Class C-2 pass through
trustee.
. Under specified circumstances, the liquidity
provider with the largest amount of unreimbursed
liquidity obligations under the liquidity
facilities.
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<PAGE>
In exercising remedies during the nine months after
the earliest of: (1) the acceleration of the owned
equipment notes or leased equipment note(s) issued
under any indenture; (2) the termination of a
confirmation to the secured swap transaction secured
by an owned aircraft as a result of an indenture
event of default under the related owned aircraft
indenture; and (3) the bankruptcy of United, the
controlling party may not sell the related owned
equipment notes or leased equipment note(s), as
applicable, or the aircraft subject to the lien of
that indenture for less than specified minimums. In
addition, in exercising remedies during the nine-
month period following the acceleration of the AFE
Trust notes, the controlling party may not sell the
AFE Trust notes for less than specified minimums.
Rights to Buy Other
Classes of
Certificates............ If United is in bankruptcy or other specified events
have occurred, certificateholders may buy other
classes of pass through certificates on the basis
described below. In each case, the purchaser must
purchase all, but not less than all, of the other
class or classes of pass through certificates. The
purchase price in each case will be the outstanding
balance of the class of pass through certificates
being purchased, plus accrued and undistributed
interest.
. If the Class A-1 or Class A-2 certificateholders
are then represented by the controlling party, the
certificateholders of the class that is not so
represented may purchase all of the pass through
certificates of the class that is so represented.
. The Class B certificateholders may purchase all of
the Class A-1 and Class A-2 pass through
certificates.
. Of the Class C-1 and Class C-2 certificateholders,
the certificateholders of the class with the
larger pool balance, so long as neither United nor
any of its affiliates is a holder of that class,
may purchase all of the Class A-1, Class A-2 and
Class B pass through certificates.
. Of the Class C-1 or Class C-2 certificateholders,
the certificateholders of the class that has the
smaller pool balance, so long as neither United
nor any of its affiliates is a holder of that
class, may purchase all of the pass through
certificates of the class that has the larger pool
balance and the Class A-1, Class A-2 and Class B
pass through certificates.
Liquidity Facilities.... Under the liquidity facility for each of the Class A-
1, Class A-2 and Class B pass through trusts, the
liquidity provider will, if necessary, make advances
in an aggregate amount sufficient to pay interest on
the applicable class of pass through certificates on
up to three successive semiannual regular
distribution dates at the interest rate for those
pass through certificates. The liquidity facilities
cannot be used to pay any other amount in respect of
the pass through certificates.
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<PAGE>
Despite the subordination provisions applicable to
the pass through certificates, the holders of the
pass through certificates issued by each pass through
trust supported by a liquidity facility will be
entitled to receive and retain the proceeds of
drawings under that liquidity facility.
Upon each drawing under any liquidity facility to pay
interest on any of the pass through certificates, the
subordination agent must reimburse the applicable
liquidity provider for the amount of that drawing,
together with interest on the drawing. This
reimbursement obligation and all interest, fees and
other amounts owing to the liquidity provider under
each liquidity facility will rank senior to all of
the pass through certificates in right of payment.
AFE Trust Notes and Equipment Notes
(a) Issuer.............. Under the 747 leased aircraft indenture, the related
owner trustee will issue Series A-1, Series B and
Series C-2 747 leased equipment notes that will be
acquired, respectively, by the Class A-1, Class B and
Class C-2 pass through trusts. Under each 757 leased
aircraft indenture, the related owner trustee has
issued a 757 leased equipment note that AFE Trust
will acquire. AFE Trust will in turn issue Series A-
1, Series A-2, Series B and Series C-1 AFE Trust
notes that will be acquired, respectively, by the
Class A-1, Class A-2, Class B and Class C-1 pass
through trusts. Under each owned aircraft indenture,
United will issue Series A-1, Series A-2, Series B
and Series C-2 owned equipment notes, which will be
acquired, respectively, by the Class A-1, Class A-2,
Class B and Class C-2 pass through trusts.
(b) Interest............
The 747 leased equipment notes, AFE Trust notes and
owned equipment notes held in the Class A-1, Class A-
2 and Class B pass through trusts will accrue
interest at the rate per annum indicated on the cover
page of this prospectus supplement. The Series C-1
AFE Trust notes will accrue interest at a floating
rate. The Series C-2 747 leased equipment note and
the Series C-2 owned equipment notes will accrue
interest at a fixed rate. Interest on the 747 leased
equipment notes, AFE Trust notes and owned equipment
notes will be payable on January 1 and July 1 of each
year, commencing on January 1, 2001. Interest on the
757 leased equipment notes is payable on January 1
and July 1 of each year, which payments commenced on
July 1, 1993. Interest on the Series A-1 and Series B
747 leased equipment notes, AFE Trust notes (other
than the Series C-1 AFE Trust note) and the owned
equipment notes will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
Interest on the Series C-1 AFE Trust note and the 757
leased equipment notes will be calculated on the
basis of a 360-day year and the actual number of days
in the period that interest accrues.
(c) Principal........... Amortizing Notes. Principal payments on the 747
leased equipment notes, AFE Trust notes and owned
equipment notes are scheduled to be
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<PAGE>
received in specified amounts on January 1 or July 1
or both in specified years, commencing on January 1,
2001 and ending on the date specified for each series
below:
<TABLE>
<CAPTION>
Note Date
---- ----
<S> <C>
Series A-1 747 leased equipment note January 1, 2014
Series A-1 AFE Trust note July 1, 2011
Series A-1 owned equipment notes January 1, 2010
Series B 747 leased equipment note January 1, 2010
Series B AFE Trust note January 1, 2010
Series B owned equipment notes July 1, 2011
Series C-1 AFE Trust note January 1, 2008
Series C-2 747 leased equipment note January 1, 2014
Series C-2 owned equipment notes July 1, 2011
</TABLE>
Bullet Maturity Notes. The entire principal amounts
of the Series A-2 AFE Trust note and Series A-2 owned
equipment notes are scheduled to be paid on July 1,
2010.
(d) Redemption.......... Aircraft Event of Loss. If an event of loss occurs
for an owned aircraft, we will redeem all of the
owned equipment notes issued for the aircraft under
the indenture, unless we replace the aircraft. The
redemption price will be the unpaid principal amount
of the related owned equipment notes, together with
accrued interest, but without any make-whole amount.
If an event of loss occurs for a leased aircraft, we
must pay the stipulated loss value for that leased
aircraft under the related lease, unless we replace
the aircraft. The applicable indenture trustee will
apply the stipulated loss value payment to the
prepayment of the related leased equipment note(s).
The amount of the stipulated loss value payment is
sufficient to redeem in full the principal and
accrued interest of the related leased equipment
note. Unless specified indenture defaults have
occurred, we will apply the proceeds of any
prepayment for any 757 leased equipment note to the
prepayment of the AFE Trust notes in accordance with
scheduled amounts set forth in the AFE Trust
indenture such that the aggregate principal balance
and principal payments for the remaining 757 leased
equipment notes equals the aggregate principal
balance and principal payments for the AFE Trust
notes and AFE Trust certificates.
Optional Redemption. At any time prior to maturity
and unless an applicable indenture event of default
has occurred and is continuing, the related owner
trustee may redeem any leased equipment notes and
United may redeem the owned equipment notes. The
redemption price will be the unpaid principal amount
of those leased equipment note(s) or owned equipment
notes, together with accrued interest, plus a break
amount or make-whole amount, if any. The applicable
indenture trustee will apply the proceeds of any
redemption of a 757 leased equipment note to the
prepayment of the AFE Trust notes in accordance with
scheduled amounts set forth in the AFE Trust
indenture.
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<PAGE>
For a description of the swap provider's obligations
following an event of loss of an owned aircraft or an
optional redemption of any owned equipment notes, see
"Description of the Secured Swap Transactions" below.
Purchase by Owner. If a lease event of default has
occurred and is continuing on a leased aircraft, the
applicable owner trustee or owner participant may
elect to purchase the leased equipment note(s) for
that aircraft under the terms of the applicable
indenture. The purchase price will be the unpaid
principal amount of the leased equipment note(s),
together with accrued interest and, in the case of
any 757 leased equipment note, break amount, if any,
but without any premium. United will have no
comparable right to purchase the owned equipment
notes for its owned aircraft under these
circumstances.
(e) Security............ United will secure the owned equipment notes issued
for each owned aircraft by a security interest in the
aircraft. The owner trustee has secured the leased
equipment note(s) issued for each leased aircraft by
a security interest in the aircraft and in the
related owner trustee's rights under the lease of the
aircraft.
United will not cross-collateralize the owned
equipment notes and the owner trustees have not
cross-collateralized the leased equipment notes. This
means that the owned equipment notes or leased
equipment note(s) secured by an aircraft will not be
secured by any other aircraft. The subordination
agent will not be able to apply any excess proceeds
from the sale of an aircraft or other exercise of
default remedies for the aircraft available to cover
any shortfalls on the owned equipment notes or leased
equipment note(s) for any other aircraft.
The AFE Trust notes will, however, be secured by all
of the 757 leased equipment notes. By virtue of the
intercreditor agreement, all of the AFE Trust notes
as well as the 747 leased equipment notes and owned
equipment notes will also be effectively cross-
subordinated. This means that payments received on a
junior series of AFE Trust notes, 747 leased
equipment notes or owned equipment notes may be
applied in accordance with the priority of payment
provisions set forth in the intercreditor agreement
to make distributions on a more senior class of pass
through certificates.
There will not be cross-default provisions in the
equipment note indentures. This means that if the
equipment notes issued for one or more aircraft are
in default and the equipment notes issued for the
remaining aircraft are not in default, the
controlling party may not exercise remedies for the
remaining aircraft.
(f) Section 1110
Protection.............. Vedder, Price, Kaufman & Kammholz, special counsel to
United, will provide an opinion to the pass through
trustees that the benefits of Section 1110 of the
Bankruptcy Code will be available for each aircraft
and for the security interest in the owned aircraft
granted by United to secure its obligations as swap
provider.
S-17
<PAGE>
Federal Income Tax
Consequences............
The pass through trusts themselves will not be
subject to federal income tax. Each certificateholder
should report on its federal income tax return its
pro rata share of the income from the 747 leased
equipment note, AFE Trust note, the owned equipment
notes, if any, and the other property held by the
relevant pass through trust, in accordance with the
certificateholder's method of accounting.
ERISA Considerations.... If you acquire a pass through certificate, you will
be deemed to have represented that either:
. you have not used assets of an employee benefit
plan or an individual retirement account to
purchase the pass through certificate; or
. your purchase and holding of the pass through
certificate are exempt from the prohibited
transaction restrictions of the Employee
Retirement Income Security Act of 1974 and/or the
Internal Revenue Code of 1986.
Ratings of the
Certificates............ It is a condition to the issuance of the pass through
certificates that Moody's and Standard & Poor's rate
the pass through certificates not less than the
ratings set forth below:
<TABLE>
<CAPTION>
Standard
Certificates Moody's & Poor's
------------ ------- --------
<S> <C> <C>
Class A-1 and Class A-2....................... Aa2 AAA
Class B....................................... A1 AA-
</TABLE>
A rating is not a recommendation to purchase, hold or
sell pass through certificates. A rating does not
address market price or suitability for a particular
investor. We cannot assure you that the rating
agencies will not lower or withdraw their ratings.
The Class C-1 and Class C-2 pass through certificates
will not be rated.
Threshold Rating
Requirements for the The liquidity provider for the Class A-1, Class A-2
Liquidity Provider...... and Class B certificates must have short-term
unsecured debt ratings of P-1 and A-1+ by Moody's and
Standard & Poor's, respectively, or, if the liquidity
provider does not have short-term unsecured debt
ratings, long-term unsecured debt ratings of Aa3 and
AA- by Moody's and Standard and Poor's, respectively.
Liquidity Provider
Rating.................. The liquidity provider meets the short-term threshold
rating requirements.
S-18
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors as well as other
information contained in this prospectus supplement and the accompanying
prospectus.
Appraisals and
Realizable Value of
Aircraft................. Three independent appraisal and consulting firms
have prepared appraisals of the aircraft. The
appraisal letters are annexed to this prospectus
supplement as Appendix II. The appraisals are based
on the base value of the aircraft and rely on
varying assumptions and methodologies that may
differ among the appraisers. Base value is the
theoretical value for an aircraft that assumes a
balanced market. The appraisals may not reflect
current market conditions that could affect the
current market value of the aircraft. The
appraisers prepared the appraisals without a
physical inspection of the aircraft. Appraisals
that are based on other assumptions and
methodologies may result in valuations that are
materially different from those contained in the
appraisals. For a more detailed discussion of the
appraisals, see "Description of the Aircraft and
the Appraisals--The Appraisals."
An appraisal is only an estimate of value. It does
not necessarily indicate the price at which an
aircraft may be purchased from the aircraft
manufacturer. Nor should an appraisal be relied on
as a measure of realizable value. The proceeds
realized on a sale of any aircraft may be less than
its appraised value. If the indenture trustee
exercised remedies under the applicable indenture,
the value of an aircraft will depend on various
factors, including:
.market and economic conditions;
.the supply of similar aircraft;
.the availability of buyers;
.the condition of the aircraft; and
.whether the aircraft are sold separately or as a
block.
Accordingly, we cannot assure you that the proceeds
realized on any exercise of remedies would be
sufficient to satisfy in full payments due on the
leased equipment note(s) or the owned equipment
notes for any aircraft, the full amount due from
United as the swap provider under the secured swap
transactions or the full amount of distributions
expected on the pass through certificates.
Repossession............. There will be no general geographic restrictions on
our ability to operate the aircraft. Although we do
not currently intend to do so, we may register the
aircraft in specified foreign jurisdictions and
lease or sublease the aircraft. It may be
difficult, time-consuming and expensive for an
equipment note indenture trustee to exercise
repossession rights if an aircraft is located
outside the United States, is registered in a
foreign jurisdiction or is leased to a foreign or
domestic operator. Additional difficulties may
exist if a lessee is the subject of a bankruptcy,
insolvency or similar event.
S-19
<PAGE>
In addition, some jurisdictions may allow for other
liens or other third party rights to have priority
over a leased or owned aircraft indenture trustee's
security interest in an aircraft. As a result, the
benefits of the related indenture trustee's
security interest in an aircraft may be less than
they would be if the aircraft were located or
registered in the United States.
Priority of
Distributions;
Subordination............ Under the intercreditor agreement, the liquidity
provider will receive payment of all amounts owed
to it, including reimbursement of drawings made to
pay interest on more junior classes of pass through
certificates, before the holders of any class of
pass through certificates receive any funds. In
addition, in specified default situations, the
subordination agent and the pass through trustees
will receive some payments before the holders of
any class of pass through certificates receive
distributions.
Some classes of pass through certificates are
subordinated to other classes in rights to
distributions. Consequently, a payment default
under any 747 leased equipment note, AFE Trust note
or owned equipment note or a Triggering Event may
cause the distribution to more senior classes of
pass through certificates of payments received on
one or more junior series of 747 leased equipment
notes, AFE Trust notes or owned equipment notes, as
the case may be. If this occurs, the interest
accruing on the remaining 747 leased equipment
notes, AFE Trust notes or owned equipment notes, as
applicable, may be less than the amount of interest
expected to be distributed on the remaining pass
through certificates of more junior classes. This
is because the interest that pass through
certificates of junior classes are expected to
receive may accrue at a higher rate than interest
on the remaining 747 leased equipment notes, AFE
Trust notes or owned equipment notes, which include
the senior series bearing interest at a lower rate.
As a result of this possible interest shortfall,
the holders of one or more junior classes of pass
through certificates may not receive the full
amount expected after a payment default under any
747 leased equipment note, AFE Trust note or owned
equipment note even if all 747 leased equipment
notes, AFE Trust notes and owned equipment notes
are eventually paid in full.
However, if United is in bankruptcy or other
specified defaults have occurred but United is
continuing to meet specified payment obligations
and the applicable loan to aircraft value tests are
met, the subordination provisions applicable to the
pass through certificates permit distributions to
be made to junior pass through certificates prior
to making distributions in full on more senior pass
through certificates. For a more detailed
discussion of the subordination provisions of the
intercreditor agreement, see "Description of the
Intercreditor Agreement--Priority of
Distributions."
Control Over Collateral;
Sale of Collateral.......
If an indenture event of default is continuing,
subject to specified conditions, the controlling
party may direct the indenture trustee under the
related indenture to exercise remedies under the
indenture, including exercising remedies under the
secured swap transactions and accelerating
S-20
<PAGE>
the applicable AFE Trust notes, owned equipment
notes or leased equipment note(s) or, in the case
of an indenture event of default under an equipment
note indenture, foreclosing the lien on the
aircraft securing any owned equipment notes or
leased equipment note(s). See "Description of the
Pass Through Certificates--Indenture Events of
Default and Certain Rights upon an Indenture Event
of Default."
The controlling party will be:
. The Class A-1 pass through trustee or the Class
A-2 pass through trustee, whichever represents
the class with the larger pool balance of pass
through certificates outstanding at the time the
indenture event of default occurs.
. Upon payment of the final distribution to the
holders of the Class A-1 or Class A-2 pass
through certificates, the other of the Class A-1
pass through trustee or the Class A-2 pass
through trustee.
. Upon payment of the final distribution to the
holders of Class A-1 and Class A-2 pass through
certificates, the Class B pass through trustee.
. Upon payment of the final distribution to the
holders of Class A-1, Class A-2 and Class B pass
through certificates, the Class C-1 pass through
trustee or Class-C-2 pass through trustee,
whichever represents the class with the larger
pool balance of pass through certificates
outstanding at the time.
. Upon payment of the final distribution to the
holders of the Class A-1, Class A-2, Class B and
Class C-1 or Class C-2 pass through
certificates, the other of the Class C-1 pass
through trustee or the Class C-2 pass through
trustee.
. Under specified circumstances, the liquidity
provider with the greatest amount owed to it.
The market for any aircraft, owned equipment notes
or leased equipment notes, as the case may be,
during any indenture event of default may be very
limited, and we cannot assure you as to the price
at which they could be sold.
Some certificateholders will receive a smaller
amount of principal distributions than anticipated
and will not have any claim for the shortfall
against us (as lessee under any lease, as obligor
under any owned aircraft indenture or as the swap
provider), AFE Trust, any AFE Trust
certificateholder, any indenture trustee or any
pass through trustee if the controlling party takes
the following actions:
. It sells any owned equipment notes or leased
equipment notes for less than their outstanding
principal amount;
. It sells any owned aircraft for less than the
sum of the amount of the termination payment, if
any, due under the related secured swap
confirmation and the outstanding principal
amount of the related owned equipment notes; or
S-21
<PAGE>
. It sells any leased aircraft for less than the
outstanding principal amount of the related
leased equipments note(s).
In addition, the owned equipment notes and leased
equipment notes will not be cross-collateralized.
This means that the owned equipment notes or leased
equipment note(s), as applicable, secured by an
aircraft will not be secured by any other aircraft.
Accordingly, any proceeds realized from the sale of
an aircraft or other exercise of default remedies
with respect to that aircraft in excess of the
principal amount of the owned equipment notes or
leased equipment note(s) related to the aircraft
will not be available to cover shortfalls, if any,
on the owned equipment notes or leased equipment
note(s) relating to any other aircraft.
Ratings of the Pass
Through Certificates.....
It is a condition to the issuance of the pass
through certificates that Moody's and Standard &
Poor's rate the pass through certificates not less
than the ratings set forth below:
<TABLE>
<CAPTION>
Standard
Certificates Moody's & Poor's
------------ ------- --------
<S> <C> <C>
Class A-1 and Class A-2....................... Aa2 AAA
Class B....................................... A1 AA-
</TABLE>
A rating is not a recommendation to purchase, hold
or sell pass through certificates and the rating
does not address market price or suitability for a
particular investor. A rating may not remain for
any given period of time and a rating agency may
lower or withdraw entirely a rating if in its
judgment circumstances in the future so warrant.
These circumstances may include a downgrading of
United or the liquidity provider.
The rating agencies base the rating of each class
of the pass through certificates primarily on the
default risk of the owned equipment notes and 747
leased equipment note that are held for that class
or the 757 leased equipment notes that secure the
AFE Trust notes, the availability of the secured
swap transactions for the benefit of AFE Trust, the
availability of the liquidity facility for the
benefit of holders of the pass through
certificates, the collateral value provided by the
aircraft securing the secured swap transactions,
the owned equipment notes and leased equipment
notes and the subordination provisions applicable
to the pass through certificates. The foregoing
ratings address the likelihood of timely payment of
interest when due on the pass through certificates
and the ultimate payment of principal of the pass
through certificates by the final maturity date.
The ratings do not address the possibility of
certain defaults, voluntary redemptions or other
circumstances, such as a loss event to an aircraft,
which could result in the payment of the
outstanding principal amount of the pass through
certificates prior to the final maturity date.
The reduction, suspension or withdrawal of the
ratings of the pass through certificates will not,
by itself, constitute an event of default under the
pass through trust agreement.
S-22
<PAGE>
No Protection Against
Highly Leveraged or
Extraordinary
Transactions; Pending
Merger with US Airways...
The pass through certificates, the owned equipment
notes, the leased equipment notes, the AFE Trust
notes, the secured swap transactions and the
underlying agreements will not contain any
financial or other covenants or "event risk"
provisions protecting the certificateholders in the
event of a highly leveraged or other extraordinary
transaction affecting United or its affiliates.
As described under "Recent Developments" below, on
May 24, 2000 the parent of United, UAL Corporation,
announced approval of a merger agreement under
which US Airways Group, Inc. will be acquired by
United. Following the merger announcement, each of
Standard & Poor's and Moody's announced that it had
placed the ratings assigned to the debt of United
under review for possible downgrade.
Limited Ability to
Resell the Pass Through
Certificates............. Prior to this offering, there has been no public
market for the pass through certificates. Neither
United nor any pass through trust intends to apply
for listing of the pass through certificates on any
securities exchange or otherwise. The underwriters
may assist in resales of the pass through
certificates, but they are not required to do so,
and any market-making activity may be discontinued
at any time without notice at the sole discretion
of each underwriter. A secondary market for the
pass through certificates may not develop. If a
secondary market does develop, it might not
continue or it might not be sufficiently liquid to
allow you to resell any of your pass through
certificates. If an active public market does not
develop, the market price and liquidity of the pass
through certificates may be adversely affected.
Cross Border Lease....... The Boeing 747-422 aircraft securing the
obligations under the related indenture is subject
to a legally defeased Japanese cross-border lease
financing that expires on July 27, 2001.
Notwithstanding the cross-border lessor's
obligation under the cross-border financing
documents to transfer title without receipt of any
payment, if the cross-border lessor or any of its
investors were to become a debtor in a bankruptcy
or similar proceeding in its home jurisdiction and
a claim against the Boeing 747-422 aircraft was
made as part of such a proceeding, then, during the
pendency of such a proceeding, the indenture
trustee's ability to realize on its security
interest in the Boeing 747-422 aircraft could be
adversely affected.
S-23
<PAGE>
THE COMPANY
United Air Lines, Inc., was incorporated under the laws of the State of
Delaware on December 30, 1968. The world headquarters of the Company are
located at 1200 East 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 (847) 700-4000.
United is the principal subsidiary of UAL Corporation, a Delaware
corporation, and is wholly owned by UAL. United accounted for virtually all of
UAL's revenues and expenses in 1999. United is a major commercial air
transportation company, engaged in the transportation of persons, property and
mail throughout the United States and abroad.
During 1999, United carried, on average, more than 243,000 passengers per
day and flew more than 125 billion revenue passenger miles. It is the world's
largest airline as measured by revenue passenger miles flown, providing
passenger service in 26 countries.
United operates a global network, which encompasses major cities such as
Chicago, Denver, Los Angeles, New York, Miami, San Francisco, Washington-
Dulles, D.C., in the U.S., and Buenos Aires, Frankfurt, Hong Kong, London,
Mexico City, Paris, Sao Paulo, Sydney and Tokyo in the international markets.
United's network, supplemented with strategic airline alliances, provides
comprehensive transportation service within North America (the domestic
segment), within Latin America, Europe, and the Pacific (the international
segment), and between these two segments. Operating revenues attributed to
United's North America segment were approximately $12.5 billion in 1999, $12.0
billion in 1998, and $11.2 billion in 1997. Operating revenues attributed to
United's international segment were approximately $5.5 billion in 1999, $5.5
billion in 1998, and $6.1 billion in 1997.
Since October 1994, United has operated a service, United Shuttle, within
its domestic segment. This service is designed to provide both affordable and
profitable air service in highly competitive markets, as well as critical feed
traffic. United Shuttle is principally concentrated on the West Coast and in
Denver. United Shuttle offers approximately 500 daily flights on 30 routes
among 22 cities in the western United States.
RECENT DEVELOPMENTS
On May 24, 2000, UAL Corporation, the parent corporation of United, and US
Airways Group, Inc., the parent corporation of US Airways, announced that their
boards of directors had approved a definitive merger agreement under which US
Airways will be acquired by United. The details of the merger agreement are set
forth in a Form 8-K Current Report filed on June 21, 2000 by UAL Corporation
with the SEC. The companies anticipate that the transaction will be completed
in 2001. The merger is conditioned upon, among other things, the approvals of
US Airways stockholders, regulatory clearance and other customary closing
conditions. There can be no assurance that the regulatory and other approvals
necessary for the consummation of the merger will be obtained in a timely
manner or at all.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for United is set forth below for the
periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
------------------- ---------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----- ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1.74 1.32 2.77 2.05 2.36 1.76 1.44
</TABLE>
For the computation of the ratio of earnings to fixed charges, "earnings"
has been calculated by adding income before taxes and extraordinary items,
interest expense, undistributed earnings of affiliates, the portion of rental
expense representative of an interest factor and amortization of capitalized
debt expense. Fixed charges consist of interest expense (including capitalized
interest) and the portion of rental expense representative of an interest
factor.
S-24
<PAGE>
SELECTED FINANCIAL DATA
The following table presents summary consolidated financial data and certain
operating data of United. We derived the annual historical financial data from
our audited consolidated financial statements and the notes to those financial
statements. Our audited consolidated financial statements are incorporated by
reference in the prospectus accompanying this prospectus supplement.
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
------------------- -------------------------------------------
March 31, March 31,
2000 1999 1999 1998 1997 1996 1995
--------- --------- ------- ------- ------- ------- -------
(In Millions, Except Rates and Operating Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............... $ 4,533 $ 4,150 $17,967 $17,518 $17,335 $16,317 $14,895
------- ------- ------- ------- ------- ------- -------
Earnings before extraordinary
items and cumulative effect of
accounting change............... 128 75 1,207 803 941 601 371
Extraordinary loss on early
extinguishment of debt, net of
tax............................. -- -- (3) -- (9) (67) (30)
Cumulative effect of accounting
change, net of tax.............. (209) --
------- ------- ------- ------- ------- ------- -------
Net earnings..................... (81) 75 1,204 803 932 534 341
======= ======= ======= ======= ======= ======= =======
Total assets at period end....... $22,361 $19,672 $21,543 $18,830 $15,768 $12,901 $11,393
Long-term debt and capital lease
obligations, including current
portion......................... $ 5,471 $ 5,653 $ 5,455 $ 5,373 $ 4,259 $ 3,309 $ 3,553
Revenue passengers (millions).... 20 20 87 87 84 82 79
Revenue passenger miles
(millions)(1)................... 29,014 29,143 125,465 124,609 121,426 116,697 111,811
Available seat miles
(millions)(2)................... 42,524 42,251 176,686 174,008 169,110 162,843 158,569
Passenger load factor(3)......... 68.2% 68.9% 71.0% 71.6% 71.8% 71.7% 70.5%
Breakeven passenger load factor.. 63.4% 66.4% 64.9% 64.9% 66.0% 66.0% 66.1%
Passenger revenue per passenger
mile (in cents)(4).............. 13.58 12.54 12.5 12.4 12.6 12.4 11.8
Operating revenue per available
seat mile (in cents)............ 10.66 9.82 10.2 10.1 10.3 10.0 9.4
Operating expense per available
seat mile (in cents)............ 10.00 9.49 9.4 9.2 9.5 9.3 8.9
Operating expense per available
seat mile excluding ESOP charges
(in cents)...................... 9.78 9.06 9.0 8.8 8.9 8.9 8.6
Fuel gallons consumed
(millions)...................... 738 726 3,065 3,029 2,964 2,883 2,822
Average price per gallon of jet
fuel (in cents)................. 73.0 54.4 57.9 59.0 69.5 72.2 59.5
</TABLE>
--------
(1) "Revenue passenger miles" represents the number of miles flown by revenue
passengers in scheduled service.
(2) "Available seat miles" represents the number of seats available for
passengers multiplied by the number of scheduled miles the seats are flown.
(3) "Passenger load factor" is calculated by dividing revenue passenger miles
by available seat miles, and represents the percentage of aircraft seating
capacity utilized.
(4) "Passenger revenue per passenger mile" represents the average revenue
received from each mile a passenger is flown in scheduled service.
S-25
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the pass through certificates of each pass
through trust will be used by the applicable pass through trustee to acquire
the 747 leased equipment note (except in the case of the Class A-2 and Class C-
1 pass through trusts), the AFE Trust note (except in the case of the Class C-2
pass through trust), and the owned equipment notes (except in the case of the
Class C-1 pass through trust) to be held by that pass through trust. The owner
trustee for the leased Boeing 747-422 aircraft will use the proceeds from the
issuance of the 747 leased equipment notes to refinance, in part, the cost of
the acquisition of the Boeing 747-422 leased aircraft. The AFE Trust notes will
be non-recourse obligations of AFE Trust, secured by its rights under the
secured swap transactions provided by United and the 757 leased equipment notes
issued by the owner trustees for the leased Boeing 757-222 aircraft. Each of
the leased equipment notes is secured by a leased aircraft as well as the lease
of that aircraft. United will make rent payments under each lease of an
aircraft sufficient to make scheduled payments of principal and interest on the
leased equipment note(s) issued for that leased aircraft. United, in the case
of owned aircraft, will issue and the owner trustee, in the case of leased
aircraft, has issued or will issue the owned equipment notes and leased
equipment note(s), respectively, under 20 separate indentures. AFE Trust will
use the proceeds from issuance of the AFE Trust notes to acquire the 757 leased
equipment note issued for each leased Boeing 757-222 aircraft. United will use
the proceeds from the issuance of the owned equipment notes to refinance its
acquisition of the aircraft that are providing security for the owned equipment
notes.
S-26
<PAGE>
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following summary of particular terms of the pass through certificates
supplements the description of the general terms and provisions of the pass
through certificates set forth in the prospectus accompanying this prospectus
supplement. If any of the terms described in the prospectus are inconsistent
with the terms described in this prospectus supplement, the terms described in
this prospectus supplement replace the inconsistent terms of the prospectus.
The summary does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the pass through trust agreement, the
pass through certificates, the trust supplements, the liquidity facilities, the
secured swap transactions and the intercreditor agreement, each of which will
be filed as an exhibit to a Current Report on Form 8-K to be filed by United
with the SEC.
Except as otherwise indicated, the following summary relates to each of the
pass through trusts and the pass through certificates issued by each pass
through trust. The terms and conditions governing each of the pass through
trusts will be substantially the same, except that the junior classes of pass
through certificates will be subordinated to the senior classes of pass through
certificates and except that the principal amount, scheduled principal
repayments, and the interest rate and maturity date of the 747 leased equipment
notes, AFE Trust notes and owned equipment notes held by each pass through
trust will differ.
The reference to sections in parentheses in the following summary are to the
relevant sections of the pass through trust agreement unless otherwise
indicated.
Formation of Pass Through Trusts and Issuance of Pass Through Certificates
Each pass through certificate offered under this prospectus supplement will
represent a fractional undivided interest in one of three United Air Lines
2000-1 pass through trusts: the Class A-1 pass through trust, the Class A-2
pass through trust and the Class B pass through trust. In addition, Class C-1
and Class C-2 pass through certificates will represent fractional undivided
interests in the Class C-1 and Class C-2 pass through trusts. United and State
Street Bank and Trust Company of Connecticut, National Association, as pass
through trustee, will form the pass through trusts under a pass through trust
agreement between United and the pass through trustee, to be dated as of the
closing date, and five separate supplements to the pass through trust
agreement. The Class A-1 pass through trust will purchase the Series A-1 747
leased equipment note, the Series A-1 AFE Trust note and all of the Series A-1
owned equipment notes. The Class A-2 pass through trust will purchase the
Series A-2 AFE Trust note and all of the Series A-2 owned equipment notes. The
Class B pass through trust will purchase the Series B 747 leased equipment
note, the Series B AFE Trust note and all of the Series B owned equipment
notes. The Class C-1 pass through trust will purchase the Series C-1 AFE Trust
note. The Class C-2 pass through trust will purchase the Series C-2 747 leased
equipment note and all of the Series C-2 owned equipment notes. The initial
total principal balance of the 747 leased equipment note, AFE Trust note and/or
owned equipment notes, held by each pass through trust will equal the initial
aggregate face amount of the pass through certificates issued by that pass
through trust.
Each pass through certificate will represent a fractional undivided interest
in the pass through trust created by the pass through trust agreement and the
applicable trust supplement under which the pass through certificate is issued.
(Section 2.01(a)) The property of each pass through trust--the pass through
certificates of which are offered under this prospectus supplement--will
consist of:
. for the Class A-1 pass through trust, the Series A-1 747 leased
equipment note, Series A-1 AFE Trust note and Series A-1 owned
equipment notes acquired by the Class A-1 pass through trust and,
subject to the intercreditor agreement, all monies at any time paid
on those notes and all monies due and to become due under those
notes;
. for the Class A-2 pass through trust, the Series A-2 AFE Trust note
and Series A-2 owned equipment notes and, subject to the
intercreditor agreement, all monies at any time paid on those notes
and all monies due and to become due on those notes;
S-27
<PAGE>
. for the Class B pass through trust, the Series B 747 leased equipment
note, Series B AFE Trust note, and Series B owned equipment notes
and, subject to the intercreditor agreement, all monies at any time
paid on those notes and all monies due and to become due on those
notes;
. for the Class C-1 pass through trust, the Series C-1 AFE Trust note
and, subject to the intercreditor agreement, all monies at any time
paid on that note and all monies due and to become due on that note;
. for the Class C-2 pass through trust, the Series C-2 747 leased
equipment note and Series C-2 owned equipment notes and, subject to
the intercreditor agreement, all monies at any time paid on that note
and all monies due and to become due on that note;
. the rights of the pass through trust under the intercreditor
agreement and the note purchase agreements;
. for the Class A-1, Class A-2 and Class B pass through trusts, all
monies receivable under the liquidity facility for that pass through
trust; and
. funds from time to time deposited with the pass through trustee in
accounts of the pass through trust.
The pass through certificates represent interests in the respective pass
through trusts only, and all payments and distributions on the pass through
certificates will be made only from the trust property of the related pass
through trust. (Section 3.11) The pass through certificates do not represent
indebtedness of the pass through trusts, and references in this prospectus
supplement to interest accruing on the pass through certificates are included
for purposes of computation only. The pass through certificates do not
represent an interest in or obligation of United, AFE Trust, any AFE Trust
certificateholder, the pass through trustees, the subordination agent, any
indenture trustee, any owner trustee or any affiliate of any of the above. By
your acceptance of a pass through certificate, you agree to look solely to the
income and proceeds from the trust property of the related pass through trust
for payments and distributions on your pass through certificate.
The pass through trustee will issue the pass through certificates of each
pass through trust in fully registered form only and only in minimum
denominations of $1,000 or integral multiples of $1,000, except that one pass
through certificate of each pass through trust may be issued in a different
denomination. (Section 3.01)
Distribution of Payments on 747 Leased Equipment Notes, AFE Trust Notes and
Owned Equipment Notes
You should read the following description of distributions on the pass
through certificates in conjunction with the description of the intercreditor
agreement because the intercreditor agreement may alter the following
provisions in a default situation. For these provisions, see "--Subordination"
and "Description of the Intercreditor Agreement."
The pass through trustee will distribute payments of principal, Make-Whole
Amount and/or Break Amount, if any, and interest on the 747 leased equipment
note, AFE Trust note and owned equipment notes, if any, or for other trust
property held in each pass through trust to pass through certificateholders of
the related pass through trust on the date receipt of the payment is confirmed,
except in the case of specified types of special payments.
The Series A-1 and Series B 747 leased equipment notes, Series A-1, Series
A-2 and Series B AFE Trust notes and Series A-1, Series A-2 and Series B owned
equipment notes held in the Class A-1, Class A-2 and Class B pass through
trusts will accrue interest at the applicable rate per annum for pass through
certificates to be issued by that pass through trust set forth on the cover
page of this prospectus supplement, payable on January 1 and July 1 of each
year, commencing on January 1, 2001. The Series C-1 AFE Trust note held in the
Class C-1 pass through trust will accrue interest at the floating rate of the
Eurodollar Rate plus 0.90% per annum. The Series C-2 747 leased equipment note
and Series C-2 owned equipment notes held in the Class C-2
S-28
<PAGE>
pass through trust will accrue interest at the rate of 8.450% per annum. The
pass through trustee will distribute interest payments to pass through
certificateholders of each pass through trust on each regular distribution date
until the final distribution date for the related pass through trust, subject
to the intercreditor agreement. Interest on the 747 leased equipment notes, the
Series A-1, Series A-2 and Series B AFE Trust notes and the owned equipment
notes will be calculated on the basis of a 360-day year consisting of twelve
30-day months. Interest on the Series C-1 AFE Trust note and the 757 leased
equipment notes will be calculated on the basis of a 360-day year and the
actual number of days in the period that interest accrues.
The liquidity provider will provide a separate liquidity facility to each
pass through trust other than the Class C-1 and Class C-2 pass through trusts
to support distributions of interest applicable to the pass through
certificates to be issued by the related pass through trust. The aggregate
amount of each liquidity facility will be sufficient to distribute interest on
the pool balance of the related pass through certificates at the interest rate
shown on the cover of this prospectus supplement for the pass through trust on
up to three successive regular distribution dates, without taking into account
any future distributions of principal on the pass through certificates. The
liquidity facility for any class of pass through certificates does not provide
for drawings to pay for principal of, or Make-Whole Amount on, the pass through
certificates of that class, any interest on the pass through certificates of
that class in excess of the interest rate shown on the cover of this prospectus
supplement, or, despite the subordination provisions of the intercreditor
agreement, principal of, interest or Make-Whole Amount and/or Break Amount for,
the pass through certificates of any other class. Therefore, only the holders
of the pass through certificates to be issued by a particular pass through
trust supported by a liquidity facility will receive and retain the proceeds of
drawings under that liquidity facility. For a more thorough discussion of the
liquidity facilities, see "Description of the Liquidity Facilities."
The pass through trustee is scheduled to receive payments of principal of
the Series A-1 747 leased equipment note, Series A-1 AFE Trust note and Series
A-1 owned equipment notes in installments on January 1 and July 1 in specified
years, commencing on January 1, 2001 and ending on January 1, 2014, in the case
of the Series A-1 747 leased equipment note, July 1, 2011, in the case of the
Series A-1 AFE Trust note, and January 1, 2010, in the case of the Series A-1
owned equipment notes. The entire principal amount of the Series A-2 AFE Trust
note and Series A-2 owned equipment notes is scheduled for payment on July 1,
2010. The pass through trustee is scheduled to receive payments of principal of
the Series B 747 leased equipment note, Series B AFE Trust note and Series B
owned equipment notes in installments on January 1 and July 1 in specified
years, commencing on January 1, 2001, and ending on January 1, 2010, in the
case of the Series B 747 leased equipment note and the Series B AFE Trust note,
and July 1, 2011, in the case of the Series B owned equipment notes. Principal
payments on the Series C-1 AFE Trust note, Series C-2 747 leased equipment note
and Series C-2 owned equipment notes are scheduled to be received in specified
amounts on January 1 or July 1 or both in specified years, commencing on
January 1, 2001 and ending on January 1, 2008, in the case of the Series C-1
AFE Trust note, January 1, 2014, in the case of the Series C-2 747 leased
equipment note, and July 1, 2011, in the case of the Series C-2 owned equipment
notes.
We refer to scheduled payments of interest or principal on the 747 leased
equipment notes, AFE Trust notes and owned equipment notes as "scheduled
payments," and to January 1 and July 1 of each year as "regular distribution
dates." See "Description of the Equipment Notes--Principal and Interest
Payments." The final maturity date for the Class A-1 pass through certificates
is July 1, 2015, for the Class A-2 pass through certificates is January 1,
2012, for the Class B pass through certificates is January 1, 2013, for the
Class C-1 pass through certificates is January 1, 2008, and for the Class C-2
pass through certificates is January 1, 2014.
Subject to the intercreditor agreement, on each regular distribution date
the pass through trustee of each pass through trust will distribute to the
certificateholders of the pass through trust all scheduled payments received
under the 747 leased equipment note, AFE Trust note and/or owned equipment
notes held by the pass through trust. The pass through trustee will confirm the
receipt of scheduled payments on the regular distribution date. Each
certificateholder of each pass through trust will receive, subject to the
intercreditor agreement, its proportionate share, based on its fractional
interest in the pass through trust, of any distribution of scheduled payments
of principal or interest on the 747 leased equipment note, AFE Trust note
and/or owned
S-29
<PAGE>
equipment notes held by the pass through trust. The applicable pass through
trustee will distribute scheduled payments to the certificateholders of record
of the relevant pass through trust on the record date applicable to the
scheduled payment. The record date will generally be 15 days prior to each
regular distribution date, subject to specified limited exceptions. (Section
4.02(a)) If the applicable pass through trustee does not receive a scheduled
payment on a regular distribution date but receives the scheduled payment
within five days after the regular distribution date, the pass through trustee
will distribute the scheduled payment on the date received to the holders of
record. If the pass through trustee receives the scheduled payment after the
five-day period, the pass through trustee will treat the amount received as a
special payment and will distribute the payment as described below. (Section
1.01)
The pass through trustee will distribute any payment on, or any proceeds of,
any 747 leased aircraft equipment note, any AFE Trust note, including any 757
leased aircraft equipment note and AFE Trust's rights under the secured swap
transactions securing the AFE Trust notes or owned equipment note or the
collateral under any indenture other than a scheduled payment on, (1) in the
case of an early redemption of any 747 leased equipment note, AFE Trust note or
owned equipment note, the date of the early redemption, and (2) otherwise on
the business day specified for distribution of the special payment in a notice
delivered by each pass through trustee as soon as practicable after the pass
through trustee has received funds for the special payment. Any distribution
will be subject to the intercreditor agreement.
Each pass through trustee will mail a notice to the certificateholders of
the applicable pass through trust stating the special distribution date, the
related record date, the amount of the special payment and the reason for the
special payment. In the case of an early redemption of the 747 leased equipment
note, AFE Trust note or owned equipment notes, if any, held in the related pass
through trust, the pass through trustee will mail the notice not less than 20
days prior to the date the special payment is scheduled to be distributed. In
the case of any other special payment, the pass through trustee will mail the
notice as soon as practicable after the pass through trustee has confirmed that
it has received funds for the special payment. (Section 4.02(c)) The pass
through trustee will make each distribution of a special payment, other than a
final distribution, on a special distribution date for any pass through trust
to the certificateholders of record of the pass through trust on the record
date applicable to the special payment. (Section 4.02(b)) See "--Indenture
Events of Default and Certain Rights upon an Indenture Event of Default" and
"Description of the Equipment Notes--Events of Loss and Redemption."
Under the pass through trust agreement, the pass through trustee must
establish and maintain, for each pass through trust and for the benefit of the
certificateholders of that pass through trust, one or more non-interest bearing
accounts for the deposit of payments representing scheduled payments received
by the pass through trustee. We refer to the account for the deposit of
scheduled payments as the "certificate account." The pass through trustee must
also establish and maintain, for the related pass through trust and for the
benefit of the certificateholders of the pass through trust, one or more
accounts for the deposit of payments representing special payments received by
the pass through trustee. We refer to the account for the deposit of special
payments as the "special payments account." The special payments account will
be non-interest bearing except in specified circumstances where the pass
through trustee may invest amounts in the account in investments permitted
under the pass through trust agreement. (Sections 4.01(b) and 4.04) Under the
terms of each pass through trust agreement, the pass through trustee must
deposit any scheduled payments that the pass through trustee receives relating
to a pass through trust in the certificate account of that pass through trust
and to deposit any special payments that the pass through trustee receives
relating to a pass through trust in the special payments account of that pass
through trust. (Section 4.01) The pass through trustee will distribute all
amounts deposited in the certificate account and the special payments account
on a regular distribution date or a special distribution date, respectively.
(Section 4.02)
The pass through trustee will make the final distribution for each pass
through trust only after presentation and surrender of the pass through
certificates for that pass through trust at the office or agency of the pass
through trustee specified in the notice given by the pass through trustee of
the final distribution. Distributions for pass through certificates issued in
global form will be made as described in "--Book-Entry Registration; Delivery
and Form" below.
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<PAGE>
If any distribution date is not a business day, in other words, a Saturday,
a Sunday or other day on which commercial banks are authorized or required to
close in New York, New York, Chicago, Illinois, or the city and state in which
the pass through trustee or any indenture trustee is located, distributions
scheduled to be made on the regular distribution date or special distribution
date may be made on the next succeeding business day without additional
interest.
Subordination
The pass through certificates are subject to subordination terms set forth
in the intercreditor agreement which vary depending upon whether a Triggering
Event has occurred. See "Description of the Intercreditor Agreement--Priority
of Distributions."
Pool Factors
Pool Balance
The "pool balance" of any class of pass through certificates indicates, as
of any date, the original aggregate face amount of the pass through
certificates of that pass through trust less the aggregate amount of all
principal distributions made on the pass through certificates of that pass
through trust. The pool balance of any class of pass through certificates as of
any distribution date will be computed after giving effect to any payment of
principal on the 747 leased equipment note, AFE Trust note and/or owned
equipment notes or other trust property held in the pass through trust and the
distribution of that principal payment to be made on that date. (Section 1.01)
Pool Factor
The "pool factor" for each pass through trust as of any date is the
quotient, rounded to the seventh decimal place, computed by dividing (1) the
pool balance as of that date by (2) the original aggregate face amount of the
pass through certificates of that pass through trust. The pool factor for each
pass through trust as of any distribution date will be computed after giving
effect to any payment of principal on the 747 leased equipment note, AFE Trust
note and/or owned equipment notes, if any, or other trust property held in the
pass through trust and the distribution of the principal payment to be made on
that date. (Section 1.01) The pool factor for each pass through trust will be
1.0000000 on the date of issuance of the pass through certificates. After the
date of issuance, the pool factor for each pass through trust will decline as
described in this prospectus supplement to reflect reductions in the pool
balance of the pass through trust. The amount of a certificateholder's pro rata
share of the pool balance of a pass through trust can be determined by
multiplying the original denomination of that certificateholder's pass through
certificate of the pass through trust by the pool factor for the pass through
trust as of the applicable distribution date. The pass through trustee will
mail notice of the pool factor and the pool balance for each pass through trust
to certificateholders of the pass through trust on each distribution date.
(Section 4.03(a))
The following table sets forth the aggregate principal amortization schedule
for the 747 leased equipment note, AFE Trust note and/or owned equipment notes
held in each pass through trust and resulting pool factors for each pass
through trust. The actual aggregate principal amortization schedule for each
pass through trust and the resulting pool factors for each pass through trust
may differ from those set forth below because the scheduled distribution of
principal payments for any pass through trust would be affected if any 747
leased equipment note, AFE Trust note and/or owned equipment notes held in the
pass through trust are redeemed or if a default in payment of the principal of
the AFE Trust notes, 747 leased equipment notes and/or owned equipment notes
occurred.
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<PAGE>
<TABLE>
<CAPTION>
Class A-1 Trust Class A-2 Trust Class B Trust
--------------------------- --------------------------- --------------------------
Scheduled Scheduled Scheduled
Payments of Expected Payments of Expected Payments of Expected
Date Principal Pool Factor Principal Pool Factor Principal Pool Factor
---- --------------- ----------- --------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
January 1, 2001......... $ 15,954,632.47 0.9421093 $ 0.00 1.0000000 $ 5,317,991.51 0.9734511
July 1, 2001............ 6,965,062.41 0.9168368 0.00 1.0000000 2,027,482.39 0.9633293
January 1, 2002......... 12,544,477.38 0.8713197 0.00 1.0000000 4,475,697.56 0.9409853
July 1, 2002............ 6,890,491.75 0.8463178 0.00 1.0000000 2,119,381.83 0.9304048
January 1, 2003......... 12,619,048.03 0.8005301 0.00 1.0000000 4,383,798.10 0.9085196
July 1, 2003............ 5,302,855.09 0.7812889 0.00 1.0000000 1,767,618.35 0.8996951
January 1, 2004......... 14,661,417.27 0.7280905 0.00 1.0000000 4,743,023.10 0.8760166
July 1, 2004............ 4,848,122.51 0.7104993 0.00 1.0000000 1,760,156.83 0.8672294
January 1, 2005......... 14,809,309.14 0.6567643 0.00 1.0000000 4,885,972.77 0.8428372
July 1, 2005............ 5,298,058.98 0.6375405 0.00 1.0000000 1,816,483.27 0.8337688
January 1, 2006......... 14,809,231.84 0.5838058 0.00 1.0000000 4,936,410.62 0.8091248
July 1, 2006............ 5,298,136.30 0.5645817 0.00 1.0000000 1,766,045.44 0.8003082
January 1, 2007......... 14,809,148.83 0.5108473 0.00 1.0000000 4,936,382.94 0.7756644
July 1, 2007............ 5,298,219.30 0.4916229 0.00 1.0000000 1,766,073.12 0.7668476
January 1, 2008......... 14,809,059.68 0.4378888 0.00 1.0000000 5,583,824.00 0.7389716
July 1, 2008............ 5,298,308.46 0.4186641 0.00 1.0000000 1,118,632.04 0.7333870
January 1, 2009......... 16,150,229.33 0.3600637 0.00 1.0000000 15,621,737.77 0.6553989
July 1, 2009............ 5,298,404.63 0.3408386 0.00 1.0000000 113,661.31 0.6548314
January 1, 2010......... 23,557,679.80 0.2553605 0.00 1.0000000 17,479,024.32 0.5675711
July 1, 2010............ 0.00 0.2553605 325,328,000.00 0.0000000 1,247,776.00 0.5613419
January 1. 2011......... 38,556,288.20 0.1154606 0.00 0.0000000 3,620,582.13 0.5432669
July 1, 2011............ 27,520,818.60 0.0156024 0.00 0.0000000 108,821,244.60 0.0000000
January 1, 2012......... 1,900,000.00 0.0087083 0.00 0.0000000 0.00 0.0000000
July 1, 2012............ 0.00 0.0087083 0.00 0.0000000 0.00 0.0000000
January 1, 2013......... 1,000,000.00 0.0050798 0.00 0.0000000 0.00 0.0000000
July 1, 2013............ 0.00 0.0050798 0.00 0.0000000 0.00 0.0000000
January 1, 2014......... 1,400,000.00 0.0000000 0.00 0.0000000 0.00 0.0000000
</TABLE>
<TABLE>
<CAPTION>
Class C-1 Trust Class C-2 Trust
------------------------------ ------------------------------
Scheduled Payments Expected Scheduled Payments Expected
Date of Principal Pool Factor of Principal Pool Factor
---- ------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C>
January 1, 2001.. $ 0.00 1.0000000 $ 0.00 1.0000000
July 1, 2001..... 4,668.20 0.9998591 0.00 1.0000000
January 1, 2002.. 0.00 0.9998591 0.00 1.0000000
July 1, 2002..... 0.00 0.9998591 0.00 1.0000000
January 1, 2003.. 0.00 0.9998591 0.00 1.0000000
July 1, 2003..... 4,961,610.18 0.8500972 0.00 1.0000000
January 1, 2004.. 2,543,248.86 0.7733315 0.00 1.0000000
July 1, 2004..... 73,528.24 0.7711121 0.00 1.0000000
January 1, 2005.. 4,769,633.20 0.6271449 0.00 1.0000000
July 1, 2005..... 58,200.00 0.6253882 0.00 1.0000000
January 1, 2006.. 4,915,577.62 0.4770158 0.00 1.0000000
July 1, 2006..... 58,200.00 0.4752591 0.00 1.0000000
January 1, 2007.. 7,579,999.08 0.2464635 0.00 1.0000000
July 1, 2007..... 58,200.00 0.2447067 0.00 1.0000000
January 1, 2008.. 8,107,134.62 0.0000000 1,168,199.90 0.9864793
July 1, 2008..... 0.00 0.0000000 402,795.08 0.9818174
January 1, 2009.. 0.00 0.0000000 18,693,362.92 0.7654615
July 1, 2009..... 0.00 0.0000000 402,795.08 0.7607996
January 1, 2010.. 0.00 0.0000000 1,168,761.58 0.7472724
July 1, 2010..... 0.00 0.0000000 402,795.08 0.7426105
January 1, 2011.. 0.00 0.0000000 1,168,761.58 0.7290833
July 1, 2011..... 0.00 0.0000000 46,330,247.33 0.1928598
January 1, 2012.. 0.00 0.0000000 6,109,974.93 0.1221433
July 1, 2012..... 0.00 0.0000000 0.00 0.1221433
January 1, 2013.. 0.00 0.0000000 10,543,341.93 0.0001153
July 1, 2013..... 0.00 0.0000000 0.00 0.0001153
January 1, 2014.. 0.00 0.0000000 9,964.59 0.0000000
</TABLE>
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<PAGE>
The pass through trustee will recompute the pool factor and pool balance of
each pass through trust if there has been an early redemption or default in the
payment of principal or interest on any 747 leased equipment note, AFE Trust
note and/or owned equipment note held in a pass through trust. The pass through
trustee will mail notice of the recomputed pool factors and pool balances of
each pass through trust after giving effect to any special payment to
certificateholders resulting from an early redemption or default on any 747
leased equipment note, AFE Trust note and/or owned equipment note to
certificateholders of pass through certificates of the related pass through
trust with the special payment.
Reports to Certificateholders
On each distribution date, the applicable pass through trustee will include
with each distribution of a scheduled payment or special payment to
certificateholders of the related pass through trust a statement, giving effect
to the distribution to be made on that distribution date, providing the
following information (per $1,000 aggregate principal amount of pass through
certificate as to items (1) and (2) below):
(1) the amount of the distribution allocable to principal and the amount
allocable to Make-Whole Amount, if any;
(2) the amount of the distribution allocable to interest; and
(3) the pool balance and the pool factor for the pass through trust.
(Section 4.03(a))
So long as the pass through certificates are registered in the name of Cede
& Co., as nominee for DTC, on the record date prior to each distribution date,
the applicable pass through trustee will request from DTC a securities position
listing providing the names of all DTC participants reflected on DTC's books as
holding interests in the pass through certificates on the record date. On each
distribution date, the applicable pass through trustee will mail to each of
those DTC participants the statement described above and will make available
additional copies as requested by that DTC participant for forwarding to
certificate owners. (Section 4.03(a))
In addition, after the end of each calendar year, but not later than the
latest date permitted by law, the applicable pass through trustee will prepare
for each certificateholder of each pass through trust at any time during the
preceding calendar year a report containing the sum of the amounts determined
under items (1) and (2) above for the pass through trust for that calendar year
and other items as are readily available to the pass through trustee and which
a certificateholder reasonably requests as necessary for the purpose of the
certificateholder's preparation of its U.S. federal income tax returns. If any
certificateholder was a certificateholder during only a portion of that
calendar year, the applicable pass through trustee will provide those amounts
determined under items (1) and (2) above for that portion of the calendar year.
The applicable pass through trustee will prepare the report and the other items
on the basis of information supplied to the pass through trustee by the DTC
participants and will deliver the report and the other items to the DTC
participants to be available for forwarding by the DTC participants to
certificate owners. (Section 4.03(b))
If the pass through trustee issues any pass through certificates in the form
of definitive certificates, the applicable pass through trustee will prepare
and deliver the information described above to each certificateholder of record
of each pass through trust as the name and period of record ownership of the
certificateholder appear on the records of the registrar of the pass through
certificates.
Indenture Events of Default and Certain Rights Upon an Indenture Event of
Default
Because the AFE Trust notes, 747 leased equipment notes and owned equipment
notes, issued under an indenture will be held in more than one pass through
trust, a continuing indenture event of default under the indenture would affect
the 747 leased equipment note, AFE Trust note and/or owned equipment notes held
by each pass through trust. There are no cross-default or cross-acceleration
provisions in the indentures for the equipment notes for any aircraft, whether
leased or owned. Consequently, events resulting in an indenture event of
default under any particular indenture for the owned equipment notes or leased
equipment note for any
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<PAGE>
aircraft may or may not result in an indenture event of default under any other
indenture for the owned equipment notes or leased equipment note(s) for any
other aircraft. If an indenture event of default occurs in fewer than all of
the indentures, the applicable owner trustee or United, as the case may be,
will continue to make payments of principal and interest as originally
scheduled on those equipment notes issued pursuant to those indentures with
respect to which an indenture event of default has not occurred, and the pass
through trustee will distribute those payments to the holders of the pass
through certificates, subject to the intercreditor agreement.
A continuing indenture event of default under any 757 leased equipment note
will cause an indenture event of default to occur under the AFE Trust
indenture. Because the AFE Trust notes will be secured by all of the 757 leased
equipment notes, if there is an indenture event of default under the AFE Trust
indenture, the indenture trustee will be able to apply the proceeds realized
from the sale or other exercise of remedies in respect of any leased Boeing
757-222 aircraft to the payment of all the AFE Trust notes in the order of
priority specified in the AFE Trust Indenture prior to the distribution of any
proceeds to the beneficial owners of AFE Trust. The holders of the beneficial
interest in AFE Trust have no right to cure indenture defaults under the AFE
Trust indenture other than by paying the outstanding principal amount of, and
the interest accrued on, each AFE Trust note upon its being accelerated.
With respect to each leased aircraft, the applicable owner trustee and owner
participant will, under the related indenture, have the right under some
circumstances to cure indenture defaults that result from the occurrence of a
lease event of default under the related lease. If the owner trustee or the
owner participant exercises its cure right, the indenture default will be
deemed to have been cured. (747 Leased Aircraft Indenture, Section 8.03(e)(i);
757 Leased Aircraft Indentures, Section 4.3)
If the same institution acts as pass through trustee of multiple pass
through trusts, in the absence of instructions from the certificateholders of
any pass through trust, the pass through trustee could be faced with a
potential conflict of interest if an indenture event of default occurs. In this
event, the pass through trustee has indicated that it would resign as pass
through trustee of some or all of the pass through trusts, and a successor pass
through trustee would be appointed in accordance with the pass through trust
agreement. State Street Bank and Trust Company of Connecticut, National
Association, will be the initial pass through trustee under each pass through
trust.
Following the occurrence and continuation of an indenture event of default
under any leased aircraft or owned aircraft indenture, the controlling party
will direct the indenture trustee under the indenture in the exercise of
remedies and, to the extent any event of default or termination right exists
under any secured swap confirmation, in the exercise of remedies under that
secured swap confirmation and may accelerate and sell the owned equipment notes
or the leased equipment note(s) issued under the affected indenture.
Alternatively, in the case of an indenture event of default under an owned or
leased aircraft indenture, the controlling party may direct the indenture
trustee to foreclose on and sell the aircraft related to the owned equipment
notes or leased equipment note(s), as applicable, to any person, subject to
specified limitations. Likewise, following an indenture event of default under
the AFE Trust indenture and acceleration of the AFE Trust notes, the
controlling party may direct the AFE Trust indenture trustee to sell the AFE
Trust notes to any person, subject to specified limitations. For a discussion
of the exercise of remedies, see "Description of the Intercreditor Agreement--
Intercreditor Rights--Sale of AFE Trust Notes, Equipment Notes or Aircraft and
Termination of the Secured Swap Transactions." Each owned or leased aircraft
indenture trustee will distribute the proceeds of the sale of any owned or
leased aircraft in accordance with the provisions of the relevant owned or
leased aircraft indenture. The AFE indenture trustee will distribute the
proceeds of any sale of any 757 leased equipment note to the payment of the AFE
Trust notes in accordance with the provisions of the AFE Trust indenture. The
subordination agent will distribute amounts received by it in accordance with
the provisions of the intercreditor agreement. The applicable pass through
trustee will deposit any proceeds distributed to it on any sale in the
applicable special payments account and will distribute the proceeds to the
certificateholders of the applicable pass through trust on a special
distribution date. (Sections 4.01 and 4.02) The market for the aircraft, owned
equipment notes or leased equipment note(s) at the time of the existence of an
indenture event of default may
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<PAGE>
be very limited, and we cannot assure you as to the price at which they could
be sold. If (1) a pass through trustee sells any owned equipment notes or 747
leased equipment notes for less than their outstanding principal amount, plus
accrued interest, (2) an owned aircraft indenture trustee sells any owned
aircraft for less than the amount of the termination payment, if any, due under
the secured swap confirmation related to that aircraft and the outstanding
principal amount of the related owned equipment notes, plus accrued interest,
(3) a 757 leased aircraft indenture trustee sells any leased aircraft for less
than the outstanding principal amount of the related 757 leased equipment note,
plus accrued interest, (4) the AFE Trust indenture trustee sells any 757 leased
equipment note for less than its outstanding principal amount, plus accrued
interest, or (5) the controlling party sells any AFE Trust note for less than
its outstanding principal amount, plus accrued interest, some
certificateholders may receive a smaller amount of principal distributions than
anticipated and will not have any claim for the shortfall against United (other
than in the case of clause (2) above), AFE Trust, any liquidity provider, any
indenture trustee or any pass through trustee. Neither the pass through trustee
nor the certificateholders of the pass through trust can take action with
respect to any remaining owned equipment notes or leased equipment notes as
long as no indenture event of default is continuing with respect to those owned
equipment notes or leased equipment notes.
The applicable pass through trustee will deposit any amount, other than
scheduled payments received on a regular distribution date or within five days
after a regular distribution date, distributed to the pass through trustee of
any pass through trust by the subordination agent on account of the 747 leased
equipment note, the AFE Trust note, the owned equipment notes or other trust
property held in the pass through trust following an indenture event of default
under any indenture in the special payments account for the pass through trust
and will distribute that amount to the certificateholders of the pass through
trust on a special distribution date. (Sections 4.01 and 4.02)
The applicable pass through trustee will, to the extent practicable, invest
and reinvest any funds representing payments received on any defaulted 747
leased equipment note, AFE Trust note or owned equipment notes held in a pass
through trust, or the proceeds from the sale of any 747 leased equipment note,
AFE Trust note or owned equipment notes held in a pass through trust, in the
special payments account for the pass through trust in investments permitted
under the pass through trust agreement pending the distribution of the funds on
a special distribution date. (Section 4.04)
The pass through trust agreement and each trust supplement provide that the
pass through trustee of the related pass through trust will, within 90 days
after the occurrence of a default known to it, mail a notice of default to the
certificateholders of the pass through trust, among others, unless the default
shall have been cured or waived. However, except in the case of default in a
payment of principal, Make-Whole Amount and/or Break Amount, if any, or
interest on any 747 leased equipment note, AFE Trust note and/or owned
equipment note, the applicable pass through trustee will be protected in
withholding the notice if it in good faith determines that the withholding of
the notice is in the interests of the certificateholders. (Section 7.02) The
term "default" with respect to a pass through trust, for the purpose of the
provision described in this paragraph only, means an event that is, or after
notice or lapse of time or both would become, an event of default or a
Triggering Event with respect to the pass through trust. The term "event of
default" with respect to a pass through trust means an indenture event of
default under any indenture under which the 747 leased equipment notes, AFE
Trust notes or owned equipment notes held by the pass through trust were
issued.
Subject to specified qualifications set forth in each pass through trust
agreement and to the intercreditor agreement, the certificateholders of each
pass through trust holding pass through certificates evidencing fractional
undivided interests in total representing a majority interest in the pass
through trust will direct the time, method and place of conducting any
proceeding for any remedy available to the pass through trustee with respect to
the pass through trust or pursuant to the terms of the intercreditor agreement,
or exercising any trust or power conferred on the pass through trustee under
the pass through trust agreement, any trust supplement or the intercreditor
agreement, including any right of the pass through trustee as controlling party
under the intercreditor agreement or as holder of a 747 leased equipment note,
an AFE Trust note or the owned equipment notes. (Section 6.03)
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<PAGE>
Subject to the intercreditor agreement, the holders of the pass through
certificates of a pass through trust evidencing fractional undivided interests
in total representing a majority interest of the pass through trust may on
behalf of the holders of all of the pass through certificates of the pass
through trust waive any past "default" or "event of default" under the related
pass through trust agreement and trust supplement and its consequences. If the
pass through trustee of a pass through trust is the controlling party, those
majority certificateholders may direct the pass through trustee to instruct the
applicable indenture trustee to waive any past indenture event of default and
its consequences. However, the consent of each holder of a pass through
certificate of a pass through trust is required to waive:
. a default in the deposit or distribution of any scheduled payment or
special payment;
. a default in payment of the principal, Make-Whole Amount and/or Break
Amount, if any, or interest on any 747 leased equipment note, AFE Trust
note or owned equipment note held in the pass through trust or any
leased equipment note or rights under the secured swap transactions
securing the AFE Trust notes; and
. a default in respect of any covenant or provision of the related pass
through trust agreement and trust supplement that cannot be modified or
amended without the consent of each certificateholder of the pass
through trust affected by the modification or amendment. (Section 6.04)
The 747 leased aircraft indenture, the AFE Trust indenture and each owned
aircraft indenture will provide that, with specified exceptions, the holders of
the majority of the total unpaid principal amount of the 747 leased equipment
notes, AFE Trust notes or owned equipment notes issued under that indenture may
on behalf of all of the noteholders waive any past default or indenture event
of default under that indenture. Each 757 leased aircraft indenture provides
that, with specified exceptions, the holders of 66 2/3% of the total unpaid
principal amount of the 757 leased equipment notes may on behalf of all of the
noteholders waive any past default or indenture event of default under that 757
leased aircraft indenture. However, under the intercreditor agreement only the
controlling party will have the authority to exercise these rights to waive any
past default or indenture event of default.
Purchase Rights of Certificateholders
After the occurrence and during the continuation of a Triggering Event, with
ten days' prior written notice to the pass through trustee for each class of
pass through certificates to be purchased and each certificateholder of the
same class:
. If the Class A-1 or Class A-2 certificateholders are then represented by
the controlling party, the certificateholders of the class that is not
so represented may purchase all of the pass through certificates of the
class that is so represented.
. The Class B certificateholders may purchase all of the Class A-1 and
Class A-2 pass through certificates.
. Of the Class C-1 and Class C-2 certificateholders, the
certificateholders of the class with the larger pool balance, so long as
neither United nor any of its affiliates is a holder of that class, may
purchase all of the Class A-1, Class A-2 and Class B pass through
certificates.
. Of the Class C-1 or Class C-2 certificateholders, the certificateholders
of the class that has the smaller pool balance, so long as neither
United nor any of its affiliates is a holder of that class, may purchase
all of the pass through certificates of the class that has the larger
pool balance and the Class A-1, Class A-2 and Class B pass through
certificates.
. The Class D certificateholders (if Class D pass through certificates are
issued) may purchase all of the Class A-1, Class A-2, Class B, Class C-1
and Class C-2 pass through certificates.
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<PAGE>
In each case, the purchase price for a class of pass through certificates
will be equal to the pool balance of the class plus accrued and undistributed
interest thereon to the date of purchase, without Make-Whole Amount and/or
Break Amount in connection with the purchase, but including any other amounts
then due and payable to the certificateholders of that class. The purchase
right may be exercised by any certificateholder of the class or classes
entitled to the right. In each case, if prior to the end of the ten-day notice
period, any other certificateholder of the same class notifies the purchasing
certificateholder that the other certificateholder wants to participate in the
purchase, then the other certificateholder may join with the purchasing
certificateholder to purchase the pass through certificates pro rata based on
the interest in the pass through trust held by each certificateholder. (Section
6.01(b))
PTC Event of Default
A "PTC Event of Default" for any class of pass through certificates means
the failure to distribute within 10 business days after the applicable
distribution date either:
. the outstanding pool balance of that class of pass through certificates
on the final maturity date for that class; or
. interest scheduled for distribution on that class of pass through
certificates on any distribution date, unless the subordination agent
has made an interest drawing on the liquidity facility, or a withdrawal
from the cash collateral account for the class of pass through
certificates, in an amount sufficient to pay the interest and has
distributed the amount to the pass through trustee.
Any failure to make expected principal distributions for any class of pass
through certificates on any regular distribution date, other than the final
maturity date, will not constitute a PTC Event of Default for the pass through
certificates. A PTC Event of Default for the most senior outstanding class of
pass through certificates resulting from an indenture event of default under
all owned aircraft and leased aircraft indentures will constitute a Triggering
Event. For a discussion of the consequences of the occurrence of a Triggering
Event, see "Description of the Intercreditor Agreement--Priority of
Distributions."
Merger, Consolidation and Transfer of Assets
United may not consolidate with or merge into any other corporation or
transfer substantially all of its assets as an entirety to any person unless:
. the surviving successor or transferee is validly existing under the laws
of the United States, any state of the United States or the District of
Columbia;
. the surviving successor or transferee, if and to the extent required
under Section 1110 of the United States Bankruptcy Code in order that
each equipment note indenture trustee will continue to be entitled to
any benefits of Section 1110 for an aircraft, is a "citizen of the
United States", as defined in Title 49 of the United States Code
relating to aviation, holding an air carrier operating certificate
issued by the Secretary of Transportation pursuant to Chapter 447 of
Title 49 of the United States Code;
. the surviving successor or transferee expressly assumes all of the
obligations of United contained in the pass through trust agreement and
any trust supplement, the indentures, the secured swap transactions and
the participation agreements;
. in the case of leased aircraft, no lease default or lease event of
default has occurred and is continuing; and
. United has delivered a certificate signed by the President or any Vice
President and an opinion or opinions of counsel indicating that the
transaction, in effect, complies with the above conditions.
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<PAGE>
In addition, after giving effect to the transaction, no indenture event of
default shall have occurred and be continuing. (Section 5.02; 747 Leased
Aircraft Participation Agreements, Section 8; 757 Leased Aircraft Participation
Agreements, Section 9)
The pass through trust agreement, the trust supplements, the note purchase
agreements, the owned aircraft indentures, the leased aircraft indentures and
the leases will not contain any covenants or provisions which may afford the
applicable pass through trustee or certificateholders protection in the event
of a highly leveraged transaction, including transactions effected by
management or affiliates, which may or may not result in a change of control of
United. For a description of United's pending acquisition of US Airways, see
"Risk Factors--No Protection Against Highly Leveraged or Extraordinary
Transactions; Pending Merger with US Airways" and "Recent Developments."
Modification of the Pass Through Trust Agreements And Certain Other Agreements
Each pass through trust agreement contains provisions permitting United and
the pass through trustee to enter into a supplement to the pass through trust
agreement or, if applicable, to the intercreditor agreement, the note purchase
agreements or any liquidity facility, without the consent of the holders of any
of the pass through certificates of the pass through trust to, among other
things:
. evidence the succession of another corporation or entity to United and
the assumption by the corporation or entity of United's obligations
under the pass through trust agreement or any trust supplement;
. add to the covenants of United for the benefit of holders of the pass
through certificates;
. surrender any right or power conferred on United in the pass through
trust agreement, any trust supplement, any note purchase agreement, the
intercreditor agreement or any liquidity facility;
. cure any ambiguity or correct any mistake or inconsistency contained in
the pass through trust agreement, any trust supplement, any note
purchase agreement, the intercreditor agreement or any liquidity
facility;
. modify any other provision with respect to matters or questions arising
under the pass through trust agreement, any trust supplement, the
intercreditor agreement, any note purchase agreement or any liquidity
facility as United may deem necessary or desirable and that will not
materially adversely affect the interests of the holders of the pass
through certificates;
. correct or supplement the description of any property of any pass
through trust;
. evidence and provide for a successor pass through trustee for some or
all of the pass through trusts or add to or change any of the provisions
of the pass through trust agreement or any trust supplement as necessary
to facilitate the administration of the pass through trusts under the
pass through trust agreement by more than one pass through trustee;
. comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which the pass
through certificates are listed or of any regulatory body;
. modify, eliminate or add to the provisions of the pass through trust
agreement or any trust supplement to the extent necessary to continue
the qualification of the pass through trust agreement or any trust
supplement under the Trust Indenture Act of 1939, as amended, and add to
the pass through trust agreement or any trust supplement the other
provisions as may be expressly permitted by the Trust Indenture Act;
. provide information to the pass through trustee as required in the pass
through trust agreement;
. add to or change the pass through trust agreement and any trust
supplement to facilitate the issuance of any pass through certificates
in bearer form or to facilitate or provide for the issuance of any pass
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through certificates in global form in addition to or in place of pass
through certificates in certificated form;
. provide for the delivery of pass through certificates or any supplement
to the pass through trust agreement in or by means of any computerized,
electronic or other medium, including computer diskette; and
. correct or supplement the description of any property constituting
property of the pass through trust.
No supplement or modification may cause any pass through trust to become an
association taxable as a corporation for U.S. federal income tax purposes.
(Section 9.01)
The pass through trust agreement also provides that United and the pass
through trustee, with the consent of the certificateholders evidencing
fractional undivided interests together representing not less than a majority
interest of the affected pass through trust, may enter into supplemental
agreements adding any provisions to or changing or eliminating any of the
provisions of the pass through trust agreement, any note purchase agreement,
the intercreditor agreement or any liquidity facility or modifying the rights
of the certificateholders of that pass through trust under the pass through
trust agreement, any note purchase agreement, the intercreditor agreement or
any liquidity facility. No supplemental agreement may, however, without the
consent of affected certificateholders:
. reduce the amount of, or delay the timing of, payments on the 747 leased
equipment note, AFE Trust note or owned equipment notes held in the pass
through trust, or distributions for any pass through certificate of the
pass through trust;
. change the date, place of any payment or the currency in which the pass
through certificates are payable;
. impair the right of any certificateholder of the pass through trust to
take legal action for the enforcement of any payment when due;
. permit the disposition of any 747 leased equipment note, AFE Trust note
or owned equipment note held in the pass through trust, except as
provided in the pass through trust agreement, any trust supplement, the
intercreditor agreement or any liquidity facility;
. alter the priority of distributions specified in the intercreditor
agreement in a manner materially adverse to the certificateholders of
that pass through trust; or
. reduce the percentage of the total fractional undivided interests of
that pass through trust that must consent to approve any supplemental
agreement or to waive compliance with the pass through trust agreement
or to waive PTC Events of Default. (Section 9.02)
Modification, Consents and Waivers Under the Indentures, Secured Swap
Transactions and Related Agreements
If a pass through trustee, as holder or as beneficial owner through the
subordination agent of any 747 leased equipment note, AFE Trust note or owned
equipment note or as controlling party under the intercreditor agreement,
receives, directly or indirectly through the subordination agent, a request
for a consent to any amendment, modification, waiver or supplement under any
indenture, any AFE Trust note (or its related indenture, note purchase
agreement or the secured swap transactions), any owned equipment note (or the
related participation agreement or indenture) or any leased equipment note (or
the related participation agreement, indenture or lease), the pass through
trustee will promptly send a notice of the proposed amendment, modification,
waiver or supplement to each certificateholder of the relevant pass through
trust registered on the register of the pass through trust as of the date of
the notice. The pass through trustee will request from the certificateholders
a direction as to:
. whether to take or refrain from taking, or direct the subordination
agent to take or refrain from taking, any action that a
certificateholder or the controlling party has the option to take or
direct;
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. whether to give or execute, or direct the subordination agent to give or
execute, any waivers, consents, amendments, modifications or supplements
as a noteholder or as controlling party;
. how to vote, or direct the subordination agent to vote, any 747 leased
equipment note, AFE Trust note or owned equipment note if a vote has
been called for with respect to that note; and
. how to direct the AFE Trust indenture trustee to vote or to take or
refrain from taking any action with respect to any AFE Trust note, 757
leased equipment note, lease of any leased Boeing 757-222 aircraft or
any secured swap confirmation.
(Section 10.01; Intercreditor Agreement, Section 9.1(b))
If the pass through trustee requests certificateholder direction, in
directing any action or casting any vote or giving any consent as the holder of
any 747 leased equipment note, AFE Trust note or owned equipment note or in
directing the subordination agent in any of the foregoing:
. other than as the controlling party, the pass through trustee will vote
for or give consent to any action with respect to the 747 leased
equipment note, AFE Trust note or owned equipment note in the same
proportion as that of (1) the total face amount of all pass through
certificates actually voted in favor of or for giving consent to the
action by the direction of certificateholders to (2) the total face
amount of all outstanding pass through certificates of the relevant pass
through trust; and
. as the controlling party, the pass through trustee will vote as directed
in the certificateholder direction by the certificateholders evidencing
fractional undivided interests together representing not less than a
majority in interest in the relevant pass through trust.
(Section 10.01)
For purposes of the preceding paragraph, a pass through certificate is
"actually voted" if the certificateholder has delivered to the pass through
trustee an instrument evidencing the certificateholder's consent to the
direction prior to two business days before the pass through trustee directs
the action or casts the vote or gives the consent. Despite the foregoing, but
subject to specified rights of the certificateholders under the relevant pass
through trust agreement and trust supplement and subject to the intercreditor
agreement, the pass through trustee may, in its own discretion and at its own
direction, consent and notify the relevant indenture trustee of the consent, or
direct the subordination agent to consent and notify the relevant indenture
trustee of the consent, to any amendment, modification, waiver or supplement
under the relevant indenture, note purchase agreement, participation agreement,
AFE Trust note, owned equipment note, leased equipment note, the secured swap
transactions or any other related document, if an indenture event of default
under any indenture has occurred and is continuing, or if the amendment,
modification, waiver or supplement will not materially adversely affect the
interests of the certificateholders. (Section 10.01)
Purchase of Class C-1 and Class C-2 Pass Through Certificates
Subject to the terms and conditions set forth in the purchase agreement, we
will cause the Class C-1 and Class C-2 pass through trusts to sell to a wholly-
owned bankruptcy-remote subsidiary of United the aggregate face amounts of the
Class C-1 and Class C-2 pass through certificates, which are $33,130,000 and
$86,401,000, respectively. The interest rate on the Class C-1 pass through
certificates will be the Eurodollar Rate plus 0.90% per annum. The interest
rate on the Class C-2 pass through certificates will be 8.450% per annum. The
final expected distribution dates for the Class C-1 and Class C-2 pass through
certificates are January 1, 2008 and January 1, 2014, respectively. Interest
paid on the Series C-1 AFE Trust note held in the Class C-1 pass through trust
and on the Series C-2 747 leased equipment note and Series C-2 owned equipment
notes held in the Class C-2 pass through trust will be passed through to the
certificateholders of the Class C-1 and Class C-2 pass through trusts on each
January 1 and July 1, beginning on January 1, 2001 until the final expected
distribution date for the Class C-1 and Class C-2 pass through trusts. Interest
on the Series C-1 AFE Trust note
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will be calculated on the basis of a 360-day year and the actual number of days
in the period that interest accrues. Interest on the Series C-2 747 leased
equipment note and Series C-2 owned equipment notes will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
We expect that a wholly-owned bankruptcy-remote subsidiary of United will
purchase the Class C-1 and Class C-2 pass through certificates, subject to
specified conditions, for 100% of their principal amounts. The purchase
agreement permits the holder to sell the Class C-1 and Class C-2 pass through
certificates from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale (if any), at prices related to such prevailing market prices (if any) or
at negotiated prices, provided that any such sale complies with the securities
laws.
It is expected that delivery of the Class C-1 and Class C-2 pass through
certificates will be made against payment therefor on the closing date for the
other classes of pass through certificates. The purchaser's obligation to
purchase the Class C-1 and Class C-2 pass through certificates is conditioned
on the concurrent issuance and purchase of the Class A-1, Class A-2 and Class B
pass through certificates.
Possible Issuance of Series D Owned Equipment Notes
United may elect to issue Series D owned equipment notes in connection with
some or all of the owned aircraft, which would be funded from sources other
than this offering. United may elect to fund the sale of the Series D owned
equipment notes through the sale of additional pass through certificates issued
by a pass through trust. United will not issue any Series D owned equipment
notes at any time prior to the consummation of this offering. United's ability
to issue any Series D owned equipment notes is contingent upon its obtaining
written confirmation from Moody's and Standard & Poor's that the issuance of
the additional Series D owned equipment notes would not cause either rating
agency to withdraw or downgrade the rating of the Class A-1, Class A-2 or Class
B pass through certificates or the AFE Trust certificates. If Series D owned
equipment notes are issued to any person or entity other than a Class D pass
through trust, the Series D owned equipment notes will nevertheless be subject
to the subordination provisions of the intercreditor agreement that, among
other things, allow the controlling party, during the continuance of an
indenture event of default, to direct the indenture trustee in taking action
under the applicable indenture. (Intercreditor Agreement, Section 9.1(c))
Termination of the Pass Through Trusts
The obligations of United and the applicable pass through trustee to each
pass through trust will terminate upon the distribution to certificateholders
of the pass through trust of all amounts required to be distributed to them
under the pass through trust agreement and the applicable trust supplement and
the disposition of all property held in that pass through trust. The applicable
pass through trustee will mail notice of the termination of the pass through
trust, the amount of the proposed final payment and the proposed date for the
distribution of the final payment for the pass through trust to each
certificateholder of record of that pass through trust. The pass through
trustee will make the final distribution to any certificateholder of that pass
through trust only after the certificateholder surrenders its pass through
certificates at the office or agency of the pass through trustee specified in
the notice of termination. (Section 11.01)
Pass Through Trustees
The pass through trustee for each pass through trust initially will be State
Street Bank and Trust Company of Connecticut, National Association. The pass
through trustee's address is 225 Asylum Street, Goodwin Square, Hartford,
Connecticut 06103, Attention: Corporate Trust Department. The obligations of
the pass through trustee will be guaranteed by its parent, State Street Bank
and Trust Company, a Massachusetts trust company.
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With specified exceptions, the pass through trustee makes no representations
as to the validity or sufficiency of the pass through trust agreement, the
trust supplements, the pass through certificates, the AFE Trust notes, the
owned equipment notes, the leased equipment notes, the indentures, the
intercreditor agreement, the participation agreements, the leases, the secured
swap transactions, any liquidity facility or other related documents. (Sections
7.04 and 7.15) The pass through trustee of any pass through trust will not be
liable to the certificateholders of the pass through trust for any action taken
or omitted to be taken by it in good faith in accordance with the direction of
the holders of a majority of the face amount of the outstanding pass through
certificates of the pass through trust. Except in specified circumstances, the
pass through trustee will be under no obligation to exercise any of its rights
or powers under the pass through trust agreement or any trust supplement at the
request of any holders of pass through certificates issued under the pass
through trust agreement and that trust supplement unless the certificateholders
offer to the pass through trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by the pass through
trustee in exercising the rights or powers. (Section 7.03(e)) The pass through
trustee in its individual or any other capacity may acquire and hold pass
through certificates issued under the pass through trust agreement and any
trust supplement and, subject to specified conditions, may otherwise deal with
United with the same rights it would have if it were not the pass through
trustee. (Section 7.05)
Book-Entry Registration; Delivery and Form
Each class of pass through certificates will be represented by one or more
fully registered securities. Each global security will be deposited with, or on
behalf of, The Depository Trust Company and registered in the name of Cede &
Co., the nominee of DTC. DTC was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between DTC participants through electronic book-entry changes in
accounts of the DTC participants, thereby eliminating the need for physical
movement of certificates. DTC participants include securities brokers and
dealers, banks, trust companies and clearing corporations and other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Interests in a global certificate may also be held through the Euroclear System
and Clearstream Banking, societe anonyme. See "Description of the Pass Through
Certificates--Book-Entry Registration" in the prospectus for a discussion of
the book-entry procedures applicable to the pass through certificates and the
limited circumstances under which definitive certificates may be issued for the
pass through certificates.
So long as the book-entry procedures are applicable, no person acquiring an
interest in the pass through certificates, a "certificate owner", will receive
a certificate representing that person's interest in the pass through
certificates. Unless and until definitive certificates are issued under the
limited circumstances described in the prospectus, all references in this
prospectus supplement to actions by certificateholders shall refer to actions
taken by DTC on instructions from DTC participants, and all references to
distributions, notices, reports and statements to certificateholders will
refer, as the case may be, to distributions, notices, reports and statements to
DTC or Cede & Co., as the registered holder of the pass through certificates,
or to DTC participants for distribution to certificate owners in accordance
with DTC procedures.
According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
Neither United nor the pass through trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the pass through certificates held by Cede
& Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests or for the performance
by DTC, any DTC participant or any indirect participant of their respective
obligations under the rules, regulations and procedures creating and affecting
DTC and its operations or any other statutory, regulatory, contractual or
customary procedures governing their obligations.
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DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes some terms of the liquidity facilities and
some provisions of the intercreditor agreement relating to the liquidity
facilities. The summary supplements, and, to the extent inconsistent with the
prospectus, replaces, the description of the general terms and provisions
relating to the liquidity facilities and the intercreditor agreement and the
description of credit enhancements set forth in the prospectus. The summary
does not purport to be complete and is qualified in its entirety by reference
to all of the provisions of the liquidity facilities and the intercreditor
agreement, each of which will be filed as an exhibit to a Current Report on
Form 8-K to be filed by United with the SEC. The provisions of the liquidity
facilities are substantially identical except as otherwise indicated.
General
The liquidity provider will enter into a separate revolving credit
agreement, or a "liquidity facility", with the subordination agent with respect
to each pass through trust other than the Class C-1 and Class C-2 pass through
trusts. The Class C-1 and Class C-2 pass through trusts will not be entitled to
the benefits of a liquidity facility. Under each liquidity facility, the
liquidity provider will, if necessary, make one or more advances, or "interest
drawings", to the subordination agent up to the Required Amount. If interest
payment defaults occur which exceed the amount covered by or available under
the liquidity facility for any pass through trust, the certificateholders of
that pass through trust will bear their allocable share of the deficiencies to
the extent that there are no other sources of funds. United may replace the
initial liquidity provider with respect to each pass through trust by one or
more other entities under specified circumstances. Therefore, the liquidity
provider for one pass through trust may differ from the liquidity provider for
another pass through trust.
Drawings
The initial amount available under the liquidity facility for each pass
through trust will be as follows:
<TABLE>
<CAPTION>
Pass Through Trust Available Amount
------------------ ----------------
<S> <C>
Class A-1................................................ $32,174,805
Class A-2................................................ 37,721,782
Class B.................................................. 24,127,219
</TABLE>
Except as otherwise described below, the liquidity facility for each pass
through trust will enable the subordination agent to make interest drawings
under that liquidity facility on any regular distribution date in order to make
interest distributions then scheduled for that class of pass through
certificates at the stated interest rate for that class to the extent that the
amount, if any, available to the subordination agent on such regular
distribution date is not sufficient to pay interest. The liquidity provider
must make its payments under the liquidity facility regardless of the reason
for the shortfall, including the failure of the swap provider to make any
payment due under the secured swap transactions. The maximum amount available
to be drawn under a liquidity facility for any pass through trust on any
regular distribution date to fund any shortfall of interest on pass through
certificates of the pass through trust will not exceed the then Maximum
Available Commitment under the liquidity facility. After a downgrade drawing, a
final drawing or a non-extension drawing under a liquidity facility, the
Maximum Available Commitment under that liquidity facility will be zero.
The liquidity facility for any class of pass through certificates does not
provide for drawings under the liquidity facility to pay for principal of or
Make-Whole Amount on the pass through certificates of that class. Further, the
liquidity facility for any class of pass through certificates does not provide
for drawings to pay any interest on the pass through certificates of that class
in excess of the interest rate shown on the cover of this prospectus supplement
for that class or for more than three semiannual installments of interest. No
drawing on any liquidity facility for any class of pass through certificates
will be available to pay principal of, interest or Make-Whole Amount on the
pass through certificates of any other class. (Liquidity Facilities, Section
2.02; Intercreditor Agreement, Section 3.6)
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Each payment by the liquidity provider will reduce by the same amount the
Maximum Available Commitment under the related liquidity facility. If the
related pass through trust reimburses the liquidity provider in full or in part
for the amount of the interest drawings plus accrued interest on the interest
drawings, the Maximum Available Commitment under the liquidity facility will be
reinstated by the amount reimbursed but not to exceed the then Required Amount
of the liquidity facility. However, the liquidity facility will not be
reinstated at any time if (1) a Triggering Event has occurred and is continuing
and (2) less than 65% of the then total outstanding principal amount of all of
the owned equipment notes and leased equipment notes are Performing Equipment
Notes. In the case of any other drawings under the liquidity facility, amounts
available to be drawn under that liquidity facility are not subject to
reinstatement. (Liquidity Facilities, Section 2.02(a); Intercreditor Agreement,
Section 3.6(g)) Following each reduction of the pool balance for the applicable
pass through trust, the Required Amount of the liquidity facility for that pass
through trust will be reduced automatically to an amount sufficient to pay
interest on the relevant pool balance of that pass through trust on the next
three successive semiannual regular distribution dates, without taking into
account expected future distributions of principal of the pass through
certificates, at the interest rate shown on the cover of this prospectus
supplement for the pass through trust. (Liquidity Facilities, Section 2.04)
Downgrade Drawings and Replacement of Liquidity Facilities
If at any time the short-term unsecured debt rating issued by either rating
agency of the liquidity provider for any pass through trust (or if the
liquidity provider does not have a short-term unsecured debt rating issued by
the rating agencies, the long-term unsecured debt rating of the liquidity
provider issued by either rating agency), is lower than the Threshold Rating
for that pass through trust, the liquidity provider will provide notice of the
downgrading to United, the subordination agent and the trustees. Within 30 days
of the downgrading notice, the liquidity provider or United may arrange for one
or more replacement liquidity providers. If the downgraded facility has not
been replaced, the subordination agent will on the 30th day (or the 10th day if
the liquidity provider is rated lower than A-3 by Standard & Poor's) draw the
then Maximum Available Commitment under the liquidity facility. We refer to a
drawing of the Maximum Available Commitment under these circumstances as a
"downgrade drawing." The subordination agent will deposit the proceeds of any
downgrade drawing into a cash collateral account for the class of pass through
certificates and will use these proceeds for the same purposes and under the
same circumstances and subject to the same conditions as interest drawings
under the liquidity facility would be used. (Liquidity Facilities, Section
2.02(c); Intercreditor Agreement, Section 3.6(c))
Any replacement facility for any liquidity facility will be an irrevocable
revolving credit agreement(s) substantially in the form of the replaced
liquidity facility, including reinstatement provisions, or in any other form,
which may include a letter of credit, surety bond, financial insurance policy
or guaranty, as will permit the rating agencies to confirm in writing their
respective ratings then in effect for the pass through certificates for which
the liquidity facility was issued (before any downgrading of the ratings as a
result of the downgrading of the liquidity provider). The replacement facility
or facilities will have a total face amount equal to the amount sufficient to
pay interest on the pool balance of the pass through certificates of that pass
through trust (at the interest rate shown on the cover of this prospectus
supplement for the pass through certificates, and without taking into account
expected future principal distributions) on the three regular distribution
dates following the date of replacement of the liquidity facility, or, if the
date is a regular distribution date, on that regular distribution date and the
two regular distribution dates following that regular distribution date. The
person or persons providing the replacement facility or facilities must have
debt ratings issued by both rating agencies that are equal to or higher than
the Threshold Rating for the relevant class. (Intercreditor Agreement, Section
1.1) The provider of any replacement facility will have the same rights,
including priority distribution rights and rights as controlling party, under
the intercreditor agreement as the replaced liquidity provider.
Expiration and Termination of Liquidity Facilities--Non-extension and Final
Drawings
The liquidity facility for each pass through trust provides that the
liquidity provider's obligations will expire on the first to occur of:
. 364 days after the initial issuance date of the pass through
certificates, counting from, and including, the issuance date;
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. the date on which the subordination agent delivers to the liquidity
provider a certification that final distributions on all of the pass
through certificates of the pass through trust have been paid in full or
provision has been made for the payment;
. the date on which the subordination agent delivers to the liquidity
provider a certification that a replacement facility has been
substituted for the liquidity facility;
. the fifth business day following receipt by the subordination agent of a
termination notice from the liquidity provider; and
. the date on which no amount is or may, including by reason of
reinstatement, become available for drawing under the liquidity
facility.
Each liquidity facility provides that it may be extended for an additional
364-day period or longer period, if applicable, by mutual agreement of the
relevant liquidity provider and the subordination agent.
If any liquidity facility for any pass through trust is scheduled to expire
on a date prior to the date that is 15 days after the final maturity date for
the pass through certificates of the pass through trust, then the subordination
agent will, not earlier than the 60th day or later than the 40th day before the
expiration date, request the liquidity provider to extend the expiration date.
The requested expiration date will be the earlier of 15 days after the final
maturity date and 363 days after the last day of the period the liquidity
provider may consent to extend the liquidity facility. Whether or not the
subordination agent has made an extension request to the liquidity provider,
the liquidity provider will advise the subordination agent no earlier than the
40th day and no later than the 25th day before the expiration date whether it
will extend the expiration date. If the liquidity facility is not replaced
during the consent period of the liquidity provider or the liquidity provider
does not advise the subordination agent during the same period that the
liquidity facility will be extended, the subordination agent shall request a
drawing in full up to the then Maximum Available Commitment under the liquidity
facility. We refer to a drawing of the Maximum Available Commitment under these
circumstances as a "non-extension drawing." The subordination agent will hold
the proceeds of the non-extension drawing in the cash collateral account for
the related pass through trust as cash collateral to be used for the same
purposes and under the same circumstances, and subject to the same conditions,
as cash payments of interest drawings under the liquidity facility would be
used. (Liquidity Facilities, Section 2.02(b); Intercreditor Agreement, Section
3.6(d))
Subject to specified limitations, United may, at its option, arrange for a
replacement facility following the occurrence of specified events, to replace
the liquidity facility for any pass through trust. In addition, if any
liquidity provider does not extend any liquidity facility, then the liquidity
provider may, at its option, arrange for a replacement facility acceptable to
United to replace the liquidity facility during the period no earlier than 40
days and no later than 25 days prior to the then scheduled expiration date of
the liquidity facility. The liquidity provider also has the right to arrange
for a replacement facility at any time after making a non-extension drawing. If
a replacement facility is provided at any time after a downgrade drawing or a
non-extension drawing under any liquidity facility, the subordination agent
will return the funds with respect to the liquidity facility on deposit in the
cash collateral account for the pass through trust to the liquidity provider
being replaced. (Intercreditor Agreement, Section 3.6(e))
Upon receipt by the subordination agent of a termination notice for any
liquidity facility from the relevant liquidity provider, the subordination
agent will request a drawing under the liquidity facility in an amount equal to
the then Maximum Available Commitment. We refer to a drawing of the Maximum
Available Commitment under these circumstances as a "final drawing." The
subordination agent will hold the proceeds of the final drawing in the cash
collateral account for the related pass through trust as cash collateral to be
used for the same purposes and under the same circumstances, and subject to the
same conditions, as cash payments of interest drawings under the liquidity
facility would be used. (Liquidity Facilities, Section 2.02(d); Intercreditor
Agreement, Sections 3.6(f) and 3.6(i))
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Drawing Procedures
The subordination agent will make drawings under any liquidity facility by
delivery of a certificate to the relevant liquidity provider. Upon receipt of a
certificate, the relevant liquidity provider must make payment of the drawing
requested in immediately available funds. Upon payment by the relevant
liquidity provider of the amount specified in any drawing under any liquidity
facility, the liquidity provider will be fully discharged of its obligations
under the liquidity facility with respect to that drawing and will not be
obligated to make any further payments under the liquidity facility in respect
of that drawing to the subordination agent or any other person.
Reimbursement of Drawings
The subordination agent must reimburse amounts drawn under any liquidity
facility by reason of an interest drawing, final drawing, downgrade drawing or
non-extension drawing and interest on any drawing, but only to the extent that
the subordination agent has funds available to make the reimbursement from
payments on the 747 leased equipment notes, AFE Trust notes and the owned
equipment notes and specified payments under the participation agreements and
note purchase agreements. (Liquidity Facilities, Section 2.05, 2.06 and 2.09)
Interest Drawings and Final Drawings
Amounts drawn under any liquidity facility by reason of an interest drawing
or final drawing will be immediately due and payable, together with interest on
the amount of the drawing. From the date of the drawing to, but excluding, the
third business day following the liquidity provider's receipt of the notice of
the interest drawing or final drawing, interest will accrue at the Base Rate
plus 1.50% per year. After the third business day following the liquidity
provider's receipt of the notice, interest will accrue at LIBOR for the
applicable interest period plus 1.50% per year. In the case of a final drawing,
however, the subordination agent may convert the final drawing into a drawing
bearing interest at the Base Rate plus 1.50% per year on the last day of an
interest period for that drawing. (Liquidity Facilities, Section 3.07)
Downgrade Drawings and Non-Extension Drawings
The subordination agent will treat an amount drawn under any liquidity
facility by reason of a downgrade drawing or a non-extension drawing and
deposited in a cash collateral account as follows:
. the subordination agent will release that amount on any distribution
date to the liquidity provider to pay any obligations to the liquidity
provider to the extent that amount exceeds the Required Amount;
. the subordination agent will treat any portion of the amount withdrawn
from the cash collateral account for the pass through certificates to
pay interest distributions on the pass through certificates in the same
way as interest drawings; and
. the subordination agent will invest the balance of the amount in
specified eligible investments.
Any downgrade drawing or non-extension drawing under any liquidity facility
other than any portion of the downgrade drawing or non-extension drawing
applied to the payment of interest distributions on the pass through
certificates, will bear interest: (1) subject to clause (2) below, in the case
of a downgrade drawing, at the Base Rate to but excluding the third business
day following the Liquidity Provider's receipt of the notice of the downgrade
drawing and from the third business day following such receipt of such notice
at LIBOR and in the case of non-extension drawing, in the amount of the
investment earnings on the amount held in the cash collateral account, plus in
each case a specified margin for each liquidity facility; and (2) from and
after the date, if any, on which it is converted into a final drawing as
described below under "--Liquidity Events of Default," at a rate equal to LIBOR
for the applicable interest period (or, as described in the first paragraph
under "--Interest Drawings and Final Drawings," the Base Rate) plus 1.50% per
year.
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Liquidity Events of Default
Events of default under each liquidity facility will consist of:
. the acceleration of all of the leased equipment notes and owned
equipment notes; or
. specified bankruptcy or similar events involving United. (Liquidity
Facilities, Section 1.01)
If (1) any liquidity event of default under any liquidity facility has
occurred and is continuing and (2) less than 65% of the total outstanding
principal amount of all owned equipment notes and leased equipment notes are
Performing Equipment Notes, the applicable liquidity provider may, in its
discretion, give a termination notice of the liquidity facility. The
termination notice will have the following consequences:
. the related liquidity facility will expire on the fifth business day
after the date on which the subordination agent receives the termination
notice;
. the subordination agent will request promptly, and the liquidity
provider will honor, a final drawing in an amount equal to the then
Maximum Available Commitment under the liquidity facility;
. any drawing remaining unreimbursed as of the date of termination will be
converted automatically into a final drawing under the liquidity
facility; and
. all amounts owing to the liquidity provider will become immediately due
and payable.
Despite the foregoing, the subordination agent will be obligated to pay
amounts owing to the applicable liquidity provider only to the extent of funds
available for payment after giving effect to the payments in accordance with
the provisions described under "Description of the Intercreditor Agreement--
Priority of Distributions." (Liquidity Facilities, Section 6.01)
Under the circumstances described under "Description of the Intercreditor
Agreement--Intercreditor Rights," a liquidity provider may become the
controlling party for the exercise of remedies under the indentures.
(Intercreditor Agreement, Section 2.6(c))
Liquidity Provider
The initial liquidity provider for each pass through trust will be
Landesbank Hessen-Thuringen Girozentrale, a public-law banking institution
organized under the laws of Germany. Landesbank Hessen-Thuringen Girozentrale
has short-term debt ratings of P-1 from Moody's and A-1+ from Standard &
Poor's.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes some provisions of the intercreditor
agreement between the pass through trustees, the liquidity provider and State
Street Bank and Trust Company of Connecticut, National Association, as
subordination agent. The summary supplements and, to the extent inconsistent
with the prospectus, replaces the description of the general terms and
provisions relating to the intercreditor agreement and the description of
credit enhancements described in the prospectus. The summary does not purport
to be complete and is qualified in its entirety by reference to all of the
provisions of the intercreditor agreement, which will be filed as an exhibit to
a Current Report on Form 8-K to be filed by United with the SEC.
Intercreditor Rights
General
The relevant owner trustee, AFE Trust and United will issue, and the
relevant indenture trustee will register, the 747 leased equipment note, AFE
Trust note and/or the owned equipment notes held in each pass through trust in
the name of the subordination agent as agent and trustee for the pass through
trustee of that pass through trust.
Controlling Party
The holders of at least a majority of the outstanding principal amount of
owned equipment notes issued under each owned aircraft indenture and the
holders of at least a majority of the outstanding principal amount of 747
leased equipment notes issued under the 747 leased aircraft indenture will be
entitled to direct the indenture trustee under that indenture in taking action
so long as no indenture event of default is continuing under that indenture,
except for specified actions that require the unanimous consent of the holders
of the owned equipment notes. Likewise, the holders of at least a majority of
the outstanding principal amount of the AFE Trust notes issued under the AFE
Trust indenture will be entitled to direct the indenture trustee under the AFE
Trust indenture in taking action under that indenture or under the secured swap
transactions so long as no indenture event of default is continuing under the
AFE Trust indenture or in taking action under the 757 leased aircraft
indentures so long as no event of default is continuing under those indentures.
Under the AFE Trust indenture, however, the holders of at least a majority of
the outstanding principal amount of the AFE Trust notes will not be entitled to
direct the AFE Trust indenture trustee to take or refrain from taking any
action with respect to the 757 leased equipment notes or the secured swap
transactions, that, in the case of the 757 leased equipment notes, requires the
unanimous consent or approval of the holders of all of the 757 leased equipment
notes or, in the case of the secured swap transactions, requires the unanimous
approval of the holders of all of the AFE Trust notes. Any direction to the
indenture trustee under the AFE Trust indenture under these circumstances may
only be taken upon the direction of the holders of all of the AFE Trust notes.
For so long as the subordination agent is the registered holder of the 747
leased equipment notes, AFE Trust notes and the owned equipment notes, the
subordination agent will act, as the holder of all of those notes, in
accordance with the directions of the pass through trustees of the pass through
trusts which hold 747 leased equipment notes, AFE Trust notes and/or owned
equipment notes constituting, in total, the required principal amount of 747
leased equipment notes, AFE Trust notes and owned equipment notes.
(Intercreditor Agreement, Section 2.6)
At any time after an indenture event of default has occurred and is
continuing under an indenture, the controlling party will direct the indenture
trustee under the indenture in taking, or refraining from taking, any action
under the indenture, owned equipment notes or leased equipment notes issued
under the relevant indenture or with respect to the AFE Trust notes, the
secured swap transactions. These actions include acceleration of the AFE Trust
notes, owned equipment notes or leased equipment notes or, in the case of an
indenture event of default under an owned or leased equipment note indenture,
foreclosing the lien on the related aircraft or, in the case of the AFE Trust
note indenture, and to the extent any event of default or termination right
then exists under any secured swap confirmation, terminating the transaction
evidenced by
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that secured swap confirmation, subject to the limitations described below.
(Intercreditor Agreement, Section 2.6) See "Description of Pass Through
Certificates--Indenture Events of Default and Certain Rights upon an Indenture
Event of Default" for a description of the rights of the certificateholders of
each pass through trust to direct the respective pass through trustees.
The controlling party will be:
. the Class A-1 pass through trustee or the Class A-2 pass through
trustee, whichever represents the class with the larger pool balance of
pass through certificates outstanding at the time the indenture event of
default occurs;
. upon payment of the final distribution to the holders of the Class A-1
or Class A-2 pass through certificates, the other of the Class A-1 pass
through trustee or the Class A-2 pass through trustee;
. upon payment of the final distribution to the holders of Class A-1 and
Class A-2 pass through certificates, the Class B pass through trustee;
. upon payment of the final distribution to the holders of the Class A-1,
Class A-2 and Class B pass through certificates, the Class C-1 pass
through trustee or the Class C-2 pass through trustee, whichever
represents the class with the larger pool balance of pass through
certificates outstanding at the time; and
. upon payment of the final distribution to the holders of the Class A-1,
Class A-2, Class B and Class C-1 or Class C-2 pass through certificates,
the other of the Class C-1 pass through trustee or the Class C-2 pass
through trustee.
At any time after 18 months from the earliest to occur of (1) the date on
which the entire available amount under any liquidity facility has been drawn
for any reason other than a downgrade drawing or a non-extension drawing and
remains unreimbursed, (2) the date on which the entire amount of a downgrade
drawing or non-extension drawing has been applied to pay any scheduled payment
of interest for any pass through trust certificates and is not reimbursed and
(3) the date on which all of the owned equipment notes, leased equipment notes
and AFE Trust notes have been accelerated, the liquidity provider with the
largest amount of unreimbursed Liquidity Obligations under the liquidity
facilities may elect to become the controlling party with respect to any
indenture. (Intercreditor Agreement, Section 2.6)
For purposes of giving effect to the rights of the controlling party, AFE
Trust and the pass through trustees, other than the controlling party, will
irrevocably agree, and the certificateholders, other than the
certificateholders represented by the controlling party, will be deemed to
agree by virtue of their purchase of pass through certificates, that the
subordination agent, as record noteholder, will exercise its voting rights in
respect of the AFE Trust notes, the secured swap transactions, owned equipment
notes or leased equipment notes as directed by the controlling party.
(Intercreditor Agreement, Sections 2.6 and 9.1(b)) For a description of certain
limitations on the controlling party's rights to exercise remedies, see "--Sale
of AFE Trust Notes, Equipment Notes or Aircraft and Termination of the Secured
Swap Transactions" and "Description of the Notes and Equipment Notes--
Remedies."
Sale of AFE Trust Notes, Equipment Notes or Aircraft and Termination of the
Secured Swap Transactions
Following the occurrence and during the continuation of any indenture event
of default under any indenture, the controlling party may direct the
subordination agent to accelerate the AFE Trust notes, owned equipment notes or
leased equipment notes issued under that indenture and, subject to the
provisions of the next three sentences, sell all of the AFE Trust notes, owned
equipment notes or leased equipment notes issued under that indenture or, in
the case of an indenture event of default under a leased or owned aircraft
indenture, foreclose on and sell the aircraft related to that indenture to any
person or, in the case of an indenture event of default under the AFE Trust
note indenture, and to the extent any event of default or termination rights
then exist under any secured swap confirmation, terminate that secured swap
confirmation. So long as any pass
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through certificates are outstanding, during the nine months after the earliest
to occur of: (1) the acceleration of the owned equipment notes or leased
equipment note(s) issued under any indenture; (2) the termination of any
secured swap confirmation secured by any owned aircraft as a result of an
indenture event of default under the related owned aircraft indenture; and (3)
the bankruptcy or insolvency of United, without the consent of each pass
through trustee, no aircraft subject to the lien of that indenture may be
foreclosed on and/or sold if the net proceeds from the sale would be less than:
. in the case of an owned aircraft, the lesser of (A) 75% of the then
appraised value of such aircraft and (B) the sum of the amount of the
termination payment, if any, due under the secured swap confirmation
related to that aircraft plus the total outstanding principal amount of
the owned equipment notes for that aircraft, plus accrued interest; and
. in the case of leased aircraft, the lesser of (A) 75% of the then
appraised value of such aircraft and (B) the total outstanding principal
amount of the leased equipment notes for that aircraft, plus accrued
interest.
In addition, in the case of leased aircraft, the amount and payments of rent
by United under the lease for that aircraft may not be adjusted, if the
discounted present value of all rent would equal less than 75% of the
discounted present value of the rent payable by United before making that
adjustment.
In addition, during the nine months after the acceleration of the AFE Trust
notes, without the consent of each pass through certificateholder (other than
United or its affiliate if a lease event of default with respect to the leased
Boeing 747-422 aircraft or any leased Boeing 757-222 aircraft or owned aircraft
event of default has occurred and is continuing), the controlling party may not
sell the AFE Trust notes for less than the lesser of (1) their then outstanding
principal amount plus accrued interest and (2) 75% of the value of the 757
leased equipment notes, the secured swap transactions, the qualified substitute
and/or any swap substitute account (as determined by an independent investment
banking firm of nationally recognized standing selected by the controlling
party). (Intercreditor Agreement, Section 4.1)
Priority of Distributions
The subordination terms applicable to the pass through certificates vary
depending upon whether a Triggering Event has occurred.
Before a Triggering Event
So long as no Triggering Event has occurred, whether or not continuing, the
subordination agent will promptly distribute all payments made on the 747
leased equipment notes, AFE Trust notes, owned equipment notes and other
payments received on any distribution date on the distribution date in the
following order of priority:
. to each liquidity provider to the extent required to pay accrued and
unpaid Liquidity Expenses;
. to each liquidity provider to the extent required to pay accrued and
unpaid interest on the Liquidity Obligations;
. to each liquidity provider to the extent required to pay or reimburse
the liquidity provider for specified Liquidity Obligations, other than
amounts payable pursuant to the two preceding clauses, and/or, if
applicable, to replenish each cash collateral account up to the Required
Amount;
. to the Class A-1 pass through trustee and the Class A-2 pass through
trustee to the extent required to pay Expected Distributions on the
Class A-1 pass through certificates and the Class A-2 pass through
certificates, except that if available funds are insufficient to pay
Expected Distributions to each class in full, available funds will be
distributed to each of the Class A-1 pass through trustee and the Class
A-2 pass through trustee in the same proportion as the pass through
trustee's proportionate share of the aggregate amount of the Expected
Distributions;
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. to the Class B pass through trustee to the extent required to pay
Expected Distributions on the Class B pass through certificates;
. to the Class C-1 pass through trustee and the Class C-2 pass through
trustee to the extent required to pay Expected Distributions on the
Class C-1 pass through certificates and the Class C-2 pass through
certificates, except that if available funds are insufficient to pay
Expected Distributions to each class in full, available funds will be
distributed to each of the Class C-1 pass through trustee and the Class
C-2 pass through trustee in the same proportion as the pass through
trustee's proportionate share of the aggregate amount of the Expected
Distributions;
. to the subordination agent and each pass through trustee for the payment
of fees and expenses; and
. the balance, if any, to the collection account.
After a Triggering Event
Subject to the terms of the intercreditor agreement, upon the occurrence of
a Triggering Event and at all times after the occurrence of a Triggering Event,
the subordination agent will promptly distribute all funds received by the
subordination agent in respect of the 747 leased equipment notes, AFE Trust
notes, owned equipment notes and other specified payments received by the
subordination agent in the following order of priority:
. to the subordination agent and any pass through trustee, to the extent
required to pay out-of-pocket costs and expenses actually incurred by
the subordination agent or the pass through trustee in protection of, or
realization of the value of, the AFE Trust notes, owned equipment notes,
leased equipment notes or any collateral under any indenture, or to any
certificateholder or the liquidity provider for payments made to the
subordination agent or any pass through trustee in respect of those
amounts;
. to each liquidity provider to the extent required to pay accrued and
unpaid Liquidity Expenses;
. to each liquidity provider to the extent required to pay interest
accrued on the Liquidity Obligations;
. (1) to each liquidity provider to the extent required to pay the
outstanding amount of all Liquidity Obligations and/or,
(2) if applicable to any particular liquidity facility (unless (A) less
than 65% of the total outstanding principal amount of all owned
equipment notes and leased equipment notes are Performing Equipment
Notes and a liquidity event of default has occurred and is continuing
under the liquidity facility or (B) a final drawing has occurred under
the liquidity facility), to replenish the cash collateral account for
the liquidity facility up to the Required Amount for the related class
of pass through certificates (less the amount of any repayments of
interest drawings under the liquidity facility while subclause (A) of
this clause applies).
. if subclause (A) or (B) in item (2) above is applicable to any
particular liquidity facility, to the liquidity provider the excess of
(1) the total outstanding amount of unreimbursed drawings under the
liquidity facility over (2) the Required Amount for that liquidity
facility (less the amount of any repayments of interest drawings under
that liquidity facility while subclause (A) of item (2) above applies);
. to the subordination agent and each pass through trustee to the extent
required to pay fees, taxes, charges and other amounts payable or to any
certificateholder for payments made to the subordination agent or that
pass through trustee in respect of those amounts;
. to the Class A-1 pass through trustee and the Class A-2 pass through
trustee to the extent required to pay Adjusted Expected Distributions on
the Class A-1 pass through certificates and the Class A-2 pass through
certificates, except that if available funds are insufficient to pay
Adjusted Expected Distributions to each class in full, available funds
will be distributed to each of the Class A-1 pass through trustee and
the Class A-2 pass through trustee in the same proportion as the pass
through trustee's proportionate share of the aggregate amount of the
Adjusted Expected Distributions;
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. to the Class B pass through trustee to the extent required to pay
Adjusted Expected Distributions on the Class B pass through
certificates;
. to the Class C-1 pass through trustee and the Class C-2 pass through
trustee to the extent required to pay Adjusted Expected Distributions on
the Class C-1 pass through certificates and the Class C-2 pass through
certificates, except that if available funds are insufficient to pay
Adjusted Expected Distributions to each class in full, available funds
will be distributed to each of the Class C-1 pass through trustee and
the Class C-2 pass through trustee in the same proportion as the pass
through trustee's proportionate share of the aggregate amount of the
Adjusted Expected Distributions;
. the balance, if any, to the collection account.
After a Triggering Event occurs and any owned equipment note or leased
equipment note becomes a Non-Performing Equipment Note, the subordination agent
will obtain LTV Appraisals of all the aircraft as soon as practicable and
additional LTV Appraisals on or prior to each anniversary of the date of the
initial LTV Appraisals. If the controlling party reasonably objects to the
appraised value of the aircraft shown in the LTV Appraisals, the controlling
party may obtain or cause to be obtained substitute LTV Appraisals, including
LTV Appraisals based upon physical inspection of the aircraft. (Intercreditor
Agreement, Section 4.1(a))
The pass through trustee will distribute interest drawings under the
liquidity facility and withdrawals from the cash collateral account, in each
case in respect of interest distributable on the pass through certificates of
any pass through trust, despite the priority of distributions set forth in the
intercreditor agreement and otherwise described in this prospectus supplement.
The Subordination Agent
State Street Bank and Trust Company of Connecticut, National Association,
will be the subordination agent under the intercreditor agreement. United and
its affiliates may from time to time enter into banking and trustee
relationships with the subordination agent and its affiliates. The
subordination agent's address is 225 Asylum Street, Goodwin Square, Hartford,
Connecticut 06103, Attention: Corporate Trust Department. The subordination
agent's obligations will be guaranteed by its parent, State Street Bank and
Trust Company, a Massachusetts trust company.
The subordination agent may resign at any time by notifying the pass through
trustee and the liquidity provider. United, so long as no event of default has
occurred under any owned aircraft indenture or leased aircraft indenture, or
the controlling party may at any time remove the subordination agent as
provided in the intercreditor agreement. In these circumstances, the
controlling party will appoint a successor subordination agent. Any resignation
or removal of the subordination agent and appointment of a successor
subordination agent does not become effective until acceptance of the
appointment by the successor subordination agent. (Intercreditor Agreement,
Section 8.1)
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DESCRIPTION OF THE AFE TRUST NOTES
The following is a summary of some terms of the AFE Trust notes. This
summary does not purport to be complete and is qualified in its entirety by
reference to the provisions of the AFE Trust notes, the indenture and the note
purchase agreement, which we will file as exhibits to a Current Report on Form
8-K to be filed with the SEC.
AFE Trust
AFE Trust is a Delaware business trust formed under a trust agreement dated
as of June 9, 2000, between United Airlines, Inc., as trustor solely for
purposes of establishing the trust, and Wilmington Trust Company, as trustee.
AFE Trust is a special purpose entity not owned by or affiliated with United.
Certificates representing the beneficial interest in AFE Trust are not being
offered or sold under this prospectus supplement but will be privately placed
with institutional investors (not including United or any of its affiliates).
The sole business purposes of AFE Trust are to acquire equipment notes issued
for Boeing 757-222 aircraft leased to United, to issue the AFE Trust notes and
to enter into agreements in connection with the acquisition of 757 leased
equipment notes and the issuance of the AFE Trust notes, including the secured
swap transactions.
General
Under the terms of a note purchase agreement between the trustee of AFE
Trust, the pass through trustees, the subordination agent and the indenture
trustee, each pass through trust (except the Class C-2 pass through trust) will
purchase the AFE Trust note to be issued under the AFE Trust indenture having
the same interest rate as the interest rate on the pass through certificates of
that pass through trust. AFE Trust will issue four series of AFE Trust notes:
the Series A-1 AFE Trust note, the Series A-2 AFE Trust note, the Series B AFE
Trust note and the Series C-1 AFE Trust note. The obligations of AFE Trust for
the AFE Trust notes are non-recourse obligations.
Subordination
The indenture for the AFE Trust notes provides for the following
subordination provisions:
. The Series A-1 and Series A-2 AFE Trust notes will rank equally in right
of payment and will rank senior in right of payment to other AFE Trust
notes and to payments owed by AFE Trust to United as swap provider under
the secured swap transactions;
. The Series B AFE Trust note will rank junior in right of payment to the
Series A-1 and Series A-2 AFE Trust notes, and will rank senior in right
of payment to the Series C-1 AFE Trust note and to payments owed by AFE
Trust to United as swap provider under the secured swap transactions;
. The Series C-1 AFE Trust note will rank junior in right of payment to
the Series A-1, Series A-2 and Series B AFE Trust notes and will rank
senior in right of payment to payments owed by AFE Trust to United as
swap provider under the secured swap transactions; and
. Payments owed by AFE Trust to United as swap provider under the secured
swap transactions will rank junior in right of payment to the Series A-
1, Series A-2, Series B and Series C-1 AFE Trust notes.
Principal, Interest and Make Whole Payments
Subject to the provisions of the intercreditor agreement, the pass through
trustee will distribute scheduled installments of interest paid on the AFE
Trust note held in each pass through trust to the certificateholders of the
pass through trust on the dates and at the rate per year set forth on the cover
page of this prospectus supplement, in the case of the Series A-1, Series A-2
and Series B AFE Trust notes, and at the rate of the Eurodollar Rate plus 0.90%
in the case of the Series C-1 AFE Trust note, until the final expected regular
distribution date for that pass through trust. Subject to the provisions of the
intercreditor agreement, the pass
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through trustee will pass through principal paid on the AFE Trust note held in
each pass through trust to the certificateholders of the pass through trust in
scheduled amounts on the dates set forth in Appendix IV to this prospectus
supplement until the final expected regular distribution date for the pass
through trust. AFE Trust will only have funds available to make scheduled
payments of interest and principal to the extent that it has received scheduled
payments of principal and interest on the leased equipment notes held by AFE
Trust and payments due under the secured swap transactions.
Interest will be payable on the unpaid principal amount of each AFE Trust
note at the rate applicable to that AFE Trust note on January 1 and July 1 of
each year, commencing on January 1, 2001. Interest on the Series A-1, Series A-
2 and Series B AFE Trust notes will be computed on the basis of a 360-day year
of twelve 30-day months. Interest on the Series C-1 AFE Trust note will be
computed on the basis of a 360-day year and the actual number of days in the
period that interest accrues. Overdue amounts of principal, Make-Whole Amount,
if any, and interest on any series of AFE Trust notes will, to the extent
permitted by applicable law, bear interest at the interest rate applicable to
that series of AFE Trust notes plus 1%.
AFE Trust will make scheduled principal payments on the Series A-1, Series B
and Series C-1 AFE Trust notes on January 1 and July 1 in specified years,
commencing on January 1, 2001 and ending on July 1, 2011, January 1, 2010, and
January 1, 2008, respectively. AFE Trust is scheduled to pay the entire
principal amount of the Series A-2 AFE Trust note on July 1, 2010.
Make-Whole Amounts paid on the Series A-1, Series A-2 and Series B AFE Trust
notes will be passed through to the pass through trust holding those AFE Trust
notes in accordance with the AFE Trust indenture. Break Amounts paid on the
Series C-1 AFE Trust note will be passed through to the Class C-1 pass through
trust in accordance with the AFE Trust indenture. Break Amounts paid on the 757
leased equipment notes, while available to make payments on the AFE Trust notes
and the AFE Trust certificates, will not be passed through to the pass through
trusts (except, to the extent of available funds, in the order of priority
specified in the AFE Trust indenture to the Class C-1 pass through trust).
If any date scheduled for a payment of principal, Make-Whole Amount or Break
Amount, if any, or interest with respect to the AFE Trust notes is not a
business day, the payment will be made on the next succeeding business day
without any additional interest.
Prepayment of Leased Equipment Notes
If an event of loss occurs with respect to a leased Boeing 757-222 aircraft
and the aircraft is not replaced by United under the related lease, United must
pay the stipulated loss value for that leased aircraft. At the time of any
payment of stipulated loss value, AFE Trust must make a prepayment on the AFE
Trust notes in an amount equal to the stipulated loss value paid by United in
accordance with scheduled amounts set forth in the AFE Trust indenture such
that the aggregate principal balance and principal payments for the remaining
757 leased equipment notes equals the aggregate principal balance and principal
payments for the AFE Trust notes and AFE Trust certificates. For a discussion
of the stipulated loss value payable by United, see "Description of the
Equipment Notes--Events of Loss and Redemption."
In addition, if United exercises its option to purchase a leased Boeing 757-
222 aircraft and does not assume the obligations of the related owner trustee
in accordance with the leased aircraft indenture, the purchase price of the
leased aircraft must be sufficient to pay the principal amount, plus accrued
and unpaid interest, on the 757 leased equipment note for that leased aircraft,
together with all other amounts payable by United. If United terminates the
lease of any leased Boeing 757-222 aircraft, the owner trustee may sell the
leased aircraft, in which case the proceeds of the sale will be used to prepay
the 757 leased equipment note related to that leased aircraft. Alternatively,
the owner trustee may retain title to the leased aircraft, in which case the
owner trustee must pay to the indenture trustee an amount sufficient to prepay
the outstanding 757 leased equipment note for that aircraft. At the time of any
prepayment on the 757 leased equipment note, AFE Trust must make a prepayment
on the AFE Trust notes in an amount equal to the prepayment on the 757 leased
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equipment note in accordance with scheduled amounts set forth in the AFE Trust
indenture. For a description of United's purchase option and lease termination,
see "Description of the Equipment Notes--Certain Provisions of the Indentures
and Leases--Purchase Options under the Leases" and "--Voluntary Termination and
Purchase Rights."
Modification of AFE Trust Indenture
Without the consent of holders of a majority in principal amount of the AFE
Trust notes, the indenture trustee may not amend or modify the provisions of
the AFE Trust indenture, except to the extent indicated below.
The indenture trustee may amend the AFE Trust indenture without the consent
of the holders of the AFE Trust notes to, among other things:
(1) cure any defect or inconsistency in the indenture or the AFE Trust
notes;
(2) convey, transfer, assign, mortgage or pledge any property to or with
the indenture trustee or make any other provisions with respect to
matters or questions arising under the AFE Trust indenture or the AFE
Trust notes provided that the action does not adversely affect the
interests of any holder;
(3) cure any ambiguity or correct any mistake provided that the change does
not adversely affect the interests of any holder;
(4) correct or amplify the description of any property subject to the lien
of the AFE Trust indenture;
(5) add to the right of the holders; or
(6) provide for compliance with applicable law. (AFE Trust Indenture,
Section 11.01)
Without the consent of the holder of each AFE Trust note outstanding under
the AFE Trust indenture, no amendment or modification of the indenture may,
among other things:
(1) reduce the principal amounts of, Make-Whole Amount of, or interest
payable on, any AFE Trust notes issued under the AFE Trust indenture or
change the date on which any principal, Make-Whole Amount, if any, or
interest is due and payable;
(2) create any lien on the collateral prior to or pari passu with the lien
of the AFE Trust indenture, except as provided in the AFE Trust
indenture, or deprive any holder of an AFE Trust note of the benefit of
the lien of the AFE Trust indenture on the collateral; or
(3) reduce the percentage in principal amount of outstanding AFE Trust
notes required to take or approve any action under the AFE Trust
indenture. (AFE Trust Indenture, Section 11.02)
Security
AFE Trust will grant to the indenture trustee, for the benefit of the
holders of the AFE Trust notes, a security interest in:
(1) the 757 leased equipment note issued by the applicable owner trustee
for each leased Boeing 757-222 aircraft;
(2) AFE Trust's rights under the indentures under which those 757 leased
equipment notes were issued;
(3) the rights of AFE Trust under the secured swap transactions and any
qualified substitute for any secured swap transaction; and
(4) all proceeds of the above. (AFE Trust Indenture, Granting Clause)
The indenture trustee for AFE Trust will secure the AFE Trust notes with all
of the 757 leased equipment notes. Consequently, the indenture trustee for AFE
Trust will be able to apply the proceeds realized from the sale or other
exercise of remedies in respect of any leased Boeing 757-222 aircraft or the
757 leased equipment
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notes to the payment of all of the AFE Trust notes prior to the distribution of
any of these proceeds to the holders of the AFE Trust certificates.
AFE Trust Indenture Events of Default, Notice and Waiver
Indenture events of default under the AFE Trust indenture will include:
. the occurrence of any indenture event of default under any 757 leased
aircraft indenture;
. the failure by AFE Trust to pay any interest or principal within 10
business days after the same has become due on any AFE Trust note;
. the failure by AFE Trust to pay any amount (other than interest or
principal) when due under the indenture, any AFE Trust note or any other
operative document to which AFE Trust is a party (other than payment of
any Make-Whole Amount, Break Amount, indenture indemnities or amounts
payable by AFE Trust under any swap confirmation evidencing a secured
swap transaction) for more 20 business days after AFE Trust receives
written notice;
. an event of default by United as swap provider under any secured swap
transaction;
. the failure by AFE Trust to perform or observe any other covenant or
condition to be performed or observed by it under the AFE Trust
indenture or any other document to which it is a party (other than
payment of any Make-Whole Amount, Break Amount, indenture indemnities or
amounts payable by AFE Trust under any swap confirmation evidencing a
secured swap transaction) that continues for a period of 30 days after
notice to AFE Trust;
. any representation or warranty made by AFE Trust in the AFE Indenture,
any swap confirmation evidencing a secured swap transaction or any other
agreement to which it is a party proves to have been incorrect in any
material respect when made, and the incorrectness continues to be
material to the transactions contemplated by the indenture and remains
unremedied for a period of 30 days after notice to AFE Trust; and
. the occurrence of certain events of bankruptcy, reorganization or
insolvency of AFE Trust. (AFE Trust Indenture, Section 8.01)
Subject to the intercreditor agreement, the holders of a majority of the
total unpaid principal amount of the AFE Trust notes then outstanding, by
written instruction to the indenture trustee, may, on behalf of all
noteholders, waive any existing default and its consequences under the AFE
Trust indenture, except a default in the payment of the principal of or
interest due under any AFE Trust note, a payment default by the swap provider
under any secured swap transaction or a default in respect of any covenant or
provision of the AFE Trust indenture that cannot be modified or amended without
the consent of each noteholder. (AFE Trust Indenture, Section 8.04)
Remedies
The exercise of remedies under the AFE Trust indenture will be subject to
the terms of the intercreditor agreement. Accordingly, you should read the
following description in conjunction with the description of the intercreditor
agreement. See "Description of the Intercreditor Agreement--Intercreditor
Rights--Controlling Party."
If an indenture event of default occurs and is continuing under the AFE
Trust indenture, the related indenture trustee may and, upon receipt of written
instructions of the holders of at least a majority of the outstanding principal
amount of the AFE Trust notes then outstanding, will declare the principal of
all of the AFE Trust notes immediately due and payable, together with all
accrued but unpaid interest on the AFE Trust
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notes, but without any Make-Whole Amount. These holders of a majority of the
principal amount of AFE Trust notes outstanding may rescind any declaration of
acceleration of the AFE Trust notes if:
(1) AFE Trust has paid to the indenture trustee an amount sufficient to pay
all overdue installments of principal and interest on the AFE Trust
notes and all other amounts owing under the operative documents that
have become due otherwise than by the declaration of acceleration;
(2) the rescission would not conflict with any judgment or decree;
(3) all other indenture events of default, other than the nonpayment of the
principal amount or interest on the AFE Trust notes, that have become
due solely because of the acceleration, have been cured or waived; and
(4) each event of default by United under each secured swap transaction has
been cured or that secured swap transaction has been replaced by a
qualified substitute or the senior and junior termination value
payments under that secured swap transaction have been deposited into
the swap substitute account. (AFE Trust Indenture, Section 8.02)
Following a declaration of acceleration, the holders of the AFE Trust
certificates may pay the principal of all of the AFE Trust notes, together with
all accrued and unpaid interest on the AFE Trust notes and any sum owing by AFE
Trust under the secured swap transactions, but without any Make-Whole Amount.
The AFE Trust indenture provides that if an indenture event of default has
occurred and is continuing, the indenture trustee may exercise certain rights
or remedies available to it under the indenture and under applicable law.
If an indenture event of default under the AFE Trust indenture occurs and is
continuing, any sums held or received by the indenture trustee may be applied
to reimburse the indenture trustee for any tax, expense or other loss incurred
by it and to pay any other amounts due to the indenture trustee prior to any
payments to holders of the AFE Trust notes. (AFE Trust Indenture, Section 3.03)
Indemnification
Subject to the priority of payment provisions in the AFE indenture, AFE
Trust must indemnify each indenture trustee, each liquidity provider, the
subordination agent and each pass through trustee, but not the holders of pass
through certificates, for specified losses, claims and other matters for which
United has failed to make an indemnity payment. United, under the AFE Trust
note purchase agreement, must indemnify AFE Trust, each indenture trustee, each
liquidity provider, the subordination agent and each pass through trustee for
specified losses, claims and other matters, including any Make-Whole Amount.
(AFE Trust Indenture, Article V, AFE Trust Note Purchase Agreement, Section 7)
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DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
The Aircraft
The leased aircraft consist of one Boeing 747-222 and six Boeing 757-222
aircraft and the owned aircraft consist of six Airbus A320-232 aircraft, one
Boeing 757-222 aircraft, two Boeing 767-322ER aircraft and four Boeing 777-
222ER aircraft. United has taken delivery of, and currently operates, the
aircraft. The aircraft have been designed to be in compliance with Stage 3
noise level standards, the most restrictive regulatory standards currently in
effect in the United States for aircraft noise abatement.
Airbus A320-232 Aircraft
The Airbus A320-232 aircraft is a medium-range aircraft with a seating
capacity of approximately 138 passengers. The engine type utilized on United's
A320-232 aircraft is the International Aero Engine V2527-A5.
Boeing 747-422
The Boeing 747-422 aircraft is a long-range aircraft with a seating capacity
of approximately 368 passengers. The engine type utilized on United's 747-422
aircraft is the Pratt & Whitney PW 4056.
Boeing 757-222 Aircraft
The Boeing 757-222 aircraft is a medium-range aircraft with a seating
capacity of approximately 182 passengers. The engine type utilized on United's
757-222 aircraft is the Pratt & Whitney PW2037.
Boeing 767-322ER Aircraft
The Boeing 767-322ER aircraft is a medium-range aircraft with a seating
capacity of approximately 244 passengers. The engine type utilized on United's
767-322ER aircraft is the Pratt & Whitney PW4052.
Boeing 777-222ER Aircraft
The Boeing 777-222ER aircraft is a long-range aircraft with a seating
capacity of approximately 276 passengers. The engine type utilized on United's
777-222ER aircraft is the Pratt & Whitney PW4090.
The Appraisals
The table below sets forth the appraised base values of the aircraft, as
determined by Aircraft Information Systems, Inc. ("AISI"), AvSolutions, Inc.
("AvSolutions") and Morten, Beyer & Agnew, Inc. ("MBA"), independent aircraft
appraisal and consulting firms, and additional information regarding the
aircraft.
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<TABLE>
<CAPTION>
Appraiser's Valuations
-----------------------------------
Aircraft
Delivery Appraised
U.S. Registration Number Aircraft Type Month AISI AvSolutions MBA Value
------------------------ ---------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
N454UA.................. Airbus A320-232 November 1999 $43,940,000 $43,880,000 $43,000,000 $43,606,667
N455UA.................. Airbus A320-232 November 1999 43,950,000 43,880,000 43,000,000 43,610,000
N456UA.................. Airbus A320-232 December 1999 44,030,000 43,880,000 43,170,000 43,693,333
N457UA.................. Airbus A320-232 January 2000 45,680,000 44,230,000 43,350,000 44,230,000
N458UA.................. Airbus A320-232 February 2000 45,750,000 44,230,000 43,430,000 44,230,000
N459UA.................. Airbus A320-232 April 2000 45,850,000 44,570,000 43,610,000 44,570,000
N171UA.................. Boeing 747-422 June 1989 94,630,000 83,640,000 89,010,000 89,010,000
N567UA.................. Boeing 757-222 November 1992 39,440,000 37,880,000 40,360,000 39,226,667
N568UA.................. Boeing 757-222 November 1992 39,440,000 37,880,000 40,360,000 39,226,667
N569UA.................. Boeing 757-222 November 1992 39,440,000 37,880,000 40,360,000 39,226,667
N570UA.................. Boeing 757-222 November 1992 39,440,000 37,880,000 40,360,000 39,226,667
N571UA.................. Boeing 757-222 December 1992 39,440,000 37,880,000 40,520,000 39,280,000
N572UA.................. Boeing 757-222 December 1992 39,440,000 37,880,000 40,520,000 39,280,000
N596UA.................. Boeing 757-222 March 1998 53,470,000 49,440,000 53,190,000 52,033,333
N673UA.................. Boeing 767-322ER January 2000 87,430,000 81,120,000 87,550,000 85,366,667
N674UA.................. Boeing 767-322ER April 2000 87,780,000 81,650,000 88,100,000 85,843,333
N207UA.................. Boeing 777-222ER July 1999 130,180,000 132,130,000 126,310,000 129,540,000
N208UA.................. Boeing 777-222ER November 1999 130,630,000 132,880,000 128,380,000 130,630,000
N209UA.................. Boeing 777-222ER December 1999 130,810,000 132,880,000 128,900,000 130,810,000
N210UA.................. Boeing 777-222ER January 2000 135,110,000 133,720,000 129,440,000 132,756,667
</TABLE>
The appraised base value of each aircraft is the lesser of the average and
median base values of the aircraft as set forth by the three appraisers.
According to the International Society of Transport Aircraft Trading,
"appraised base value" is defined as each appraiser's opinion of the underlying
economic value of an aircraft in an open, unrestricted, stable market
environment with a reasonable balance of supply and demand, and assumes full
consideration of its "highest and best use". An aircraft's appraised base value
is founded in the historical trend of values and in the projection of value
trends and presumes an arm's length, cash transaction between willing, able and
knowledgeable parties, acting prudently, with an absence of duress and with a
reasonable period of time available for marketing.
We asked each appraiser to provide its opinion as to the appraised base
value of each aircraft. All three appraisers performed "desk-top" appraisals
without any physical inspection of the aircraft. The appraisals are based on
various assumptions and methodologies which vary among the appraisals and may
not reflect current market conditions. Appraisals that are based on different
assumptions and methodologies may result in valuations that are materially
different from those contained in the appraisals. The appraisers have delivered
letters setting forth their respective appraisals, copies of which are annexed
to this prospectus supplement as Appendix II. For a discussion of the
assumptions and methodologies used in each of the appraisals, you should read
each letter.
An appraisal is only an estimate of value. It does not necessarily indicate
the price at which an aircraft may be purchased from the manufacturer. You
should not rely on any appraisal as a measure of realizable value. The proceeds
realized on a sale of any aircraft may be less than its appraised value. In
addition, the value of the aircraft in the event of the exercise of remedies
under the applicable indenture will depend on market and economic conditions at
the time, the availability of buyers, the condition of the aircraft, whether
the aircraft are sold separately or in one or more groups and other factors.
Accordingly, we cannot assure you that the proceeds realized on any exercise of
remedies with respect to the aircraft under the applicable indenture would
equal the appraised value of the aircraft or be sufficient to satisfy in full
payments due on the equipment notes relating to the aircraft, the AFE Trust
notes or the pass through certificates.
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DESCRIPTION OF THE EQUIPMENT NOTES
The following summary describes some terms of the owned equipment notes and
leased equipment notes and supplements and, to the extent inconsistent with the
prospectus, replaces the description of the general terms and provisions
relating to the owned equipment notes and leased equipment notes, the
indentures and the participation agreements set forth in the prospectus. The
summaries do not purport to be complete and are qualified in their entirety by
reference to all of the provisions of the owned equipment notes and leased
equipment notes, the indentures and the participation agreements, which we will
file as exhibits to a Current Report on Form 8-K to be filed with the SEC.
Except as otherwise indicated, the following summaries relate to the owned
equipment notes and leased equipment notes, the indenture and the participation
agreement applicable to each aircraft.
Purchase of Equipment Notes
Under the terms of a note purchase agreement between the related owner
trustee, the pass through trustees, the subordination agent and the indenture
trustee with respect to the leased Boeing 747-422 aircraft, the pass through
trusts, other than the Class A-2 and Class C-1 pass through trusts, will
purchase from the owner trustee the 747 leased equipment notes to be issued
under the related indenture. The owner trustee will issue the 747 leased
equipment notes in three series: the Series A-1 747 leased equipment note, the
Series B 747 leased equipment note and the Series C-2 747 leased equipment
note. The owner trustee will issue the 747 leased equipment notes under an
indenture between the owner trustee and State Street Bank and Trust Company of
Connecticut, National Association, as indenture trustee. The 747 leased
equipment notes will be non-recourse obligations of the owner trustee.
Under the terms of a note purchase agreement between AFE Trust and the
holder of 757 leased equipment notes issued by the applicable owner trustee for
Boeing 757-222 leased aircraft, AFE Trust will purchase from those holders all
of the 757 leased equipment notes. Each owner trustee will issue to AFE Trust a
single 757 leased equipment note for each aircraft under a separate indenture
between the owner trustee and State Street Bank and Trust Company of
Connecticut, National Association, as indenture trustee. Each 757 leased
equipment note is a non-recourse obligation of the applicable owner trustee.
There are no subordination provisions in any of the 757 leased aircraft
indentures. There are, however, subordination provisions under the AFE Trust
indenture that limit the voting and other rights of the holders of the AFE
Trust notes in respect of the 757 leased equipment notes.
Under the terms of a note purchase agreement between United, the pass
through trustees, the subordination agent and the indenture trustee with
respect to each owned aircraft, the pass through trusts, other than the Class
C-1 pass through trust, will purchase from United the owned equipment notes to
be issued under the related indenture. United will issue the owned equipment
notes in four series: the Series A-1 owned equipment notes, the Series A-2
owned equipment notes, the Series B owned equipment notes and the Series C-2
owned equipment notes. United may elect to issue an additional series with
respect to some or all of the owned aircraft which would be the Series D owned
equipment notes and which would be funded from sources other than this
offering. United will issue the owned equipment notes for each owned aircraft
under a separate indenture between United and State Street Bank and Trust
Company of Connecticut, National Association, as indenture trustee. The owned
equipment notes will be direct, full recourse obligations of United.
Subordination
Owned Aircraft
Prior to an indenture event of default, each indenture for the owned
equipment notes issued for an owned aircraft provides for the following
subordination provisions:
(1) periodic swap payments will rank senior in right of payment to the
owned equipment notes;
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(2) Series A-1 and Series A-2 owned equipment notes will rank equally in
right of payment, will rank junior in right of payment to the periodic
swap payments, and will rank senior in right of payment to the Series
B, Series C-2 and Series D owned equipment notes, if any;
(3) Series B owned equipment notes will rank junior in right of payment to
the periodic swap payments and the Series A-1 and Series A-2 owned
equipment notes and will rank senior in right of payment to the Series
C-2 and Series D owned equipment notes, if any;
(4) Series C-2 owned equipment notes will rank junior in right of payment
to the periodic swap payments and the Series A-1, Series A-2 and Series
B owned equipment notes and will rank senior in right of payment to the
Series D owned equipment notes, if any; and
(5) Series D owned equipment notes, if any, will rank junior in right of
payment to the periodic swap payments and the Series A-1, Series A-2,
Series B and Series C-2 owned equipment notes.
Following an indenture event of default, the indenture for the owned
equipment notes issued for any owned aircraft provides for the following
subordination provisions:
(1) The specified expenses will rank senior in right of payment to the
periodic swap payments, senior termination value, the Series A-1,
Series A-2, Series B, Series C-2 and Series D owned equipment notes, if
any, and the junior termination value;
(2) The periodic swap payments and senior termination value will rank
junior in right of payment to the specified expenses, will rank senior
in right of payment to the Series A-1, Series A-2, Series B, Series C-2
and Series D owned equipment notes, if any, and to the junior
termination value;
(3) Series A-1 and Series A-2 owned equipment notes will rank equally in
right of payment, will rank junior in right of payment to the specified
expenses, periodic swap payments and senior termination value, and will
rank senior in right of payment to the Series B, Series C-2 and Series
D owned equipment notes, if any, issued for the aircraft and to the
junior termination value;
(4) Series B owned equipment notes will rank junior in right of payment to
the specified expenses, periodic swap payments and senior termination
value and the Series A-1 and Series A-2 owned equipment notes and will
rank senior in right of payment to the Series C-2 and Series D owned
equipment notes, if any, and the junior termination value;
(5) Series C-2 owned equipment notes will rank junior in right of payment
to the specified expenses, periodic swap payments and senior
termination value and the Series A-1, Series A-2 and Series B owned
equipment notes and will rank senior in right of payment to the Series
D owned equipment notes, if any, and the junior termination value;
(6) The junior termination value under the secured swap confirmation
related to the aircraft will rank junior in right of payment to the
specified expenses, periodic swap payments and senior termination value
and the Series A-1, Series A-2, Series B and Series C-2 owned equipment
notes, and will rank senior in right of payment to the Series D owned
equipment notes, if any;
(7) Series D owned equipment notes, if any, will rank junior in right of
payment to the specified expenses, periodic swap payments and senior
termination value, the Series A-1, Series A-2, Series B and Series C-2
owned equipment notes and the junior termination value;
(8) The balance, to United.
The "periodic swap payment" means, on any swap payment date, the amounts, if
any, due from the swap provider to AFE Trust as calculated under the applicable
swap confirmation.
"Specified expenses" are specified taxes, expenses or other losses due to
the owned aircraft indenture trustee and all amounts other than those amounts
described in items (2) through (7) due to AFE Trust, as swap counterparty, the
subordination agent, each liquidity provider, each pass through trustee and the
owned aircraft
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indenture trustee due under the owned aircraft indenture, owned aircraft
participation agreement and related secured swap transaction.
The "senior termination value" is the amount due under the secured swap
transaction secured by the related aircraft as calculated on schedules to the
swap confirmation evidencing such secured swap transaction, and is designed to
enable the AFE indenture trustee to make payments due on the Series A-1, Series
A-2 and Series B AFE Trust notes.
The "junior termination value" is the amount due under the secured swap
transaction secured by the related aircraft as calculated on the swap
confirmation evidencing such secured swap transaction, and is designed to
enable the AFE indenture trustee to make payments due on the AFE Trust
certificates.
Leased 747-422 Aircraft
Prior to an indenture event of default, the indenture for the 747 leased
equipment notes issued for the leased Boeing 747-422 aircraft provides for the
following subordination provisions:
(1) Series A-1 747 leased equipment note will rank senior in right of
payment to the Series B and Series C-2 747 leased equipment notes;
(2) Series B 747 leased equipment note will rank junior in right of payment
to the Series A-1 747 leased equipment note and will rank senior in
right of payment to the Series C-2 747 leased equipment note; and
(3) Series C-2 747 leased equipment note will rank junior in right of
payment to the Series A-1and Series B 747 leased equipment notes.
Following an indenture event of default, the indenture for the 747 leased
equipment notes provides for the following subordination provisions:
(1) The indenture trustee expenses will rank senior in right of payment to
the reimbursement amount, the enforcement expenses and the Series A-1,
Series B and Series C-2 747 leased equipment notes;
(2) The reimbursement amount will rank junior in right of payment to the
indenture trustee expenses and will rank senior in right of payment to
the enforcement expenses and the Series A-1, Series B and Series C-2
747 leased equipment notes;
(3) The enforcement expenses will rank junior in right of payment to the
indenture trustee expenses and the reimbursement amount and will rank
senior in right of payment to the Series A-1, Series B and Series C-2
747 leased equipment notes;
(4) Series A-1 747 leased equipment note will rank junior in right of
payment to the indenture trustee expenses, the reimbursement amount and
the enforcement expenses, and will rank senior in right of payment to
the Series B and Series C-2 747 leased equipment notes;
(5) Series B 747 leased equipment note will rank junior in right of payment
to the indenture trustee expenses, the reimbursement amount, the
enforcement expenses and the Series A-1 747 leased equipment note and
will rank senior in right of payment to the Series C-2 747 leased
equipment note; and
(6) Series C-2 747 leased equipment note will rank junior in right of
payment to the indenture trustee expenses, the reimbursement amount,
the enforcement expenses and the Series A-1 and Series B 747 leased
equipment notes.
The "indenture trustee expenses" are fees, reasonable out-of-pocket expenses
and other losses due to the indenture trustee under the indenture for the 747
leased equipment notes.
The "reimbursement amount" is the amount necessary to reimburse any holder
of a 747 leased equipment note for any indenture trustee expenses that the
noteholder paid to the indenture trustee.
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The "enforcement expenses" are all costs, losses, taxes and expenses
incurred by the indenture trustee in connection with taking action with respect
to the indenture estate, including enforcing remedies.
Principal and Interest Payments
The applicable indenture trustee under each 757 leased aircraft indenture
will distribute scheduled payments of interest and principal paid on the 757
leased equipment notes held by AFE Trust to AFE Trust on January 1 and July 1
of each year and at the rates and in the amounts, respectively, set forth in
Appendix III to this prospectus supplement. AFE Trust, as described under
"Description of the AFE Trust Notes--Principal, Interest and Make Whole
Payments," will use the interest payments made on the 757 leased equipment
notes, along with amounts paid under the secured swap transactions, to make
payments of interest and principal on the AFE Trust notes held in the relevant
pass through trust.
Subject to the provisions of the intercreditor agreement, the pass through
trustee will pass through scheduled installments of interest paid on the 747
leased equipment note and the owned equipment notes held in each pass through
trust to the certificateholders of the pass through trust on the dates and at
the rate per year set forth on the cover of this prospectus supplement until
the final expected regular distribution date for the pass through trust.
Subject to the provisions of the intercreditor agreement, the pass through
trustee will pass through principal paid on the 747 leased equipment note and
the owned equipment notes held in each pass through trust to the
certificateholders of the pass through trust in scheduled amounts on the dates
set forth in Appendices III and IV to this prospectus supplement until the
final expected regular distribution date for the pass through trust.
Interest will be, and, in the case of the 757 leased equipment notes, has
been, payable on the unpaid principal amount of each owned equipment note and
leased equipment note at the rate applicable to that owned equipment note or
leased equipment note on January 1 and July 1 of each year, commencing on
January 1, 2001 in the case of the 747 leased equipment notes and owned
equipment notes, and July 1, 1993 in the case of the 757 leased equipment
notes. In the case of the 747 leased equipment notes and the owned equipment
notes, the indenture trustee will compute interest on the basis of a 360-day
year of twelve 30-day months. In the case of the 757 leased equipment notes,
the indenture trustee will compute interest on the basis of a 360-day year and
the actual number of days in the period that interest accrues. Overdue amounts
of principal, Make-Whole Amount, if any, and interest on each series of 747
leased equipment notes and owned equipment notes will, to the extent permitted
by applicable law, bear interest at the interest rate applicable to that series
of 747 leased equipment notes and owned equipment notes, which interest rate
will be equal to the rate per annum applicable to the pass through certificates
set forth on the cover page of this prospectus supplement plus 2%, in the case
of the 747 leased equipment notes and 2%, in the case of the owned equipment
notes. Overdue amounts of principal, Break Amount, if any, and interest on the
757 leased equipment notes will, to the extent permitted by applicable law,
bear interest at 2% per annum over the offered quotation to first class banks
in the London interbank market by National Westminster Bank PLC at its
principal office in London for U.S. dollar deposits of amounts in same day
funds comparable to the amount of that obligation for consecutive one-day
periods, commencing on the due date of the obligation.
The applicable owner trustee has made, commencing on July 1, 1993, and will
continue to make scheduled principal payments on the 757 leased equipment notes
on January 1 and July 1 of each year.
The applicable owner trustee will make scheduled principal payments on the
Series A-1, Series B and Series C-2 747 leased equipment notes on January 1 and
July 1 in specified years, commencing on January 1, 2001 and ending on January
1, 2014, January 1, 2010 and January 1, 2014, respectively.
United will make scheduled principal payments on the Series A-1, Series B
and Series C-2 owned equipment notes on January 1 and July 1 in specified
years, commencing on January 1, 2001 and ending on January 1, 2010, July 1,
2011, and July 1, 2011, respectively. United is scheduled to pay the entire
principal amounts of the Series A-2 owned equipment notes on July 1, 2010.
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If any date scheduled for a payment of principal, Make-Whole Amount, if any,
or interest on the owned equipment notes is not a business day, the payment
will be made on the next succeeding business day without any additional
interest.
Events of Loss and Redemption
Events of Loss
If an event of loss occurs to an owned aircraft and the aircraft is not
replaced by United under the related indenture, United must redeem the owned
equipment notes issued with respect to the aircraft, in whole, at a price equal
to the aggregate unpaid principal amount thereof, together with accrued and
unpaid interest thereon to, but excluding, the date of redemption, but without
any Make-Whole Amount. (Owned Aircraft Indentures, Section 6.01(a)) In
addition, under the secured swap transactions United must perform its
obligations described under "--Events of Loss and Redemption--Collateral
Substitution and Termination Values of the Secured Swap Transactions" below.
The pass through trustee will distribute any amount paid by United in
connection with any redemption to the certificateholders on a special
distribution date.
If an event of loss occurs with respect to a leased aircraft and United does
not replace the aircraft under the related lease, United, as lessee of the
aircraft, must pay the stipulated loss value of that aircraft. In the case of
the leased Boeing 747-422 aircraft, United must pay the stipulated loss value
plus accrued interest due on the 747 leased equipment notes not later than the
business day after the 120th day after the occurrence of the event of loss. The
indenture trustee will apply the stipulated loss value, interest and premium
payment to the prepayment of the 747 leased equipment notes and all other
amounts then due on the 747 leased equipment notes. (747 Lease Section
10(a)(i), 747 Leased Aircraft Indenture, Sections 3.02, 3.04 and 6.01(a); 757
Leases, Section 10(a)(i); Leased Aircraft Indentures, Section 3.2) In the case
of a leased Boeing 757-222 aircraft, United will pay the stipulated loss value
on the stipulated loss payment date occurring after the first to occur of (1)
the 100th day after the event of loss, and (2) the third business day after
receipt of insurance proceeds by the loss payee in connection with the event of
loss (but not earlier than the business day after the 65th day following the
occurrence of the event of loss). The indenture trustee will apply the
stipulated loss value payment to prepayment of the 757 leased equipment notes
held by AFE Trust and all other amounts then due on the 757 leased equipment
notes. (Leases, Section, 10(a)(i))
Optional Redemption
United may, at its option, redeem all series of owned equipment notes so
long as Moody's and Standard and Poor's confirm that they will not reduce the
then rating of the Class A-1, Class A-2 and Class B pass through certificates
and the AFE Trust certificates. The applicable owner trustee may redeem the
leased equipment notes. (Owned Aircraft Indentures, Section 6.01(b); 747 Leased
Aircraft Participation Agreement, Section 17; 757 Leased Aircraft Participation
Agreements, Section 18)
United may redeem all series of owned equipment notes at a price equal to
the aggregate unpaid principal amount of those owned equipment notes, together
with Make-Whole Amount, if any, and accrued interest on those owned equipment
notes to, but not including, the date of redemption. In addition, under the
secured swap transactions United must perform its obligations described under
"--Events of Loss and Redemption--Collateral Substitution and Termination
Values of the Secured Swap Transactions" below. United must mail notice of
redemption of the owned equipment notes for any owned aircraft to holders of
the owned equipment notes not less than 15 nor more than 60 days prior to the
applicable redemption date. (Owned Aircraft Indentures, Section 6.02). The
applicable owner trustee may redeem the 747 leased equipment notes at a price
equal to the aggregate unpaid principal of those 747 leased equipment notes,
together with Make-Whole Amount, if any, and accrued interest on those 747
leased equipment notes to, but not including, the date of redemption. (747
Leased Aircraft Participation Agreement, Section 17, 747 Leased Aircraft
Indenture, Section 6.02(b)) The applicable owner trustee may redeem the 757
leased equipment notes at a price equal to the aggregate unpaid principal
amount of those 757 leased equipment notes, together with Break Amount, if any,
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and accrued interest on those leased equipment notes to, but not including, the
date of redemption. (757 Leased Aircraft Participation Agreement, Section 19;
757 Leased Aircraft Indentures, Section 3.2)
Prepayment Related to Lease Termination
If, with respect to any leased aircraft, United exercises its right to
terminate a lease or its purchase options, the applicable owner trustee will
apply the amounts payable by United in each case to prepay the leased equipment
note(s) for that aircraft and all other amounts then due on the leased
equipment note(s). (747 Leased Aircraft Indenture, Section 6.01(b); 757 Leased
Aircraft Indentures, Section 3.2) For a description of the amounts payable by
United in connection with a lease termination or the purchase options, see "--
Events of Loss and Redemption--Certain Provisions of the Indentures and
Leases--Purchase Options Under the Leases" and "--Certain Provisions of the
Indentures and Leases--Voluntary Termination and Purchase Rights." As a result
of a prepayment of any 757 leased equipment note, AFE Trust will make a
prepayment on the AFE Trust notes in an amount equal to the amount paid by
United under the lease in accordance with scheduled amounts set forth in the
AFE Trust indenture. In connection with the prepayment, AFE Trust must pay the
Make-Whole Amount, if any, on the Series A-1, Series A-2 and Series B AFE Trust
notes, and Break Amount, if any, on the Series C-1 AFE Trust note.
Optional Purchase by Owner Trustee or Owner Participant
If, with respect to the leased Boeing 747-422 aircraft, (1) a lease event of
default has occurred and is continuing for a period of 120 days or more and no
indenture event of default (other than arising out of the lease event of
default) has occurred and is continuing, or (2) the 747 leased equipment notes
have been accelerated, or (3) the applicable owner participant has received
notice that the indenture trustee intends to foreclose on the lien of the
indenture or to exercise any other dispossessory remedy, then in each case, the
applicable owner trustee or owner participant may redeem or purchase on the
applicable purchase date all of the 747 leased equipment notes at a price equal
to the aggregate unpaid principal amount plus accrued and unpaid interest on
the 747 leased equipment notes to, but not including, the purchase date. (747
Leased Aircraft Indenture, Section 8.03(e)(ii))
If, with respect to any leased Boeing 757-222 aircraft, either (1) an
indenture event of default has occurred and is continuing and the indenture
trustee has either given notice of its intent to sell the aircraft or has
accelerated the 757 leased equipment notes or (2) United has defaulted in the
payment of basic rent or a lease event of default has occurred and is
continuing, then in each case the 757 leased equipment note issued for that
aircraft may be purchased by the applicable owner trustee or owner participant
on the applicable purchase date at a price equal to the aggregate unpaid
principal amount of the 757 leased equipment note, together with the Break
Amount, if any, and accrued interest on the 757 leased equipment note to, but
not including, the purchase date. (757 Leased Aircraft Indentures, Section
2.14).
Secured Swap Transaction Substitution and Termination Values of the Secured
Swap Transactions
If there is an event of loss relating to an owned aircraft (unless United
replaces the owned aircraft under the related indenture) or an optional
termination of an owned aircraft indenture and redemption of the related owned
equipment notes (unless United secures its obligations to make its payments to
AFE Trust under the related secured swap transaction with a security interest
in another aircraft owned by United, subject to a ratings confirmation by
Moody's and Standard & Poor's), the indenture trustee for AFE Trust will engage
an independent investment banking firm of nationally recognized standing (that
is, so long as no lease event of default as defined in any leased aircraft
indenture or the 747 leased aircraft indenture or an event of default as
defined in any owned aircraft indenture, acceptable to United) to use
commercially reasonable efforts to purchase an interest rate hedging instrument
described in clause (1) below, and the secured swap transaction relating to the
affected owned aircraft will terminate. The swap provider must pay the lesser
of (A) the senior and junior termination values under that secured swap
transaction and (B) the amount necessary to purchase an interest rate hedging
instrument described in clause (1) below, including the fees of the investment
banking firm
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incurred in procuring that instrument, to the indenture trustee for AFE Trust.
The indenture trustee for the AFE Trust indenture will either:
(1) use the amount described in clause (B) above, if less than the amount
described in clause (A), to purchase direct pay letters of credit,
swaps cancellable by AFE Trust only or other interest rate hedging
instruments acceptable to Moody's and Standard & Poor's; or
(2) if the instruments described in clause (1) are not available using
commercially reasonable efforts at a cost less than the senior and
junior termination value payments, deposit the payment of the senior
and junior termination values into a swap substitute account held by
the AFE Trust indenture trustee to be used to make interest payments on
the Series A-1, Series A-2 and Series B AFE Trust notes and the AFE
Trust certificates to the same extent that the swap provider would have
made payments under that secured swap confirmation.
United, as the swap provider, will have no interest in the swap substitute
account or any monies deposited into that account.
Following any redemption or prepayment of one or more 757 leased equipment
notes, but not all of the 757 leased equipment notes, there will be a partial
reduction in the aggregate notional amount of the secured swap confirmations.
This reduction will be made pro rata to the secured swap confirmations
relating to each owned aircraft. If all of the 757 leased equipment notes for
all of the leased Boeing 757-222 aircraft are redeemed, the secured swap
confirmations will terminate.
Security
United will secure the owned equipment notes and the applicable owner
trustee has secured the leased equipment note(s) issued for each aircraft by a
security interest in (1) the aircraft, (2) in the case of leased aircraft, the
applicable owner trustee's rights under the lease of the aircraft to United,
(3) in the case of 747 leased aircraft, the Japanese cross-border lease and
other documents related to the Japanese cross-border lease, (4) certain
limited rights under the aircraft purchase agreement between United and Boeing
or Airbus, as applicable, (5) certain requisition and insurance proceeds for
the aircraft, and (6) all proceeds of the foregoing. (Indentures, Granting
Clause)
The owned equipment notes and leased equipment notes will not be cross-
collateralized and, consequently, the owned equipment notes or leased
equipment note(s) issued for any one aircraft will not be secured by any of
the other aircraft.
Loan to Value Ratios of Equipment Notes
The tables in Appendix V set forth loan to aircraft value ratios for the
owned equipment notes or leased equipment note(s), as applicable, issued for
each aircraft as of the issuance date of the pass through certificates and
each January 1 regular distribution date. We obtained the LTV ratios by
dividing (1) the outstanding principal amount, assuming no payment default or
early redemption, of the owned equipment notes or leased equipment note, as
applicable, determined immediately after giving effect to the payments
scheduled to be made on each regular distribution date by (2) the assumed
value of the aircraft securing the owned equipment notes or leased equipment
note(s), as applicable.
We based the tables in Appendix V on the assumption that the initial
appraised base value of the aircraft set forth opposite the initial regular
distribution date included in each table depreciates by approximately 3% each
year for the first 15 years after the year of delivery of the aircraft, by
approximately 4% each year for the next five years and by 5% each year after
that. Other rates or methods of depreciation may result in materially
different LTV ratios. We cannot assure you that the depreciation rate and
method assumed for the purposes of the tables are the ones most likely to
occur nor can we predict the actual future value of any aircraft. Thus, you
should not consider the tables to be a forecast or prediction of expected or
likely LTV ratios, but a mathematical calculation based on one set of
assumptions.
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Defeasance
Under specified circumstances, United may legally release itself from any
payment or other obligations on all, but not less than all, of the owned
equipment notes issued under one or more indentures if United puts in place the
following arrangements for the benefit of the holders of the owned equipment
notes:
. United must deposit in trust for the benefit of the holders of the owned
equipment notes a combination of money and direct obligations of the
United States and certain depository receipts representing interests in
the direct obligations that will generate enough money to pay when due
the principal of and interest on the owned equipment notes;
. United must deliver to the pass through trustees and the relevant
indenture trustee a legal opinion reasonably acceptable to both the pass
through trustees and the relevant indenture trustee stating that there
has been a change in the federal tax law from the law as in effect on
the date of this prospectus supplement or that there has been an IRS
ruling, in either case that lets United make the above deposit without
causing the holders of the pass through certificates to be taxed on
their pass through certificates any differently than if United did not
make the deposit and simply repaid the owned equipment notes itself; and
. That the owned aircraft will continue to secure the related secured swap
confirmation and that the obligations of United under the indenture,
other than payment, remain in effect until the confirmation secured by
that owned aircraft is terminated.
In addition, prior to any defeasance, the rating agencies must confirm in
writing that they will not reduce the then rating of the Class A-1, Class A-2
and Class B pass through certificates and the AFE Trust certificates as a
result of the defeasance.
If United were to accomplish a full defeasance, holders of the owned
equipment notes so defeased would rely solely on the trust deposit for
repayment on the owned equipment notes. Holders of the owned equipment notes
could not look to United for repayment if a shortfall in the payment of
principal of or interest on the owned equipment notes occurred. In addition,
the holders of the owned equipment notes would have no interest in or other
rights with respect to the related aircraft or other assets subject to the lien
of the related indenture, and the lien would terminate as to the owned
equipment notes (but not the related secured swap confirmation). (Owned
Aircraft Indentures, Section 10.01(y))
Limitation of Liability
The leased equipment notes are not direct obligations of, or guaranteed by,
United, the owner participants or the owner trustees in their individual
capacities. None of the owner trustees, the owner participants or the indenture
trustees, or any of their respective affiliates, will be personally liable to
any holder of any leased equipment note or, in the case of the owner trustees
and the owner participants, to the indenture trustees for any amounts payable
under the leased equipment notes or, except as provided in each indenture, for
any liability under that indenture. In the case of the leased equipment notes,
all payments of principal of, Break Amount or Make-Whole Amount, if any, and
interest on the leased equipment notes, other than payments made in connection
with an optional redemption or purchase of leased equipment notes issued for an
aircraft by the related owner trustee or the related owner participant, will be
made only from the income and proceeds received by the related indenture
trustee from the assets subject to the lien of the indenture for that aircraft,
including rent payable by United under the lease for that aircraft. (747 Leased
Aircraft Indenture, Section 2.09; 757 Leased Aircraft Indentures, Section 2.3)
Except as otherwise provided in the leased aircraft indentures, each owner
trustee in its individual capacity will not be answerable or accountable under
the leased aircraft indentures or under the leased equipment notes under any
circumstances except for its own willful misconduct or gross negligence. None
of the owner participants will have any personal liability under any of the
leased aircraft indentures or the leased equipment notes to the leased aircraft
indenture trustees or to any holder of any leased equipment note. (747 Leased
Aircraft Indenture, Section 2.09; 757 Leased Aircraft Indentures, Sections 2.3
and 6.1)
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The owned equipment notes issued for the owned aircraft are direct
obligations of United.
Equipment Note Indenture Events of Default, Notice and Waiver
Indenture events of default under each indenture will include:
. in the case of leased aircraft, the occurrence of a lease event of
default under the related lease;
. in the case of owned aircraft, the occurrence of a default by United
under the secured swap confirmation secured by that aircraft and such
default continues unremedied for 10 business days;
. the failure by United, in the case of owned aircraft, or the applicable
owner trustee, in the case of leased aircraft, other than due to a lease
event of default, to pay any interest or principal or Make-Whole Amount
(in the case of owned aircraft and the leased Boeing 747-422 aircraft)
or Break Amount (in the case of leased Boeing 757-222 aircraft), if any,
within 10 business days, in the case of owned aircraft, and 10 days, in
the case of the leased aircraft, after the same has become due on any
owned equipment note or leased equipment note;
. the failure by United or the applicable owner trustee, as applicable, to
pay any amount (other than interest, principal, Make-Whole Amount or
Break Amount, if any, or any periodic swap payment or termination value
payment) when due under the indenture, any owned equipment note or
leased equipment note or under the relevant participation agreement for
15 days, in the case of leased aircraft (or in the case of specified
amounts payable under the leased Boeing 757-222 aircraft participation
agreement, 30 days), and for more than 20 business days, in the case of
owned aircraft, after the applicable owner trustee or United, as
applicable, receives written notice;
. in the case of owned aircraft, the failure by United to carry and
maintain insurance or indemnity on or with respect to the aircraft in
accordance with the provisions of the indenture; however, no failure by
United to carry and maintain insurance will constitute an indenture
event of default until the earlier of (1) the date the failure has
continued unremedied for a period of 30 days after the indenture trustee
receives notice of the cancellation or lapse of the insurance or (2) the
date the insurance is not in effect as to the indenture trustee;
. the failure by the applicable owner trustee, in the case of leased
aircraft, to keep the aircraft free and clear of liens or to give
written notice of an indenture default or event of default after that
owner trustee has actual knowledge of the indenture default or indenture
event of default, in the case of a leased Boeing 757-222 aircraft, or
after the applicable owner trustee and owner participant have received
notice, in the case of the leased Boeing 747-422 aircraft, and the
default continues for a period of 30 days after a responsible officer
has actual knowledge of the default;
. the failure by United in the case of owned aircraft, and the owner
trustee or the owner participant, in the case of leased aircraft, to
perform or observe (in any material respect, in the case of owned
aircraft) any other covenant, obligation or agreement to be performed or
observed by it under any operative document or the related secured swap
confirmation that continues for a period of 60 days, in the case of
owned aircraft, or 30 days, in the case of leased aircraft, after notice
to United, the applicable owner trustee or owner participant, as the
case may be; however, in the case of owned aircraft and the leased
Boeing 747-222 aircraft, if the failure is capable of being remedied, no
failure will constitute an indenture event of default for a period of
360 days, in the case of owned aircraft, and 90 days, in the case of the
leased Boeing 747-422 aircraft, after the notice is received by United
or the applicable owner trustee so long as United or the owner trustee
is diligently proceeding to remedy the failure and such failure is in
fact remedied;
. any representation or warranty made by United, in the case of owned
aircraft, and the applicable owner trustee or owner participant, in the
case of leased aircraft, in specified operative documents proves to have
been incorrect in any material respect, and remains unremedied for a
period of 60 days, in the case of owned aircraft, or 30 days, in the
case of leased aircraft, after notice to United, the owner trustee and
the owner participant, as the case may be; and
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. the occurrence of certain events of bankruptcy, reorganization or
insolvency of United in the case of owned aircraft, and the owner
trustee or the owner participant, in the case of leased aircraft.
(Owned Aircraft Indentures, Section 8.01; 747 Leased Aircraft Indenture,
Section 8.01; 757 Leased Aircraft Indentures, Section 4.2)
There will not be any cross-default provisions in the indentures.
Consequently, events resulting in an indenture event of default under any
particular indenture may or may not result in an indenture event of default
occurring under any other indenture. If the owned equipment notes or leased
equipment notes issued for one or more aircraft are in default and the owned
equipment notes or leased equipment notes issued for the remaining aircraft are
not in default, no remedies will be exercisable under the indentures with
respect to the remaining aircraft.
Subject to the intercreditor agreement, AFE Trust as the swap counterparty,
so long as United has any obligations under the secured swap transactions and
thereafter, the holders of a majority of the total unpaid principal amount of
the owned equipment notes, the holders of a majority of the total unpaid
principal amount of the 747 leased equipment notes or the holders of 66 2/3% of
the total unpaid principal amount of the 757 leased equipment notes then
outstanding for any aircraft, by written instruction to the indenture trustee,
may on behalf of all the note holders waive any existing default and its
consequences under the indenture with respect to the aircraft, except that
consent of all the applicable noteholders is required to waive a default in the
payment of the principal of, or interest due under any owned equipment notes or
leased equipment notes or a default in the payment by United as swap provider
under a secured swap confirmation secured by an owned aircraft or a default in
respect of any covenant or provision of an indenture that cannot be modified or
amended without the consent of each note holder. (Owned Aircraft Indentures,
Section 8.04; 747 Leased Aircraft Indenture, Section 8.05; 757 Leased Aircraft
Indentures, Sections 4.8 and 9.1)
If United fails to make any basic rent payment due under any lease, within
15 days, in the case of the leased Boeing 747-422 aircraft, and 10 days after
the applicable owner participant receives notice of the failure, in the case of
leased Boeing 757-222 aircraft, so long as no indenture event of default other
than due to the lease event of default will have occurred and be continuing,
the owner participant may furnish to the indenture trustee the full amount of
the overdue basic rent payment for the related leased aircraft, including all
original principal amount and interest as is then due and payable on the leased
equipment notes. If the applicable owner participant makes this payment, the
indenture trustee may not exercise any remedies otherwise available under the
related indenture or the lease as the result of United's failure to make the
rent payment. However, if United has failed to make a basic rent payment when
due on more than three immediately preceding basic rent payment dates or on
more than six previous rent payment dates, the applicable owner participant may
not pay the amount described above and the indenture trustee will be able to
exercise remedies under the related indenture and lease. So long as no
indenture event of default will have occurred and be continuing, other than due
to the lease event of default, the applicable owner participant also may cure
any other default by United in the performance of its obligations under any
lease, which can be cured with the payment of money, so long as, solely in the
case of leased Boeing 757-222 aircraft, during the preceding twelve-month
period the amounts expended by the owner participant that have not been
reimbursed by United do not exceed $4,000,000. (747 Leased Aircraft Indenture,
Section 8.03(e)(i); 757 Leased Aircraft Indentures, Section 4.3)
Remedies
The exercise of remedies under the indentures will be subject to the terms
of the intercreditor agreement. Accordingly, you should read the following
description in conjunction with the description of the intercreditor agreement.
If an indenture event of default occurs and is continuing under an
indenture, the related indenture trustee may, and upon receipt of written
instructions of the holders of at least 25% of the principal amount of the
owned equipment notes then outstanding, in the case of the owned aircraft
indentures, the holders of at least
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25% of the principal amount of the 747 leased equipment notes then outstanding,
in the case of the 747 leased aircraft indenture, and the holders of 66 2/3% of
the principal of the 757 leased equipment notes then outstanding, in the case
of the 757 leased indentures, will declare the principal of all of the owned
equipment notes or 747 leased equipment notes or the 757 leased equipment note,
as applicable, issued under that indenture immediately due and payable,
together with all accrued but unpaid interest, but without any Make-Whole
Amount. AFE Trust as the swap counterparty, so long as United has any
obligations under the secured swap confirmations and thereafter, the holders of
a majority, in the case of owned aircraft indentures, the holders of a
majority, in the case of the 747 leased aircraft indenture, and of 66 2/3%, in
the case of 757 leased aircraft indentures, of the principal amount of owned
equipment notes, 747 leased equipment notes or 757 leased equipment notes, as
applicable, outstanding under that indenture may rescind any declaration of
acceleration of the owned equipment notes or termination of the applicable
secured swap confirmation or both, or declaration of acceleration of the 747
leased equipment notes or 757 leased equipment note, as applicable, if:
(1) United or the owner trustee, as applicable, has paid to the related
indenture trustee an amount sufficient to pay all overdue installments
of principal and interest on the owned equipment notes or leased
equipment note(s), as applicable, and all other amounts owing under the
relevant operative documents or the related secured swap confirmation,
that have become due other than by the declaration of acceleration or
such termination;
(2) there has been no judgment or decree for the payment of money due (in
the case of 757 leased equipment notes) or the rescission would not
conflict with any judgment or decree (in the case of 747 leased
equipment notes and owned equipment notes); and
(3) all other indenture events of default, other than nonpayment of
principal amount or interest on the owned equipment notes or other sum
owing under the related secured swap confirmation or leased equipment
note(s), as applicable, that have become due solely because of the
acceleration or such termination, have been cured or, in the case of an
owned aircraft indenture and 747 leased aircraft indenture, waived.
(Owned Aircraft Indentures, Section 8.02; 747 Leased Aircraft
Indenture, Section 8.02; 757 Leased Aircraft Indentures, Section 5.1)
Each indenture provides that if an indenture event of default under the
indenture has occurred and is continuing, the related indenture trustee may
exercise certain rights or remedies available to it under the indenture and the
related secured swap confirmation, under applicable law and, in the case of the
leased aircraft indenture, under the lease. The remedies include the right to
terminate the lease, in the case of a leased aircraft, and to take possession
of the aircraft and to sell all or any part of the airframe or any engine
comprising the aircraft subject to the indenture.
There will be no cross-collateralization of the owned equipment notes or
leased equipment notes. If the owned equipment notes or leased equipment notes,
as applicable, issued in respect of one aircraft are in default, the owned
equipment notes or leased equipment notes, as applicable, issued in respect of
the other aircraft may not be in default and no remedies will be exercisable
under the applicable indentures with respect to the other aircraft.
If an indenture default under any indenture occurs and is continuing, any
sums held or received by the related indenture trustee may be applied to
reimburse the indenture trustee for any tax, expense or other loss incurred by
it and to pay any other amounts due to the indenture trustee prior to any
payments to holders of the owned equipment notes or leased equipment note(s),
as applicable, issued under that indenture. (747 Leased Aircraft Indenture,
Section 3.05; 757 Leased Aircraft Indentures, Section 3.3; Owned Aircraft
Indentures, Section 3.03)
Section 1110 of the U.S. Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo
used by air carriers operating under certificates issued by the Secretary of
Transportation under Chapter 447 of the Transportation Code to take possession
of the aircraft in compliance with the
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provisions of the lease, conditional sale contract or security agreement, as
the case may be, is not affected by any other provision of Chapter 11 of the
U.S. Bankruptcy Code or any power of the bankruptcy court.
Section 1110 provides, however, that the right of a lessor, conditional
vendor or holder of a security interest to take possession of an aircraft in
the event of a default may not be exercised for 60 days following the date of
commencement of the reorganization proceedings unless specifically permitted by
the bankruptcy court. These rights to take possession may not be exercised at
all if, within the 60-day period, the trustee in reorganization or the debtor-
in-possession agrees to perform the debtor's obligations that become due on or
after that date and cures all existing defaults (other than defaults that are a
breach of a provision relating to the financial condition, bankruptcy,
insolvency or reorganization of the debtor).
Vedder, Price, Kaufman & Kammholz, special counsel to United, has advised:
(1) each leased aircraft indenture trustee that the related owner trustee,
as lessor under the related lease, and the related leased aircraft
indenture trustee, as assignee of the owner trustee's rights under the
lease under the related leased aircraft indenture, are entitled to the
benefits of Section 1110 of the U.S. Bankruptcy Code with respect to
the related airframe and engines; and
(2) each owned aircraft indenture trustee that it is entitled to the
benefits of Section 1110 of the U.S. Bankruptcy Code with respect to
the related airframe and engines as a secured party under the related
owned aircraft indenture.
This opinion assumes that United was, at the time the relevant equipment
notes were or are purchased (or the secured swap confirmations were executed
and delivered on behalf of United), a citizen of the United States holding an
air carrier operating certificate issued by the Secretary of Transportation
pursuant to chapter 447 of title 49 of the U.S. Code for aircraft capable of
carrying 10 or more individuals or 6,000 pounds or more of cargo.
The opinion of Vedder, Price, Kaufman & Kammholz does not address the
possible replacement of an aircraft after an event of loss in the future, the
consummation of which is conditioned on the contemporaneous delivery of an
opinion of counsel to the effect that the related indenture trustee's
entitlement to Section 1110 benefits should not be diminished as a result of
such replacement. The opinion of Vedder, Price, Kaufman & Kammholz also does
not address the availability of Section 1110 with respect to any possible
sublessee of a leased aircraft subleased by United or to any possible lessee of
the owned aircraft leased by United.
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an owner participant, it is possible that, notwithstanding that the
applicable leased aircraft is owned by the related owner trustee in trust, the
leased aircraft and the related lease and leased equipment note(s) might become
part of that proceeding. In this event, payments under the lease or on the
leased equipment note(s) might be interrupted. In addition, the ability of the
related leased aircraft indenture trustee to exercise its remedies under the
related leased aircraft indenture might be restricted, although the leased
aircraft indenture trustee would retain its status as a secured creditor in
respect of the related lease and the related leased aircraft.
In specified circumstances following the bankruptcy or insolvency of United
or an owner trustee where the obligations of United or the owner trustee under
any indenture exceed the value of the aircraft collateral under that indenture,
post-petition interest will not accrue on the related owned equipment notes or
leased equipment note(s). In addition, to the extent that the pass through
trustee makes distributions to any certificateholders, whether under the
intercreditor agreement or from drawings on the liquidity facilities, in
respect of amounts that would have been funded by post-petition interest
payments on the owned equipment notes or leased equipment note(s), as
applicable, had those payments been made, there would be a shortfall between
the claim allowable against United or the owner trustee, as applicable, on the
owned equipment notes or leased equipment note(s) after the disposition of the
aircraft collateral securing those owned equipment notes or leased equipment
note(s) and the remaining balance of the pass through certificates. The
shortfall would first reduce
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some or all of the remaining claim against United or the owner trustee
available to the pass through trustees for the most junior classes.
Modification of Indentures
Without the consent of AFE Trust as the swap counterparty and the holders of
a majority of the principal amount of the owned equipment notes (in the case of
owned aircraft), the holders of a majority of the principal amount of the 747
leased equipment notes (in the case of the leased Boeing 747-422 aircraft) or
the holders of 66 2/3% of the principal amount of the 757 leased equipment note
(in the case of leased Boeing 757-222 aircraft) outstanding under any
indenture, the provisions of the indenture may not be amended or modified,
except to the extent indicated below.
The indenture trustee may amend any owned aircraft indenture without the
consent of the noteholders to, among other things:
(1) correct any mistake, cure any ambiguity, defect or inconsistency in the
indenture or the owned equipment notes issued under that indenture,
provided that the change does not adversely affect the interests of AFE
Trust as the swap counterparty or any noteholder;
(2) convey, transfer, assign, mortgage or pledge any property to or with
the indenture trustee or make any other provisions with respect to
matters or questions arising under that indenture or the owned
equipment notes, provided that the action does not adversely affect the
interests of AFE Trust as the swap counterparty or any noteholder;
(3) correct or amplify the description of any property subject to the lien
of that indenture;
(4) add to the rights of the noteholders or AFE Trust as swap counterparty;
or
(5) provide for the issuance of Series D owned equipment notes and Class D
pass through certificates and to make changes relating to the issuance
provided that the Series D owned equipment notes are issued in
accordance with the terms of that indenture and of the participation
agreement (including obtaining rating agency confirmation with respect
to the Class A-1, Class A-2 and Class B pass through certificates and
the AFE Trust certificates); and
(6) provide for compliance with applicable law. (Owned Aircraft Indentures,
Section 11.01)
The indenture trustee may amend the 747 leased aircraft indenture without
the consent of the noteholders to, among other things:
(1) correct any mistake, cure any ambiguity, defect or inconsistency in the
indenture or the 747 leased equipment notes issued under that
indenture, provided that the change does not adversely affect the
interests of any noteholder;
(2) convey, transfer, assign, mortgage or pledge any property to or with
the indenture trustee or make any other provisions with respect to
matters or questions arising under that indenture or the 747 leased
equipment notes, provided that the action does not adversely affect the
interests of any noteholder;
(3) correct or amplify the description of any property subject to the lien
of that indenture;
(4) add to the rights of the noteholders;
(5) provide for the assumption by United of the obligations of the
applicable owner trustee under that indenture in accordance with the
terms of that indenture; and
(6) provide for compliance with applicable law. (747 Leased Aircraft
Indenture, Section 11.01)
Without the consent of AFE Trust as the swap counterparty and the holder of
each owned equipment note (in the case of owned aircraft) or the holder of each
leased equipment note (in the case of leased aircraft)
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outstanding under any indenture affected by any amendment or modification, no
amendment or modification of the indenture may, among other things:
(1) reduce the principal amount of, or Make-Whole Amount (in the case of
the leased Boeing 747-422 aircraft and owned aircraft) or Break Amount
(in the case of leased Boeing 757-222 aircraft), if any, or interest
payable on, any owned equipment notes or the leased equipment note(s)
issued under that indenture, as the case may be, or change the date on
which any principal, Make-Whole Amount (in the case of the leased
Boeing 747-422 aircraft and owned aircraft) or Break Amount (in the
case of leased Boeing 757-222 aircraft), if any, or interest is due and
payable;
(2) in the case of the leased Boeing 747-422 aircraft and owned aircraft,
create any lien with respect to the collateral prior to or of equal
rank with the lien of the applicable indenture, except as provided in
that indenture, or deprive any holder of a 747 leased equipment note or
owned equipment note issued under that indenture of the benefit of the
lien of that indenture upon the collateral; or
(3) reduce the percentage in principal amount of outstanding owned
equipment notes or leased equipment note(s), as applicable, issued
under the applicable indenture, or remove the consent of AFE Trust as
swap counterparty, required to take or approve any action under that
indenture. (Owned Aircraft Indentures, Section 11.02; 747 Leased
Aircraft Indenture, Section 11.02; 757 Leased Aircraft Indentures,
Section 9.1(b))
Indemnification
United must indemnify each indenture trustee, each liquidity provider, the
subordination agent and each pass through trustee, in the case of the owned
aircraft participation agreement, the applicable owner participant, the
applicable owner trustee, the indenture trustee and the pass through trustees,
as the holders of the 747 leased equipment notes, in the case of the 747 leased
aircraft participation agreement, and AFE Trust, as holder of the 757 leased
equipment notes, in the case of the 757 leased aircraft participation
agreement, but not the holders of pass through certificates, for specified
losses, claims and other matters. (Owned Aircraft Participation Agreement,
Section 5; Leased Aircraft Participation Agreements, Sections 7(b) and 7(c))
The indenture trustee will not be required to take any action or refrain
from taking any action, other than notifying the noteholders if it knows of an
event of default or of a default arising from United's or the owner trustee's
failure to pay overdue principal, interest or Make-Whole Amount (in the case of
owned aircraft) or Break Amount (in the case of leased Boeing 757-222
aircraft), if any, under any owned equipment note or leased equipment note,
unless it has received indemnification satisfactory to it against any risks
incurred in connection therewith. (Owned Aircraft Indentures, Section 9.06; 747
Leased Aircraft Indenture, Section 9.06; 757 Leased Aircraft Indentures Section
5.3)
Certain Provisions of the Indentures and Leases
Lease Rent Payments
The relevant owner trustee leases each leased aircraft to United for a term
commencing on the date on which the aircraft was acquired by the owner trustee
and expiring on a date not earlier than the latest maturity date of the related
leased equipment note(s), unless terminated prior to the originally scheduled
expiration date as permitted under the lease. United must pay the basic rent
payment under each lease on each lease payment date or, if that day is not a
business day, on the next business day. The lease payment dates under each
lease are January 1 and July 1 of each year during the term of that lease. The
owner trustee has assigned the lease under the corresponding indenture to
provide the funds necessary to make payments of principal and interest due from
the owner trustee on the leased equipment note(s) issued under that indenture.
In some cases, the owner participant may adjust the basic rent payments under
the leases. However, under no circumstances will rent payments by United be
less than the scheduled payments on the related leased equipment note(s). In
addition, inasmuch as the basic rent payments to be made by United under each
lease of Boeing 757-222
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aircraft have been calculated based on an assumed interest rate payable on all
of the related 757 leased equipment note and are increased or decreased by an
amount equal to the difference between the actual interest rate payable from
time to time on the 757 leased equipment note and the assumed interest rate
payable on the 757 leased equipment note, the basic rent payments to be made
under such lease will adjust to take in account that rent differential amount
arising as a result of the resetting of the rate of interest on the 757 leased
equipment note. After payment of amounts due on the leased equipment note(s)
issued under the related indenture, the indenture trustee will pay any balance
of each basic rent payment under each lease to the owner trustee. (747 Leased
Aircraft Indenture, Section 3.03; Leases, Section 3; 757 Leased Aircraft
Indentures, Section 3.1)
Maintenance and Operation
Under the terms of each owned aircraft indenture and each lease, United
must, among other things and at its expense, keep each aircraft duly
registered, and maintain, service, repair and overhaul the aircraft so as to
keep it in the condition as necessary to maintain the airworthiness certificate
for the aircraft in good standing at all times. (Owned Aircraft Indentures,
Section 4.01(a); Leases, Section 7(a))
United may not, and will not permit any lessee or any sublessee, to
maintain, use or operate any aircraft in violation of any law, rule or
regulation of any government having jurisdiction over the aircraft, or in
violation of any airworthiness certificate, license or registration relating to
the aircraft, unless United, or any lessee or any sublessee, is contesting in
good faith the validity or application of any law, rule or regulation in any
manner that does not involve any material risk of sale, forfeiture or loss of
the aircraft or, in the case of leased aircraft, create the risk of any
criminal liability or specified types of unindemnified civil liability. (Owned
Aircraft Indentures, Section 4.01(a) Leases, Section 7(a))
United must make all alterations, modifications and additions to each
airframe and engine necessary to meet the applicable requirements of the
Federal Aviation Administration or any other applicable governmental authority
of another jurisdiction in which the aircraft may then be registered. However,
United, any sublessee or any lessee, may in good faith contest the validity or
application of any requirement in any manner that does not involve a material
risk of sale, forfeiture or loss of the aircraft or, in the case of leased
aircraft, create the risk of any criminal liability or specified types of civil
liability. United, any sublessee or any lessee, may add parts and make other
alterations, modifications and additions to any airframe or any engine as
United, any sublessee or any lessee, may deem desirable in the proper conduct
of its business, including removal of obsolete or unsuitable parts. The
alterations, modifications, additions or removals, however, may not materially
diminish the value, utility or remaining useful life of the airframe or engine
below its value, utility or, in the case of leased Boeing 757-222 aircraft,
remaining useful life immediately prior to the alteration, modification,
addition or removal, assuming the airframe or engine was maintained in
accordance with the indenture or lease. However, the value but not the utility
or, in the case of leased Boeing 757-222 aircraft, remaining useful life or, in
the case of the leased Boeing 747-422 aircraft and owned aircraft, the
condition or airworthiness of any airframe or engine may be reduced from time
to time by the value of any the parts which have been removed that United deems
obsolete or no longer suitable or appropriate for use on the airframe or
engine. All parts, with specified exceptions, incorporated or installed in or
added to the airframe or engine as a result of the alterations, modifications
or additions will be subject to the lien of the indenture. United, any
sublessee or any lessee, may, so long as no indenture event of default (in the
case of owned aircraft) or lease event of default (in the case of leased
aircraft) has occurred and is continuing, remove parts that are in addition to,
and not in replacement of or substitution for, any part originally incorporated
or installed in or attached to an airframe or engine at the time of delivery of
the aircraft to United. In addition, United, any sublessee or any lessee may
remove any part that is not required to be incorporated or installed in or
attached to any airframe or engine pursuant to applicable requirements of the
Federal Aviation Administration or other jurisdiction in which the aircraft may
then be registered, or any part that can be removed without materially
diminishing the requisite value, utility or, in the case of leased Boeing 757-
222 aircraft, remaining useful life or, in the case of the leased Boeing 747-
422 aircraft and owned aircraft, the condition or airworthiness of the
aircraft. (Owned Aircraft Indentures, Section 4.02; Leases, Section 8(c))
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Except as described above, United must replace or cause to be replaced all
parts that are incorporated or installed in or attached to any airframe or any
engine and become worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use. Any replacement
parts will become subject to the lien of the related indenture in lieu of the
part replaced. (Owned Aircraft Indentures, Section 4.02(a); Leases, Section
8(a))
Registration, Leasing and Possession
Although United has no current intention to do so, United may register an
aircraft in specified jurisdictions outside the United States (other than, in
the case of the leased Boeing 747-422 aircraft, Japan under specified
circumstances), subject to conditions specified in the related owned aircraft
indenture or lease. (Owned Aircraft Indentures, Section 4.01(a); Owned Aircraft
Participation Agreements, Section 6(a); 747 Leased Aircraft Participation
Agreement, Section 8(e); 757 Aircraft Leased Participation Agreements, Section
9(e)) United may also, subject to certain limitations, lease any aircraft to
any United States certificated air carrier or to certain foreign air carriers.
In addition, subject to specified limitations, United will be permitted to
transfer possession of any airframe or any engine other than by lease,
including transfers of possession by United, any sublessee or any lessee in
connection with certain interchange and pooling arrangements, transfers to the
government of the United States or any instrumentality or agency, "wet leases"
and transfers in connection with maintenance or modifications. (Owned Aircraft
Indentures, Section 4.01(a); Leases, Section 7(b)) There will be no general
geographical restrictions on United's, any sublessee's or any lessee's ability
to operate the aircraft. The extent to which the relevant indenture trustee's
lien would be recognized in an aircraft if the aircraft were located in certain
countries is uncertain. In addition, any exercise of the right to repossess an
aircraft may be difficult, expensive and time-consuming, particularly when the
aircraft is located outside the United States or has been registered in a
foreign jurisdiction or leased to a foreign operator, and may be subject to the
limitations and requirements of applicable law, including the need to obtain
consents or approvals for deregistration or re-export of the aircraft, which
may be subject to delays and political risk. When a defaulting lessee or other
permitted transferee is the subject of a bankruptcy, insolvency or similar
event such as protective administration, additional limitations may apply. See
"Risk Factors--Repossession."
In addition, at the time of foreclosing on the lien on the aircraft under
the related indenture, an airframe subject to the indenture might not be
equipped with the engines subject to the same indenture. If United fails to
transfer title to engines not owned by United that are attached to the
repossessed aircraft, it could be difficult, expensive and time-consuming to
assemble an aircraft consisting of an airframe and engines subject to the
indenture.
Liens
United must maintain each aircraft free of any liens, other than the rights
of United, the lien of the indenture, and any other rights existing pursuant to
the other operative documents and pass through documents related to the
aircraft, the rights of others in possession of the aircraft in accordance with
the terms of the indenture and, if applicable, the lease, and liens
attributable to other parties to the operative documents and pass through
documents related to the aircraft and other than certain other specified liens,
including:
(1) liens for taxes either not yet due or being contested in good faith by
appropriate proceedings and so long as the proceedings do not involve
any material risk of the sale, forfeiture or loss of the airframe or
any engine or any interest in the airframe or any engine;
(2) materialmen's, mechanics' and other similar liens arising in the
ordinary course of business and securing obligations that either are
not yet overdue for more than 30 days, in the case of leased Boeing
757-222 aircraft, and 60 days, in the case of the leased Boeing 747-422
aircraft and owned aircraft, or are being contested in good faith by
appropriate proceedings so long as the proceedings do not involve any
material risk of the sale, forfeiture or loss of the airframe or any
engine or any interest in the airframe or any engine;
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(3) judgment liens so long as the judgment is discharged or vacated within
45 days, in the case of the leased Boeing 747-422 aircraft, and 60
days, in the case of leased Boeing 757-222 aircraft and the owned
aircraft or the execution of the judgment is stayed pending appeal or
the judgment is discharged, vacated or reversed within 45 days, in the
case of the leased Boeing 747-422 aircraft, and 60 days, in the case of
leased Boeing 757-222 aircraft and owned aircraft, after expiration of
the stay so long as the judgment or award does not involve any material
risk of the sale, forfeiture or loss of the airframe or any engine or
any interest in the airframe or engine; and
(4) any other lien as to which United has provided a bond or other security
adequate in the reasonable opinion of the indenture trustee or, in the
case of leased aircraft, the owner trustee. (Owned Aircraft Indentures,
Section 5.02; Leases, Section 6)
Insurance
Subject to specified exceptions, United must maintain, at its expense (or at
the expense of a lessee, in the case of an owned aircraft, or a sublessee, in
the case of a leased aircraft), all-risk aircraft hull insurance covering each
aircraft, at all times in an amount not less than (1) 100% of the aggregate
outstanding principal amount of the owned equipment notes for the aircraft in
the case of owned aircraft, and (2) the stipulated loss value of the aircraft,
in the case of leased aircraft. However, after giving effect to self-insurance
permitted as described below, the amount payable under the insurance may be
less than the amounts payable on the owned equipment notes or leased equipment
note(s), as the case may be, for any aircraft. During any period when an
aircraft is on the ground and not in operation, United may carry in lieu of the
insurance required by the previous sentence, insurance otherwise conforming
with the provisions of the previous sentence except that the scope of the risks
covered and the type of insurance must be the same as are from time to time
applicable to aircraft owned or leased by United of the same type as the
aircraft that are also on the ground and not in operation. The amount of the
insurance coverage in this case must be at least equal to (1) 100% of the
aggregate outstanding principal amount of the owned equipment notes for the
aircraft in the case of owned aircraft, and (2) the stipulated loss value of
the aircraft, in the case of leased aircraft. (Owned Aircraft Indentures,
Section 4.03, Leases, Section 11)
All policies covering loss of or damage to an aircraft will provide that:
(1) if a loss occurs involving the aircraft, airframe or an engine for
which insurance proceeds are in excess of, in the case of the owned
aircraft, $5,000,000 (in the case of an Airbus A320-232 and a Boeing
757-222), $7,500,000 (in the case of a Boeing 767-322) and $10,000,000
(in the case of a Boeing 777-222), in the case of the leased Boeing
747-422 aircraft, $5,000,000 (or $2,500,000 if the aircraft is under a
sublease) and, in the case of leased Boeing 757-222 aircraft,
$3,000,000 (or $1,500,000 if the aircraft is under a sublease), the
insurance proceeds up to the loan amount, in the case of owned
aircraft, and up to the stipulated loss value, in the case of leased
aircraft, will be payable to the applicable indenture trustee;
(2) if a loss occurs involving the aircraft, airframe or an engine for
which insurance proceeds are equal to or less than, in the case of the
owned aircraft, $5,000,000 (in the case of an Airbus A320-232 and a
Boeing 757-222), $7,500,000 (in the case of a Boeing 767-322) and
$10,000,000 (in the case of a Boeing 777-222), in the case of the
leased Boeing 747-222 aircraft $5,000,000 (or $2,500,000 if the
aircraft is under a sublease) and, in the case of the leased Boeing
757-222 aircraft, $3,000,000 (or $1,500,000 if the aircraft is under a
sublease), the insurance proceeds or the amount of any loss proceeds in
excess of the stipulated loss value will be payable to United so long
as no specified indenture event of default (in the case of owned
aircraft) or lease event of default (in the case of leased aircraft)
has occurred.
The loan amount, in the case of owned aircraft, will be equal to the
outstanding principal amount of the owned equipment notes. So long as the loss
does not constitute an event of loss, insurance proceeds will be applied to
repair or replace the equipment. (Owned Aircraft Indentures, Section 4.03,
Leases, Section 11)
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In addition, United must maintain aircraft liability insurance, at its
expense (or at the expense of a lessee, in the case of owned aircraft, or a
sublessee, in the case of a leased aircraft), including bodily injury, personal
injury and property damage liability insurance, exclusive of manufacturer's
product liability insurance, and contractual liability insurance with respect
to each aircraft. This liability insurance must be underwritten by insurers of
recognized responsibility. The amount of the liability insurance coverage may
not be less than the amount of aircraft liability insurance from time to time
applicable to similar aircraft in United's fleet on which United carries
insurance but in no event less than $300,000,000, in the case of the A320-232
aircraft and Boeing 757-222 aircraft, or $400,000,000, in the case of Boeing
747-422, Boeing 767-322 and Boeing 777-222 aircraft per occurrence. (Owned
Aircraft Indentures, Section 4.03; Leases, Section 11)
United also must maintain war-risk insurance with respect to each aircraft
if and to the extent the insurance is maintained by United (or by a lessee, in
the case of owned aircraft, or a sublessee, in the case of leased aircraft),
for other aircraft owned or operated by United, any sublessee or the lessee, as
applicable, on the same routes on which the aircraft is operated. (Owned
Aircraft Indentures, Section 4.03; Leases, Section 11)
United may self-insure under a program applicable to all aircraft in its
fleet, but the amount of the self-insurance in the aggregate may not exceed for
any 12-month policy year the lesser of (1) 50%, in the case of leased aircraft,
and 100%, in the case of owned aircraft, of the highest replacement value of
any aircraft in United's fleet, and (2) 1 1/2% of the average aggregate
insurable value during the preceding calendar year of all aircraft on which
United carries insurance. Additionally, United may self-insure, to the extent
of any mandatory minimum per aircraft, the hull and liability insurance
deductibles imposed by the aircraft hull or liability insurer. (Owned Aircraft
Indentures, Section 4.03; Leases, Section 11)
For each owned aircraft, United must name the relevant indenture trustee,
the subordination agent, each liquidity provider, AFE Trust and each pass
through trustee, and for each leased aircraft, United must name the indenture
trustee, the owner trustee, the owner participant, each pass through trustee,
in the case of the leased Boeing 747-422 aircraft, as holders of the 747 leased
equipment note, and AFE Trust, in the case of leased Boeing 757-222 aircraft,
as holder of the 757 leased equipment notes, as additional insured parties
under the liability insurance policy required for the aircraft. In addition,
the hull and liability insurance policies will be required to provide that, in
respect of the interests of the additional insured party, the insurance shall
not be invalidated or impaired by any act or omission of United. (Owned
Aircraft Indentures, Section 4.03; Leases Section 11)
Events of Loss
Owned Aircraft. If an event of loss occurs with respect to the airframe or
the airframe and one or more engines of an owned aircraft, United must elect
within 60 days after the occurrence either to make payment with respect to the
event of loss or to replace the airframe and any engines. Depending on United's
election, either (1) not later than the first business day after the 100th day
following the date of occurrence of the event of loss, or, if earlier, the
first interest payment date that is at least three business days following the
receipt of the insurance proceeds by the loss payee in respect of the event of
loss (but not earlier than the first business day after the 65th day following
the event of loss) United will redeem the owned equipment notes under the
applicable indenture by paying to the indenture trustee the outstanding unpaid
principal amount of the owned equipment notes, together with accrued interest
thereon, but without any Make-Whole Amount or (2) not later than the first
business day after the 100th day following the date of the occurrence of the
event of loss, United will substitute an airframe (or airframe and one or more
engines, as the case may be) for the airframe, or airframe and engine(s), that
suffered the event of loss, subject to specified conditions. (Owned Aircraft
Indentures, Section 5.01) See "Description of the Equipment Notes--Events of
Loss and Redemption."
If United elects not to replace the airframe, or airframe and engine(s),
then upon payment of the outstanding principal amount of the owned equipment
notes issued with respect to the aircraft, together with the termination amount
due under the secured swap confirmation and payment of accrued but unpaid
interest thereon, the lien of the indenture relating to the aircraft will
terminate with respect to the aircraft, and the
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obligation of United thereafter to make the scheduled interest and principal
payments with respect thereto will cease. The payments made under the indenture
by United will be deposited with the applicable indenture trustee. Amounts in
excess of the amounts due and owing under the owned equipment notes issued with
respect to the aircraft will be distributed by the indenture trustee to United.
(Owned Aircraft Indentures, Section 5.01)
If United elects to replace an owned aircraft, airframe or airframe and
engine(s) that suffered the event of loss, the replacement aircraft, or
airframe and engine(s) must (1) be free and clear of all liens except permitted
liens and (2) be the same model as the airframe or airframe and engine(s) to be
replaced or an improved model, have a value and utility (with respect to
engines without regard to hours or cycles) at least equal to, and be in at
least as good an operating condition and repair as, the airframe or airframe
and engine(s) to be replaced. United must provide, among other things, to the
relevant indenture trustee, prior to any substitution:
(1) an indenture supplement covering the replacement airframe or airframe
and engine(s), filed for recordation with the FAA or the aviation
authority in the appropriate jurisdiction;
(2) an FAA bill of sale, or similar document of another aviation authority,
and a full warranty bill of sale covering the replacement airframe and,
if applicable, engine(s);
(3) opinions of counsel to the effect that:
(A) the replacement airframe and, if applicable, engine(s) will be made
subject to the lien of the applicable indenture;
(B) the protections of Section 1110 of the U.S. Bankruptcy Code
afforded to the indenture trustee will not be less than the
protections immediately prior to the event of loss;
(C) the recordation of a supplement to the trust indenture and all
other documents necessary to perfect and protect the rights of the
indenture trustee in the replacement airframe or airframe and
engine(s); and
(4) an officer's certificate of United certifying compliance with the
foregoing requirements. (Owned Aircraft Indenture, Section 5.01)
Leased Aircraft. If an event of loss occurs with respect to the airframe or
the airframe and one or more engines of the leased 747-422 aircraft, United
must elect within 45 days after the occurrence to perform one of the following
options: (1) not later than the business day after the 120th day following the
occurrence of the event of loss, to pay the owner trustee stipulated loss value
of the aircraft, together with specified additional amounts or (2) not later
than the business day after the 120th day following the occurrence of the event
of loss, unless a lease default or any lease event of default has occurred and
is continuing, substitute an aircraft, or airframe and one or more engines, as
the case may be, for the aircraft, airframe or engine(s) that suffered the
event of loss. (747 Lease, Section 10(a))
If an event of loss occurs with respect to the airframe or the airframe and
one or more engines of a leased Boeing 757-222 aircraft, United must elect
within 60 days after the occurrence to perform one of the following options:
(1) on the first calendar day of the first month following the 100th day
following the date of occurrence of the event of loss, or, if earlier, the
third business day following the receipt of the insurance proceeds in respect
of the event of loss (but not earlier than the business day after the 65th day
following the occurrence of the event of loss), to pay the applicable owner
trustee stipulated loss value of the aircraft, together with specified
additional amounts or (2) not later than the first business day after the 100th
day following the date of occurrence of the event of loss, unless a lease
default or any lease event of default has occurred and is continuing,
substitute an aircraft, or airframe and one or more engines, as the case may
be, for the aircraft, airframe or engine(s) that suffered the event of loss.
(757 Leases, Section 10(a); 757 Leased Aircraft Indentures, Section 5.6)
If United elects not to replace the leased aircraft, then upon payment of
the stipulated loss value for that aircraft and all additional amounts then due
and unpaid with respect to that aircraft, which must be at least sufficient to
pay in full as of the date of payment thereof the aggregate unpaid principal
amount under the
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leased equipment notes together with accrued but unpaid interest thereon and
all other amounts due and owing in respect of the leased equipment note(s), the
lien of the indenture and the lease relating to that aircraft will terminate
with respect to that aircraft, the obligation of United after the termination
to make the scheduled rent payments under the lease will cease and the related
owner trustee will transfer all of its right, title and interest in and to the
related aircraft to United. United will deposit the stipulated loss value and
other payments made under the lease by United with the applicable indenture
trustee. The indenture trustee will distribute amounts in excess of the amounts
due and owing under the leased equipment notes issued for that aircraft to the
applicable owner trustee. (747 Leased Aircraft Indenture, Sections 3.02 and
6.01; Leases, Section 10(a); 757 Leased Aircraft Indentures, Sections 3.2 and
3.3)
If United elects to replace a leased aircraft, or airframe or airframe and
engine(s) that suffered the event of loss, United will, in the case of a leased
aircraft, convey to the related owner trustee title to an aircraft, or airframe
or airframe engine(s), and the replacement airframe or airframe and engine(s)
must (1) be free and clear of all liens except permitted liens and (2) be the
same model as the airframe or airframe and engine(s) to be replaced or an
improved model, with value, utility and remaining useful life, in the case of
leased Boeing 757-222 aircraft, at least equal to, and, in as good an operating
condition, in the case of leased Boeing 747-422 aircraft, the airframe or
airframe and engine(s) to be replaced, assuming that the airframe and the
engines were maintained in accordance with the terms of the related lease,
prior to the occurrence of such event of loss. United must provide, among other
things, to the relevant indenture trustee, the relevant owner trustee and owner
participant prior to substitution:
(1) an FAA bill of sale and a full warranty bill of sale,
(2) a lease supplement and indenture supplement covering the replacement
airframe or engine(s), filed for recordation with the FAA or the
aviation authority in the applicable jurisdiction,
(3) in the case of a leased Boeing 757-222 aircraft, a certification from
an independent aircraft appraiser that the fair market value of such
replacement airframe is not less than the fair market value of the
airframe requested to be released immediately prior to the event of
loss (assuming such airframe was in the condition and repair required
to be maintained under the lease),
(4) reasonably acceptable opinions of counsel to the effect that:
(A) the replacement airframe and, if applicable, engine(s) will be made
validly subject to the applicable lease and the lien of the
indenture and the instruments subjecting the replacement airframe
and engine(s) to the lease and the lien of the indenture have been
duly filed for recordation, and
(B) the owner trustee and indenture trustee will be entitled to receive
the benefits and protections of Section 1110 of the U.S. Bankruptcy
Code with respect to any replacement aircraft, and
(5) a certificate of an officer of United regarding compliance with the
substitution conditions. (Leases, Section 10; 757 Leased Aircraft
Indentures, Section 5.6)
Engines. If an event of loss occurs with respect to an engine alone, United
must replace that engine within 60 days, in the case of owned aircraft, 45
days, in the case of leased Boeing 747-422 aircraft, and 30 days, in the case
of leased Boeing 757-222 aircraft, after the occurrence of the event of loss
with another engine, free and clear of all liens, other than certain permitted
liens. The replacement engine must be the same make and model as the engine to
be replaced, suitable for installation and use on the aircraft. In the case of
leased aircraft, the replacement engine must have a value, utility and
remaining useful life and airworthiness, in the case of leased Boeing 757-222
aircraft, at least equal to, and, in as good an operating condition as, in the
case of leased Boeing 747-422 aircraft, the engine to be replaced. In the case
of owned aircraft, the replacement engine must have the same value and utility,
and be in as good an operating condition as the engine to be replaced. (Leases,
Section 10(a) and (b); Owned Aircraft Indentures, Section 5.01)
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Voluntary Termination and Purchase Rights
Unless a default that affects the fair market sales value of the aircraft
(in the case of leased Boeing 757-222 aircraft only) or a lease event of
default has occurred and is continuing, United may terminate any lease (1) for
any reason on the 12th, 16th and 20th anniversaries of the delivery date, in
the case of the Boeing 747-422 aircraft, and on July 1, 2005 and July 1, 2009,
in the case of leased Boeing 757-222 aircraft, and (2) on any lease payment
date occurring after the seventh anniversary of the date on which such lease
commenced, if it determines in good faith that the leased aircraft is
economically obsolete or surplus to its requirements. United is required to
give notice of its intention to exercise its right of termination at least 120
days, in the case of the leased Boeing 747-422 aircraft, and at least 180 days
and not more than 360 days, in the case of Boeing 757-222 aircraft, prior to
the proposed date of termination, which notice may be withdrawn up to 30 days
prior to proposed date. However, in the case of Boeing 757-222 aircraft, United
may revoke only two of these termination notices. In this situation, if the
owner trustee elects, subject, in the case of clause (1), to the rights of
United to purchase the aircraft as described below, to sell the aircraft,
United shall use its reasonable best efforts to, in the case of the leased
Boeing 747-422 aircraft, and may, but is not obligated to, in the case of
Boeing 757-222 aircraft, obtain bids to purchase the aircraft as an agent for
the owner trustee. If United does not obtain bids, in the case of 757-222
aircraft, the owner trustee and owner participant may sell the aircraft so long
as they have made commercially reasonable efforts to obtain the highest price.
The owner trustee will sell the aircraft on the date of termination to the
highest cash bidder. If a sale occurs, the owner trustee must prepay the leased
equipment note for that aircraft. The net proceeds of the sale are payable to
the applicable owner trustee. If the net proceeds to be received from the sale
are less than the termination value for the aircraft, which is set forth in a
schedule to each lease, United must pay to the applicable owner trustee an
amount equal to the excess, if any, of the applicable termination value for the
aircraft over the net proceeds. Upon payment of termination value for the
aircraft and an amount equal to the Break Amount or Make-Whole Amount, if any,
payable on the date of payment, together with certain additional amounts and
together with all accrued and unpaid interest on those amounts, the lien of the
relevant indenture will be released, the relevant lease will terminate, and the
obligation of United to make scheduled rent payments under the lease will
cease. However, certain payment obligations of United will survive the
termination of the lease. If the aircraft is not sold by the proposed
termination date, the lease, including all of United's obligations under the
lease, will continue in effect, and the leased equipment note related to the
aircraft will not be prepaid. (747 Leased Aircraft Indenture Sections 3.02 and
6.01; Leases, Section 9; 757 Leased Aircraft Indentures, Sections 3.2 and 3.3)
The owner trustee has the option to retain title to the leased aircraft if
United has given a notice of termination under the lease. In that event, the
owner trustee will pay to the applicable indenture trustee an amount sufficient
to prepay the outstanding leased equipment note(s) issued for that aircraft.
(747 Leased Aircraft Indentures, Sections 3.02 and 6.01; Leases, Section 9; 757
Leased Aircraft Indentures, Section 3.2)
If United terminates the lease as described in clause (1) above, United may
elect to purchase the aircraft. The owner trustee will sell the aircraft to
United, at United's option, following either:
(1) the payment by United of an amount equal to the sum of (A) all unpaid
basic and supplemental rent due on or prior to the lease termination
date, plus (B) all reasonable expenses of the owner trustee and, if
applicable, the owner participant in connection with the purchase
(other than the cost of an appraisal), plus (C) the greater of the
termination value in the case of the leased Boeing 747-422 aircraft,
special termination value in the case of the leased Boeing 757-222
aircraft and the fair market sales value of the aircraft as of the
lease termination date, or
(2) (A) the assumption by United of all of the obligations of the owner
trustee under the leased aircraft indenture and the leased equipment
note, plus (B) the payment of all unpaid basic and supplemental rent
due on or prior to the lease termination date, plus (C) the payment of
all reasonable expenses of the owner trustee and, if applicable, the
owner participant in connection with the purchase (other than the cost
of an appraisal), plus (D) the payment of the excess of the greater of
the special termination value and the fair market sales value of the
aircraft as of the lease termination date over the unpaid principal
amount of the leased equipment note(s) outstanding.
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Following payment of the amounts in item (1) or (2) above, the lease will
terminate. (Leases, Section 9)
Events of Default under the Leases
Lease events of default under each lease include, among other things:
(1) failure by United to make any payment of basic rent, stipulated loss
value, termination value or purchase price under the lease within 10
business days, in the case of the leased Boeing 747-422 aircraft, and
10 days after the same has become due, in the case of the leased Boeing
757-222 aircraft, or failure by United to pay any other amount due
under the lease or under any other related operative document within 15
business days, in the case of leased Boeing 747-422 aircraft, and 15
days, in the case of the leased Boeing 757-222 aircraft from and after
United's receipt of any written demand for that payment;
(2) failure by United to carry and maintain insurance on the aircraft, in
accordance with the provisions of the lease;
(3) failure by United to perform or observe any other covenant or agreement
to be performed or observed by it under the lease or any other related
operative document, and such failure will continue unremedied for a
period of 30 days after written notice of the failure by the applicable
owner trustee or indenture trustee; however, if United will have
undertaken to cure specified failures relating to the registration and
maintenance of the aircraft and, nonetheless the failure is not cured
within the prescribed thirty day period but is curable with future due
diligence, there will be no lease event of default so long as United is
proceeding with due diligence and the failure is in fact cured within
365 days, in the case of the leased 747-422 aircraft, and 180 days, in
the case of leased Boeing 757-222 aircraft;
(4) (A) any representation or warranty made by United in the lease or the
related participation agreement or in any other related operative
document, other than in the related tax indemnity agreement, will prove
to have been incorrect in any material respect at the time made,
(B) in the case of the leased Boeing 747-422 aircraft, the
representation or warranty is material at the time made, and
(C) the same remains uncured for at least 30 days after the receipt of
written notice of the incorrectness by United; and
(5) the occurrence of specified voluntary events of bankruptcy,
reorganization or insolvency of United or the occurrence of involuntary
events of bankruptcy, reorganization or insolvency so long as the
involuntary events give rise to a judgment, appointment or
sequestration that is final or continues undismissed or unstayed for a
period of 60 days. (Leases, Section 14)
Remedies Exercisable upon Events of Default under the Lease
If a lease event of default has occurred and is continuing, the applicable
owner trustee may or, so long as the indenture will be in effect, the
applicable indenture trustee may, subject to the terms of the indenture,
exercise one or more of the remedies provided in the lease for the related
aircraft. These remedies include the rights:
. to repossess and use or operate the aircraft, to rescind or terminate
the lease,
. to sell or release, or hold and keep idle the aircraft free and clear of
United's rights, except as set forth in the lease, and retain the
proceeds, and
. to require United to pay, as liquidated damages, any due and unpaid
basic rent, together with interest, if any, on that amount at the past
due rate, plus an amount equal to either (1) the excess of the
stipulated loss value for the aircraft specified in lease over (A) any
unpaid basic rent for the
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remainder of the lease term discounted at the debt rate, or (B) the
discounted fair market rental value of the aircraft for the remainder of
the lease term for the aircraft using a discount rate equal to the debt
rate (in the case of the leased Boeing 747-422 aircraft, only over
clause (B)), or (2) the excess of the stipulated loss value for the
aircraft over the fair market sales value of the aircraft computed as
provided in the lease (747 Leased Aircraft Indenture, Section 8.02;
Leases, Section 15; 757 Leased Aircraft Indentures, Section 4.4).
Remedies under the Owned Aircraft Indenture are discussed above under "--
Remedies."
Cross-Border Lease
The Boeing 747-422 aircraft securing obligations under the related
indenture is subject to a legally defeased Japanese cross-border lease
financing that expires on July 27, 2001. The rights of United, as the cross-
border lessee under this financing, have been assigned to the relevant owner
trustee.
Under the terms of the cross-border lease financing, title to the aircraft
is held by a special purpose Japanese entity. The Japanese cross-border lease
financing documentation provides that, upon any termination of the Japanese
cross-border lease, the cross-border lessee, which will be the owner trustee
for the leased Boeing 747-422 aircraft, has the right to acquire title to the
aircraft by giving notice to the cross-border lessor. The cross-border
lessee's right to acquire title includes all of the cross-border lease
terminations: voluntary termination by lessee or lessor, events of loss,
defaults and exercises of remedies by the cross-border lessor, and the
exercise of an end of term purchase option. Upon the exercise of the cross-
border lessee's right to acquire title, the cross-border lease documentation
provides for the automatic transfer of title on the relevant cross-border
lease termination date. The cross-border lessor's obligation to transfer title
is not conditioned upon its receipt of any payment in respect to any
termination and is further secured by the grant of a mortgage over and
security interest in all of the cross-border lessor's right, title and
interest in and to the aircraft. United has arranged for notice of the
exercise of the end of term purchase option to be transmitted to the cross-
border lessor on August 1, 2000--the earliest date allowed under the cross-
border lease.
Despite the above representations and agreements by the cross-border
lessor, the ability of the indenture trustee to realize upon its security
interest in the aircraft that is subject to the cross-border lease financing
could be adversely affected if the cross-border lessor or any investor in such
lessor were to become a debtor in a bankruptcy or similar proceeding in its
home jurisdiction and a creditor, trustee in bankruptcy, liquidator, receiver
or similar official were to take the position that the aircraft should be
treated as part of the estate of such lessor or investor, as the case may be,
particularly, if at the same time the indenture trustee is seeking to exercise
remedies under the indenture. If that position were to be taken in such a
proceeding, a delay in the transfer or re-acquisition of title to the aircraft
to or by the relevant owner trustee following the occurrence and continuance
of a lease event of default under the related lease could occur. The delay
might impede the ability of the indenture trustee to realize on the aircraft
collateral securing the related 747 leased equipment notes.
Upon the original execution of the cross-border financing, we obtained
opinions from Japanese counsel, based upon certain assumptions and
qualifications, that the cross-border lessor's obligations (including its
obligations to transfer title without having received payment) and agreements
(including the mortgage and security agreement) were legal, valid and binding
obligations enforceable according to their terms. These legal opinions will,
based upon certain assumptions and qualifications, be confirmed to remain in
effect by Japanese counsel.
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DESCRIPTION OF THE SECURED SWAP TRANSACTIONS
The Series A-1, Series A-2 and Series B AFE Trust notes accrue interest at
the fixed interest rate set forth on the cover page of this prospectus for the
corresponding class of pass through certificates. The 757 leased equipment
notes held by AFE Trust accrue interest at floating rates set forth in Appendix
III of this prospectus supplement. To hedge against interest rate fluctuation
on payments on the 757 leased equipment notes, AFE Trust will enter into
secured swap transactions with United as the swap provider.
There will be 13 swap confirmations, each evidencing a separate swap
transaction secured by United by a security interest in a designated owned
aircraft. The aggregate notional amount under the secured swap confirmations as
of any date of determination will be equal to the then outstanding principal
amount of the Series A-1, Series A-2 and Series B AFE Trust notes plus the
outstanding certificate balance of the AFE Trust certificates.
Under each secured swap confirmation, on each regular distribution date,
either United as swap provider or AFE Trust as swap counterparty must pay the
payment amount. The "payment amount" , in respect of each series of AFE Trust
notes and the AFE Trust certificates will equal the Eurodollar Rate plus 0.90%
multiplied by the actual number of days in the payment period minus the fixed
interest rate applicable to that series of AFE Trust notes or AFE Trust
certificates multiplied by the number of days in the payment period calculated
on the basis of a 360-day year with twelve 30-day months, multiplied by the
notional amount for that series of AFE Trust notes or AFE Trust certificates
for that day, divided by 360. If the payment amount is negative, United will
pay the absolute value of the payment amount to AFE Trust. If the payment
amount is positive, AFE Trust will pay the payment amount to United to the
extent of funds available under the AFE Trust indenture.
During those periods in which the fixed rate is greater than the floating
rate for any secured swap transaction, AFE Trust will be dependent on receiving
payments from the swap provider or on withdrawals from any swap substitute
account established to make these payments in order to make payments on the
Series A-1, Series A-2 and Series B AFE Trust notes and the AFE Trust
certificates. If the swap provider fails to pay the amount due, there may be
delays and/or reductions in the interest and principal on the Series A-1,
Series A-2 and Series B AFE Trust notes. As a result, you may experience delays
and/or reductions in the interest and principal payments on your pass through
certificates.
Each secured swap confirmation will provide for specified events of default
and termination events. Events of default include failure to make payments due
under that secured swap confirmation and the occurrence of certain bankruptcy
and insolvency events. It will also be a termination event under a secured swap
confirmation if an event of default occurs under the related owned aircraft
indenture and, on the basis of the indenture event of default, the related
owned equipment notes are declared, or automatically become, due and payable.
If an owned aircraft indenture event of default occurs, the indenture trustee
for AFE Trust will engage an independent investment banking firm of nationally
recognized standing (that is, so long as no lease event of default as defined
in any leased aircraft indenture or the 747 leased aircraft indenture or an
event of default as defined in any owned aircraft indenture exists, acceptable
to United) to use commercially reasonable efforts to purchase an interest rate
hedging instrument described in clause (1) below and the secured swap
confirmation related to that owned aircraft will terminate. The proceeds of the
sale of the owned aircraft will be used to pay the lesser of (A) the senior and
junior termination values under the secured swap confirmation related to that
owned aircraft and (B) the amount necessary to purchase an interest rate
hedging instrument described in clause (1) below, including the fees of the
investment banking firm incurred in procuring the instrument. The AFE Trust
indenture trustee will either:
(1) use the amount described in clause (B) above, if less than the
amount described in clause (A), to purchase direct pay letters of credit,
swaps cancellable by AFE Trust only or other interest rate hedging
instruments acceptable to Moody's and Standard and Poor's; or
(2) if the instruments described in clause (1) are not available using
commercially reasonable efforts at a cost less than the senior and junior
termination value payments, deposit the senior and junior
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termination value payments into a swap substitute account to be used to
make interest payments on the Series A-1, Series A-2 or Series B AFE Trust
notes and the AFE Trust certificates to the same extent that the swap
provider would have made payments under that secured swap confirmation.
The instruments described under clause (1) above will be pledged by AFE
Trust to the AFE Trust indenture trustee as security for the AFE Trust notes.
United, as swap provider, will retain no interest in the swap substitute
account or any monies deposited into that account.
United must, upon the termination of a secured swap transaction, if an
interest rate hedging instrument acceptable to Moody's and Standard & Poor's is
not available using commercially reasonable efforts, make a scheduled
termination value payment sufficient to enable AFE Trust to make its then
remaining scheduled interest payments on the Series A-1, Series A-2 and Series
B AFE Trust notes and the AFE Trust certificates. These termination value
payments are subject to the subordination provisions of the owned aircraft
indentures, which are described under "Description of the Equipment Notes--
Subordination."
The obligations of AFE Trust under the secured swap confirmations are
unsecured and limited to funds made available to AFE Trust under the AFE Trust
indenture. United has secured its obligations under the secured swap
confirmations by a security interest in the owned aircraft. If an event of loss
occurs for any of the owned aircraft and United elects to redeem the related
owned equipment notes under the related owned aircraft indenture or United
exercises its right to optionally redeem the owned equipment notes for any
owned aircraft under the related owned aircraft indenture (unless United
secures its obligations to make payments to AFE Trust under the related secured
swap confirmation with a security interest in another aircraft owned by United,
subject to a ratings confirmation by Moody's and Standard & Poor's), the
indenture trustee for AFE Trust will engage an independent investment banking
firm of nationally recognized standing (that is, so long as no lease event of
default as defined in any leased aircraft indenture or the 747 leased aircraft
indenture or an event of default as defined in any owned aircraft indenture
exists, acceptable to United) to use commercially reasonable efforts to
purchase an interest rate hedging instrument described in clause (1) below and
the secured swap confirmation related to that owned aircraft will terminate.
The swap provider must pay the lesser of (A) the senior and junior termination
value payments due under that secured swap confirmation and (B) the amount
necessary to purchase an interest rate hedging instrument described in clause
(1) below, including the fees of the investment banking firm incurred in
procuring that instrument, to the indenture trustee for AFE Trust. The
indenture trustee for the AFE Trust will either:
(1) use the amount described in clause (B) above, if less than the amount
described in clause (A), to purchase direct pay letters of credit,
swaps cancellable by AFE Trust only or other interest rate hedging
instruments acceptable to Moody's and Standard & Poor's; or
(2) if the instruments described in clause (1) are not available using
commercially reasonable efforts at a cost less than the senior and
junior termination value payments, deposit the senior and junior
termination value payments into a swap substitute account to be used to
make interest payments on the Series A-1, Series A-2 and Series B AFE
Trust notes and the AFE Trust certificates to the same extent that the
swap provider would have made payments under that secured swap
confirmation.
The instruments described under clause (1) above will be pledged by AFE
Trust to the AFE Trust indenture trustee as security for the AFE Trust notes.
United, as swap provider, will retain no interest in the swap substitute
account or any monies deposited into that account.
The aggregate termination value payment the swap provider must make under
any secured swap confirmation following any termination of that secured swap
transaction will be calculated assuming a Eurodollar Rate of 2.96%, and is
designed to be sufficient to enable AFE Trust to make its then remaining
scheduled interest payments on the Series A-1, Series A-2 and Series B AFE
Trust notes and the AFE Trust certificates.
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FEDERAL INCOME TAX CONSEQUENCES
General
The following summary describes the principal U.S. federal income tax
consequences to certificateholders of the purchase, ownership and disposition
of the Class A-1, Class A-2 and Class B pass through certificates. This summary
deals only with pass through certificates held as capital assets within the
meaning of the Internal Revenue Code of 1986, as amended to the date hereof
(referred to as the "Code") by certificateholders who purchase the pass through
certificates at their original offering price when the pass through trust
originally issues them. Except for the discussion below under "--Foreign
Certificateholders," this summary is addressed to a beneficial owner of a pass
through certificate who or which is (1) a citizen or resident of the United
States, (2) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any state thereof or the District of
Columbia, (3) an estate, if its income is subject to U.S. federal income
taxation regardless of its source or (4) a trust if (a) a U.S. court can
exercise primary supervision over its administration and (b) one or more U.S.
persons have the authority to control all of its substantial decisions. This
summary does not address the tax treatment of U.S. certificateholders that may
be subject to special tax rules, such as banks, insurance companies, dealers in
securities or commodities, tax-exempt entities, holders that will hold pass
through certificates as part of a straddle or holders that have a "functional
currency" other than the U.S. dollar. This summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase pass through certificates. This summary does not
describe any tax consequences arising under the laws of any state, locality or
taxing jurisdiction other than the United States. The pass through trusts are
not indemnified for any federal income taxes that may be imposed upon them, and
the imposition of any taxes could result in a reduction in the amounts
available for distribution to the certificateholders of the affected pass
through trust.
The summary is based upon the tax laws and practice of the United States as
in effect on the date of this prospectus supplement, as well as judicial and
administrative interpretations of those laws, in final or proposed form,
available on or before the date of this prospectus supplement. All of the
foregoing are subject to change, which change could apply retroactively.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PASS THROUGH CERTIFICATES.
Tax Status of the Pass Through Trusts, AFE Trust and Notes
In the opinion of Mayer, Brown & Platt, special tax counsel to United, each
pass through trust will be classified as a grantor trust and not as an
association taxable as a corporation for U.S. federal income tax purposes.
Accordingly, each U.S. certificateholder will be subject to federal income
taxation as if it owned directly a pro rata undivided interest in each asset
owned by the corresponding pass through trust and paid directly its share of
fees and expenses paid by the pass through trust. In the opinion of Mayer,
Brown & Platt, AFE Trust will not be classified as an association or otherwise
taxable as a corporation for U.S. federal income tax purposes. In addition, the
Series A-1, Series A-2 and Series B AFE Trust notes and Series A-1, Series A-2
and Series B owned equipment notes will be classified as indebtedness for U.S.
federal income tax purposes. The following discussion assumes that the 747
leased equipment notes, AFE Trust notes and owned equipment notes are all
properly classified as indebtedness for U.S. federal income tax purposes.
Taxation of Certificateholders Generally
A U.S. certificateholder will be treated as owning its pro rata undivided
interest in the 747 leased equipment note, AFE Trust note, owned equipment
notes and any other property held by the corresponding pass through trust.
Accordingly, each U.S. certificateholder should be required to report on its
federal income tax return its pro rata share of the entire income from the 747
leased equipment note, AFE Trust note, owned equipment notes and any other
property held by the corresponding pass through trust, in accordance with the
certificateholder's method of accounting. The 747 leased equipment notes, AFE
Trust notes, and the owned equipment notes will not be issued with original
issue discount. As such, each U.S. certificateholder's share of
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interest paid on the 747 leased equipment note, AFE Trust note and owned
equipment notes will be taxable as ordinary income, as it is paid or accrued,
in accordance with the certificateholder's method of accounting for U.S.
federal income tax purposes and a U.S. certificateholder's share of any Make-
Whole Amount, paid on the 747 leased equipment note, AFE Trust note and owned
equipment notes will be treated as capital gain. Any amounts received by a pass
through trust from interest drawings under the relevant liquidity facility will
be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace.
Each U.S. certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding pass through trust as provided in Section 162 or 212 of
the Code. Certain fees and expenses, including fees paid to the pass through
trustee and the liquidity providers, will be borne by parties other than the
certificateholders. It is possible that these fees and expenses will be treated
as constructively received by the pass through trust, in which event a U.S.
certificateholder must include in income and will be entitled to deduct its pro
rata share of these fees and expenses. If a U.S. certificateholder is an
individual, estate or trust, the deduction for the certificateholder's share of
these fees or expenses will be allowed only to the extent that all of the
certificateholder's miscellaneous itemized deductions, including such holder's
share of such fees and expenses, exceed 2% of the certificateholder's adjusted
gross income. In addition, in the case of U.S. certificateholders who are
individuals, certain otherwise allowable itemized deductions will be subject
generally to additional limitations on itemized deductions under the applicable
provisions of the Code.
Effect of Subordination on Subordinated Certificateholders
If any pass through trust is subordinated to other pass through trusts and
incurs a shortfall in its receipts of principal or interest paid on the 747
leased equipment note, AFE Trust note, or owned equipment notes held by the
pass through trust because of the subordination of the 747 leased equipment
note, AFE Trust note, or owned equipment notes held by the pass through trust
under the intercreditor agreement, the U.S. certificateholders of beneficial
interests in the subordinated pass through trust would probably be treated for
federal income tax purposes as if they had (1) received as distributions their
full share of those receipts, (2) paid over to the relevant preferred class of
certificateholders an amount equal to their share of the amount of the
shortfall and (3) retained the right to reimbursement of the amount to the
extent of future amounts payable to the subordinated certificateholders for the
shortfall.
Under this analysis, (1) subordinated U.S. certificateholders incurring a
shortfall must include as current income any interest or other income of the
corresponding subordinated pass through trust that was a component of the
shortfall, even though the amount was in fact paid to the relevant preferred
class of certificateholders, (2) a loss would be allowed to the subordinated
U.S. certificateholders when their right to receive reimbursement of the
shortfall became worthless (i.e., when it became clear that funds would not be
available from any source to reimburse the shortfall) and (3) reimbursement of
the shortfall prior to the claim of worthlessness would not be taxable income
to subordinated U.S. certificateholders because the amount of the shortfall was
previously included in income. These results should not significantly affect
the inclusion of income for subordinated U.S. certificateholders on the accrual
method of accounting, but could accelerate inclusion of income to subordinated
U.S. certificateholders on the cash method of accounting by, in effect, placing
them on the accrual method.
Sale or Other Disposition of the Pass Through Certificates
Upon the sale, exchange or other disposition of a pass through certificate,
including as a result of a prepayment of any amounts on the 747 leased
equipment note, AFE Trust note or owned equipment notes held by the
corresponding pass through trust, a U.S. certificateholder generally will
recognize capital gain or loss equal to the difference between the amount
realized on the disposition (other than any amount attributable to accrued
interest which will be taxable as ordinary income) and the U.S.
certificateholder's adjusted tax basis in the 747 leased equipment note, AFE
Trust note, and owned equipment notes and any other assets held by the
corresponding pass through trust. A U.S. certificateholder's adjusted tax basis
will equal the certificateholder's cost for its pass through certificate less
any principal repayments previously received by such certificateholder.
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Any gain or loss will be capital gain or loss if the pass through certificate
was held as a capital asset. Capital gain or loss generally will be long-term
capital gain or loss if the pass through certificate was held for more than one
year, except to the extent attributable to any property held by the related
pass through trust for one year or less. Any long-term capital gains with
respect to the pass through certificates are taxable to corporate taxpayers at
rates applicable to ordinary income and to individual taxpayers at a maximum
rate of 20%. Any capital losses will be deductible by corporate taxpayers only
to the extent of capital gains and by an individual taxpayer only to the extent
of capital gains plus $3,000 of other income.
Foreign Certificateholders
Subject to the discussion of backup withholding below, payments of principal
and interest on the 747 leased equipment notes, AFE Trust notes, and owned
equipment notes to, or on behalf of, any beneficial owner of a pass through
certificate that is not a U.S. person will not be subject to U.S. federal
withholding tax if in the case of interest:
(1) the non-U.S. certificateholder does not actually or constructively own
10% or more of the total combined voting power of all classes of the
stock of any holder of the beneficial interest in AFE Trust, the owner
participant with respect to the leased 747-422 aircraft or United;
(2) the non-U.S. certificateholder is not a controlled foreign corporation
for U.S. tax purposes that is related, directly or indirectly, to any
holder of the beneficial interest in AFE Trust, the owner participant
with respect to the leased Boeing 747-422 aircraft or United through
stock ownership;
(3) the non-U.S. certificateholder is not a bank holding the pass through
certificate pursuant to an extension of credit made pursuant to a loan
agreement entered into in the ordinary course of its trade or business;
and
(4) either (A) the non-U.S. certificateholder certifies, under penalties of
perjury, that it is not a U.S. person and provides its name and address
or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business and holds the pass through certificate certifies,
under penalties of perjury, that such statement has been received from
the non-U.S. certificateholder by it or by another financial
institution and furnishes the payor with a copy of the statement.
Final withholding regulations published by the Internal Revenue Service on
October 14, 1997 (the "1997 Final Regulations") apply to "reportable payments",
such as interest, made after December 31, 2000, regardless of the issue date of
the instrument with respect to which the payments are made. The 1997 Final
Regulations provide, among other things, new documentation procedures designed
to simplify compliance by withholding agents and may require non-U.S.
certificateholders furnish new certification of their foreign status after
December 31, 2000. Foreign investors should consult their tax advisors
regarding the applicability and effect of the 1997 Final Regulations to
payments made with respect to the pass through certificates.
The pass through trustee will, where required, report to the
certificateholders and the IRS the amount of any "reportable payments" and any
amount withheld with respect to the pass through certificates during the
taxable year.
Any capital gain realized on the sale, exchange, retirement or other
disposition of a pass through certificate or on the receipt of any Make-Whole
Amount paid on any 747 leased equipment note, AFE Trust note or owned equipment
note by a non-U.S. certificateholder will not be subject to U.S. federal income
or withholding taxes if (1) the gain is not effectively connected with a U.S.
trade or business of the holder and (2) in the case of an individual, the
certificateholder is not present in the United States for 183 days or more in
the taxable year of the sale, exchange, retirement or other disposition or
receipt, and is not subject to Code provisions applicable to certain
expatriates.
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Backup Withholding
Payments made on the pass through certificates and proceeds from the sale of
pass through certificates will not be subject to a backup withholding tax of
31% unless, in general, the certificateholder fails to comply with certain
reporting procedures or otherwise fails to establish an exemption from that tax
under applicable provisions of the Code and the regulations under the Code,
including the 1997 Final Regulations.
Backup withholding is not an additional tax. Any amount withheld under
backup withholding rules may be refunded or credited against a
certificateholder's federal income tax liability, if any, provided that the
required information is provided to the IRS.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, PURCHASERS OF PASS
THROUGH CERTIFICATES SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PASS THROUGH
CERTIFICATES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
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CONNECTICUT TAXES
Bingham Dana LLP, counsel to the pass through trustee, has advised United
that, in its opinion, under currently applicable law, assuming that the pass
through trusts will not be taxable as corporations, but, rather, will be
classified as grantor trusts under subpart E, Part I of Subchapter J of the
Code, (1) the pass through trusts will not be subject to any tax (including,
without limitation, net or gross income, tangible or intangible property, net
worth, capital, franchise or doing business tax) fee or other governmental
charge under the laws of the State of Connecticut or any political subdivision
thereof and (2) certificateholders that are not residents of or otherwise
subject to tax in the State of Connecticut will not be subject to any tax
(including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the State of Connecticut or any political
subdivision thereof as a result of purchasing, holding (including receiving
payments with respect to) or selling a pass through certificate. Neither United
nor AFE Trust will indemnify the pass through trusts or the certificateholders
for any state or local taxes imposed on them, and the imposition of any taxes
on a pass through trust could result in a reduction in the amounts available
for distribution to the certificateholders of the pass through trust. In
general, should a certificateholder or a pass through trust be subject to any
state or local tax which would not be imposed if the pass through trustee were
located in a different jurisdiction in the United States, the pass through
trustee will resign and a new pass through trustee in such other jurisdiction
will be appointed.
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ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain requirements on employee benefit plans subject to Title I of ERISA and
on entities that are deemed to hold the assets of such plans, and on those
persons who are fiduciaries with respect to ERISA plans. Investments by ERISA
plans are subject to ERISA's general fiduciary requirements, including, but not
limited to, the requirement of investment prudence and diversification and the
requirement that an ERISA plan's investments be made in accordance with the
documents governing the plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986,
as amended, prohibit certain transactions involving the assets of an ERISA
plan, as well as those plans that are not subject to ERISA but which are
subject to Section 4975 of the Internal Revenue Code, such as individual
retirement accounts, and certain persons, referred to as "parties in interest"
or "disqualified persons," having certain relationships to these plans, unless
a statutory or administrative exemption is applicable to the transaction. A
party in interest or disqualified person who engages in a prohibited
transaction may be subject to excise taxes and other penalties and liabilities
under ERISA and the Internal Revenue Code.
Any plan fiduciary which proposes to cause a plan to purchase pass through
certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Internal Revenue Code to such an investment, and to confirm
that the purchase and holding will not constitute or result in a non-exempt
prohibited transaction or any other violation of an applicable requirement of
ERISA.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Internal Revenue Code, may
nevertheless be subject to state or other federal laws or regulations that are
substantially similar to the foregoing provisions of ERISA and the Internal
Revenue Code. Fiduciaries of any of these plans should consult with their
counsel before purchasing pass through certificates to determine the need for,
and the availability, if necessary, of any exemptive relief under any laws or
regulations.
Plan Assets Issues
The Department of Labor has promulgated a regulation, 29 CFR Section 2510.3-
101, or the "Plan Asset Regulation," describing what constitutes the assets of
a plan with respect to the Plan's investment in an entity for purposes of ERISA
and Section 4975 of the Internal Revenue Code. Under the Plan Asset Regulation,
if a plan invests (directly or indirectly) in a pass through certificate, the
plan's assets will include both the pass through certificate and an undivided
interest in each of the underlying assets of the corresponding pass through
trust, including the AFE Trust notes and owned equipment notes held by the pass
through trust, unless it is established that equity participation in the pass
through trust by benefit plan investors, including plans and entities whose
underlying assets include plan assets by reason of an employee benefit plan's
investment in the entity, is not "significant" within the meaning of the Plan
Asset Regulation. In this regard, the extent to which there is equity
participation in a particular pass through trust by, or on behalf of, benefit
plan investors will not be monitored. If the assets of a pass through trust are
deemed to constitute the assets of a plan, transactions involving the assets of
the pass through trust could be subject to the conflict of interest and
prohibited transaction provisions of ERISA and Section 4975 of the Internal
Revenue Code unless a statutory or administrative exemption is applicable to
the transaction.
Prohibited Transaction Exemptions
In addition, whether or not the assets of a pass through trust are deemed to
be plan assets under the Plan Asset Regulation, the fiduciary of a plan that
proposes to purchase and hold any pass through certificates
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should consider, among other things, whether the purchase and holding may
involve (1) the direct or indirect extension of credit to a party in interest
or a disqualified person, (2) the sale or exchange of any property between a
plan and a party in interest or a disqualified person, or (3) the transfer to,
or use by or for the benefit of, a party in interest or a disqualified person,
of any plan assets. The parties in interest or disqualified persons could
include United and its affiliates, the underwriters, the pass through trustees,
the indenture trustees, AFE Trust, the AFE Trust certificateholders, the
trustee of AFE Trust and the liquidity provider. Moreover, if a plan purchases
pass through certificates and a party in interest or a disqualified person with
respect to the plan holds pass through certificates of a subordinate class, the
exercise by the holder of the subordinate class of pass through certificates of
its right to purchase the senior classes of pass through certificates upon the
occurrence and during the continuation of a Triggering Event could be
considered to constitute a prohibited transaction unless a statutory or
administrative exemption were applicable. Depending on the satisfaction of
certain conditions which may include the identity of the plan fiduciary making
the decision to acquire or hold pass through certificates on behalf of a plan,
Prohibited Transaction Class Exemption ("PTCE") 91-38 (relating to investments
by bank collective investment funds), PTCE 84-14 (relating to transactions
effected by a "qualified professional asset manager"), PTCE 95-60 (relating to
investments by an insurance company general account), PTCE 96-23 (relating to
transactions directed by an in-house asset manager) or PTCE 90-1 (relating to
investments by insurance company pooled separate accounts) could provide an
exemption from the prohibited transaction provisions of ERISA and Section 4975
of the Internal Revenue Code. However, there can be no assurance that any of
these Prohibited Transaction Class Exemptions or any other exemption will be
available with respect to any particular transaction involving the pass through
certificates.
In addition to the Prohibited Transaction Class Exemptions referred to
above, an individual exemption may apply to the purchase, holding and secondary
market sale of Class A-1 and Class A-2 pass through certificates by plans,
provided that specified conditions are met. In particular, the Department of
Labor has issued individual administrative exceptions to the underwriters which
are substantially the same as the administrative exemptions issued to Goldman,
Sachs & Co. Prohibited Transaction Exemption 89-88 (54 Federal Register 42581
(October 17, 1989)), as amended, and Morgan Stanley & Co. Incorporated,
Prohibited Transaction Exemption 90-24 (55 Fed. Reg. 20,548 (May 17, 1990)), as
amended. This underwriter exemption generally exempts from the application of
specified, but not all, of the prohibited transaction provisions of Section 406
of ERISA and Section 4975 of the Internal Revenue Code specified transactions
relating to the initial purchase, holding and subsequent secondary market sale
of pass through certificates which represent an interest in a trust that holds
secured credit instruments that bear interest or are purchased at a discount in
transactions by or between business entities (including leased equipment notes)
and other specified assets, provided that specified conditions set forth in the
underwriter exemption are satisfied.
The underwriter exemption sets forth a number of general and specific
conditions that must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive relief
under the underwriter exemption. In particular, the underwriter exemption
requires that the acquisition of certificates by a plan be on terms that are at
least as favorable to the plan as they would be in an arm's-length transaction
with an unrelated party; the rights and interests evidenced by the certificates
not be subordinated to the rights and interests evidenced by other certificates
of the same trust estate; the certificates at the time of acquisition by the
plan be rated in one of the three highest generic rating categories by Moody's,
Standard & Poor's, Duff & Phelps Inc. or Fitch Investors Service, Inc.; and the
investing plan be an accredited investor as defined in Rule 501(a) (1) of
Regulation D under the Securities Act of 1933, as amended.
Accordingly, there can be no assurance that all of these conditions of the
underwriter exemption will be met with respect to the Class A-1 and Class A-2
pass through certificates. In addition, even if all of the conditions of the
underwriter exemption are satisfied with respect to the Class A-1 and Class A-2
pass through certificates, no assurance can be given that the underwriter
exemption would apply with respect to all transactions involving the Class A-1
or the Class A-2 pass through certificates or the assets of the Class A-1 pass
through trust or the Class A-2 pass through trust. Therefore, the fiduciary of
a plan considering the
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purchase of a Class A-1 or Class A-2 pass through certificate should consider
the availability of the exemptive relief provided by the underwriter exemption,
as well as the availability of any other exemptions that may be applicable,
such as the Class Exemptions.
The underwriter exemption does not apply to the Class B pass through
certificates. Therefore, the fiduciary of a plan considering the purchase of a
Class B certificate should consider the availability of other exemptions.
Each person who acquires or accepts a pass through certificate or an
interest therein will be deemed by the acquisition or acceptance to have
represented and warranted that either: (1) no assets of a plan or an individual
retirement account have been used to acquire the pass through certificate or an
interest therein or (2) the purchase and holding of the pass through
certificate or an interest therein by that person are exempt from the
prohibited transaction restrictions of ERISA and the Internal Revenue Code.
Any insurance company proposing to invest assets of its general account in
the pass through certificates should consider the extent to which such
investment would be subject to the requirements of ERISA in light of the U.S.
Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank, 510 U.S. 86 (1993), and the effect of Section 401(c) of
ERISA as interpreted by the regulations issued thereunder by the U.S.
Department of Labor in January, 2000.
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UNDERWRITING
United and the underwriters for the offering named below have entered into
an underwriting agreement for the pass through certificates. Subject to
specified conditions, each underwriter has severally agreed to purchase the
principal amount of the pass through certificates indicated in the following
table.
<TABLE>
<CAPTION>
Face Amount of Face Amount of Face Amount of
Class A-1 Class A-2 Class B
Underwriters Certificates Certificates Certificates
------------ -------------- -------------- --------------
<S> <C> <C> <C>
Goldman, Sachs & Co............... $ 55,123,000 $ 65,068,000 $ 40,065,000
Morgan Stanley & Co. Incorporat-
ed............................... 55,119,000 65,065,000 40,061,000
Banc One Capital Markets, Inc..... 55,119,000 65,065,000 40,061,000
Credit Suisse First Boston Corpo-
ration........................... 55,119,000 65,065,000 40,061,000
Salomon Smith Barney Inc.......... 55,119,000 65,065,000 40,061,000
------------ ------------ ------------
Total........................... $275,599,000 $325,328,000 $200,309,000
============ ============ ============
</TABLE>
Pass through certificates sold by the underwriters to the public will
initially be offered at the price set forth on the cover of this prospectus
supplement. Any certificates sold by the underwriters to securities dealers may
be sold at a discount from the offering price of up to 0.40% of the face amount
of the pass through certificates. The securities dealers may resell any pass
through certificates purchased from the underwriters to certain other brokers
or dealers at a discount from the offering price of up to 0.25% of the face
amount of the pass through certificates. If all the pass through certificates
are not sold at the offering price, the underwriters may change the offering
price and the other selling terms.
The pass through certificates are a new issue of securities with no
established trading market. United has been advised by the underwriters that
the underwriters intend to make a market in the pass through certificates but
are not obligated to do so and may discontinue market making at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the pass through certificates.
From time to time, the underwriters or their respective affiliates perform
investment banking and advisory services for, and provide general financing and
banking services to, United and its affiliates. In particular, affiliates of
Banc One Capital Markets, Inc., Credit Suisse First Boston Corporation and
Salomon Smith Barney Inc. are lenders under United's $750 million revolving
credit facility. In addition, affiliates of Banc One Capital Markets, Inc. have
provided equity financing in connection with various leveraged lease
transactions United is engaged in and a liquidity facility for a lease
securitization program conducted by an United affiliate. In this transaction,
Goldman, Sachs & Co. is also acting as placement agent for the AFE Trust
certificates and currently holds a portion of the debt on the leased Boeing
747-422 aircraft that is being refinanced by this transaction. In addition, an
affiliate of Banc One Capital Markets, Inc. intends to purchase AFE Trust
certificates.
It is expected that delivery of the pass through certificates will be made
against payment for the pass through certificates on or about the date
specified in the second to the last paragraph of the cover page of this
prospectus supplement, which will be the seventh business day following the
date of pricing of the pass through certificates (such settlement cycle being
referred to herein as "T+7"). Under Rule 15c6-1 of the SEC under the Securities
Exchange Act of 1934, as amended, trades in the secondary market generally are
required to settle in three business days, unless the parties to any trade
expressly agree otherwise. Accordingly, purchasers who wish to trade pass
through certificates on the date of pricing or the next three succeeding
business days will be required, by virtue of the fact that the pass through
certificates initially will settle in T+7, to specify an alternate settlement
cycle at the time of any trade to prevent a failed settlement. Purchasers of
pass through certificates who wish to trade pass through certificates on the
date of pricing or the next three succeeding business days should consult their
own advisor.
In connection with the offering, the underwriters may purchase and sell pass
through certificates in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover
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positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of certificates than they are required to
purchase in the offering. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or retarding a decline in the
market price of the certificates while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased pass
through certificates sold by or for the account of the underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the pass through certificates. As a result, the
price of the certificates may be higher than the price that otherwise might
exist in the open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. These transactions may be
effected in the over-the-counter market or otherwise.
United estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$2,600,000.
United has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the pass through certificates is being passed upon for
United by Mayer Brown & Platt, Chicago, Illinois, and for the underwriters by
Milbank, Tweed, Hadley & McCloy, LLP, New York, New York. The respective
counsel for United and the underwriters will rely on the opinion of Bingham
Dana LLP, counsel to State Street Bank & Trust Company of Connecticut, National
Association, as to certain matters relating to the authorization, execution and
delivery of the pass through trust agreement, each trust supplement and the
pass through certificates, and the valid and binding effect thereof, on the
opinion of Richards, Layton & Finger, counsel to Wilmington Trust Company, as
to certain matters relating to the authorization, execution and delivery of the
trust agreement forming AFE Trust and the validity and binding effect thereof,
and on the opinion of Francesca M. Maher, Esq., Senior Vice President, General
Counsel and Secretary of United, as to matters relating to the authorization,
execution and delivery of the pass through trust agreement and each trust
supplement by United. Vedder, Price, Kaufman & Kammholz will pass upon the
availability of benefits under Section 1110 of the Bankruptcy Code to the
leased aircraft and owned aircraft indenture trustees.
EXPERTS
Arthur Andersen LLP, independent auditors, have audited United's
consolidated financial statements and schedule included in United's Annual
Report (Form 10-K) for the year ended December 31, 1999, as set forth in their
reports, which we incorporated by reference in the prospectus accompanying this
prospectus supplement. The consolidated financial statements and schedule are
incorporated therein by reference in reliance on Arthur Andersen LLP's reports,
given upon their authority as experts in accounting and auditing.
The references to AISI, AvSolutions and MBA, and to their respective
appraisal reports, are included in this prospectus supplement in reliance upon
the authority of each firm as an expert with respect to the matters contained
in its appraisal report.
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<PAGE>
INCORPORATION OF INFORMATION UNITED FILES WITH THE SEC
United incorporates by reference in this prospectus supplement United's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed
on March 15, 2000, its Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2000, filed on May 5, 2000, its current reports on Form 8-K
filed on May 26, 2000 and July 19, 2000, and the current reports of UAL
Corporation on Form 8-K filed on May 31, 2000 and Form 8-K/A filed on June 21,
2000.
Reference is made to the information under "Incorporation of Information
United Files with the SEC" in the accompanying prospectus. All documents filed
under the Securities Exchange Act of 1934 with the SEC prior to January 1, 2000
have been superseded by the above-listed documents and will not constitute a
part of the prospectus or this prospectus supplement.
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APPENDIX I
GLOSSARY
"Adjusted Expected Distributions" means, for the pass through certificates
of any pass through trust on any current distribution date, the sum of (x)
accrued and unpaid interest on the pass through certificates and (y) the
greater of:
(A) the difference between (x) the pool balance of the pass through
certificates as of the immediately preceding distribution date or, in the
case of the first distribution date, the original total face amount of the
pass through certificates of that pass through trust, and (y) the pool
balance of the pass through certificates as of the current distribution
date calculated on the basis that (1) the principal of the Non-Performing
Equipment Notes and the AFE Trust notes (as to which there has been a
payment default) held in that pass through trust has been paid in full and
the payments have been distributed to the holders of the pass through
certificates, and (2) the principal of the Performing Equipment Notes and
the AFE Trust notes (as to which there has not been a payment default) held
in that pass through trust has been paid when due (but without giving
effect to any acceleration of any thereof) and the payments have been
distributed to the holders of the pass through certificates; and
(B) the amount of the excess, if any, of (1) the pool balance of that
class of pass through certificates as of the immediately preceding
distribution date or, in the case of the first distribution date, the
original total face amount of the pass through certificates of that pass
through trust, over (2) the Aggregate LTV Collateral Amount for that class
of pass through certificates for the current distribution date;
provided that, until the date of the initial LTV Appraisals, clause (B) will
not apply.
For purposes of calculating Adjusted Expected Distributions with respect to the
Certificates of any pass through trust, any Make-Whole Amount paid on the 747
leased equipment note, AFE Trust note and owned equipment notes held in that
pass through trust that has not been distributed to the certificateholders of
that pass through trust (other than such Make-Whole Amount or a portion thereof
applied to the payment of interest on the pass through certificates of that
pass through trust or the reduction of the pool balance of that pass through
trust) shall be added to the amount of Adjusted Expected Distributions.
"Aggregate LTV Collateral Amount" for any class of pass through certificates
for any distribution date means the product of (A) (1) the sum of the
applicable LTV Collateral Amounts for all aircraft, minus (2) the pool balance
for each class of pass through certificates, if any, senior to that class,
after giving effect to any distribution of principal on that distribution date
with respect to the senior class or classes, multiplied by (B)(1) in the case
of the Class A-1 pass through certificates or Class A-2 pass through
certificates, a fraction the numerator of which equals the Current Pool Balance
for the Class A-1 pass through certificates or Class A-2 pass through
certificates, as the case may be, and the denominator of which equals the
aggregate Current Pool Balance for the Class A-1 pass through certificates and
Class A-2 pass through certificates, (2) in the case of the Class B pass
through certificates, 1.0, and (3) in the case of the Class C-1 pass through
certificates and Class C-2 pass through certificates, a fraction the numerator
of which equals the Current Pool Balance for the Class C-1 pass through
certificates or Class C-2 pass through certificates, as the case may be, and
the denominator of which equals the aggregate Current Pool Balance for the
Class C-1 pass through certificates and Class C-2 pass through certificates.
The Aggregate LTV Collateral Amount shall not be less than zero.
"Appraised Current Market Value" of any aircraft means the lower of the
average and the median of the most recent three appraisals of that aircraft.
"Average Life Date" for any 747 leased equipment note, AFE Trust note or
owned equipment note will be the date which follows the time of determination
by a period equal to the Remaining Weighted Average Life of that 747 leased
equipment note, AFE Trust note or owned equipment note. (747 Leased Aircraft
Indenture, Section 1.01; Owned Aircraft Indentures, Section 1.01; AFE Trust
Indenture Section 1.01)
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"Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum will at all times be determined by the
calculation below:
(1) the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for that day (or, if it is not a business day,
the next preceding business day) by the Federal Reserve Bank of New York,
or if the rate is not so published for any day that is a business day, the
average of the quotations for the day for such transactions received by the
liquidity provider from three Federal funds brokers of recognized standing
selected by it, plus
(2) one-quarter of one percent ( 1/4 of 1%).
"Break Amount" for a leased equipment note, means all reasonable out-of
pocket expenses and losses which are incurred by a holder of the leased
equipment note, upon the payment or prepayment of any principal portion of any
leased equipment note by that holder on a date other than an interest payment
date, as a result of (1) the breaking of any deposit obtained to fund the
leased equipment note prior to the maturity thereof, or (2) the re-employment
of that principal amount during the remaining term of the then applicable
interest period at a rate lower than Eurodollar Rate.
"cross-border lease" means the lease agreement between the cross-border
lessor and the cross-border lessee.
"cross-border lessee" means the lessee of the Boeing 747-422 aircraft under
the cross-border lease.
"cross-border lessor" means the foreign lessor of the Boeing 747-422
aircraft.
"Eurodollar Rate" means, for any interest period, the arithmetic average
(rounded upwards to the nearest 1/16 of 1%) of the offered quotation, if any,
to first class banks in the London interbank Eurodollar market by each
Reference Bank (as notified by such Reference Bank to the indenture trustee)
for U.S. dollar deposits of amounts in same day funds comparable to the
outstanding principal amount of the leased equipment note(s) held by such
Reference Bank with maturities comparable to the interest period for which such
Eurodollar Rate will apply as of approximately 11:00 a.m. (London time) on the
date two business days prior to such interest period. If any Reference Bank
fails to notify the indenture trustee of any such offered quotation, the
Eurodollar Rate shall be determined on the basis of the offered quotations by
the other Reference Banks.
"event of loss" for any owned aircraft, airframe or any engine means any of
the events noted below:
(1) the destruction, damage beyond economic repair or rendition of that
property permanently unfit for normal use;
(2) any damage of that property which results in an insurance settlement
on the basis of a total loss or a constructive or compromised total loss;
(3) any theft or disappearance of that property, or any confiscation,
condemnation or seizure of or requisition of title or use of that property
by any governmental entity or purported governmental authority (other than
a requisition for use by the U.S. government or the government of registry
of the relevant aircraft) for a period exceeding 180 consecutive days;
(4) as a result of any law, rule, regulation, order or other action by
the Federal Aviation Administration or any governmental body of the
government of registry of the aircraft, the use of that property in the
normal course of the business of air transportation is prohibited for 180
consecutive days, unless United, prior to the end of the 180-day period,
has undertaken and diligently carried forward in a manner that does not
discriminate against the aircraft, all steps that are necessary or
desirable to permit the normal use of that property by United, and United,
within two years from the time of grounding, shall have conformed at least
one such aircraft in its fleet to the requirements of such law, rule,
regulation, order or other action and commenced regular commercial use of
such aircraft in such jurisdiction; or
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<PAGE>
(5) the requisition for use by any government of registry of the
aircraft (other than the U.S. government) which continues for more than two
years; and
(6) any divestiture of title to an engine treated as an event of loss
under the owned aircraft indenture. (Owned Aircraft Indenture, Section
1.01)
"event of loss" for any leased aircraft, airframe or any engine means any of
the events noted below:
(1) the destruction, damage beyond economic repair or rendition of that
property permanently unfit for normal use;
(2) any damage of that property which results in an insurance
settlement on the basis of a total loss or a constructive or
compromised total loss;
(3) any theft or disappearance of that property for a period of 180
consecutive days or more;
(4) the confiscation, condemnation, or seizure of, requisition or
taking of title to, or the requisition for use of, that property by
any governmental authority or purported governmental authority
(other than a requisition for use by the U.S. government or the
government of registry of the relevant aircraft) for a period
exceeding 180 days or, if earlier, until the end of the term of the
related lease;
(5) as a result of any law, rule, regulation, order or other action by
the Federal Aviation Administration or other governmental body, the
use of that property in the normal course of the business of air
transportation is prohibited for 180 consecutive days or, if
earlier, until the end of the term of the related lease; and
(6) with respect to an engine only, any divestiture of title to that
engine treated as an event of loss under the applicable lease.
The event described in paragraph (5) above will be an event of loss unless we,
prior to the expiration of the 180-day period, have undertaken and will be
diligently carrying forward steps which are necessary or desirable to permit
the normal use of the property, but in any event if the use has been prohibited
for a period of two consecutive years; provided that no event of loss will be
deemed to have occurred if in the case of the leased Boeing 757-222 aircraft,
the applicable lessor and indenture trustee have waived that event of loss or
the prohibition has been applicable to our entire U.S. fleet of similar
property and we, prior to the expiration of the two-year period, have conformed
at least one unit of property in our fleet to the requirements of any law,
rule, regulation, order or other action and commenced regular commercial use of
the same and will be diligently carrying forward, in a manner which does not
discriminate against applicable property in so conforming the property, steps
which are necessary or desirable to permit the normal use of the property by
us. (Leases, Section 1)
"Expected Distributions" means, for the pass through certificates of any
pass through trust on any distribution date, the sum of (1) accrued and unpaid
interest on the pass through certificates and (2) the difference between:
(A) the pool balance of the pass through certificates as of the
immediately preceding distribution date (or, in the case of the
first distribution date, the original total face amount of the pass
through certificates of that pass through trust); and
(B) the pool balance of the pass through certificates as of the current
distribution date calculated on the basis that (1) the principal of
the 747 leased equipment notes, AFE Trust notes and owned equipment
notes held in the pass through trust has been paid when due,
whether at stated maturity, on redemption, prepayment, purchase,
acceleration or otherwise, and the pass through trustee has
distributed the payments to the holders of the pass through
certificates and (2) the principal of any 747 leased equipment
notes, AFE Trust notes or owned equipment notes formerly held in
that pass through trust that have been sold pursuant to the terms
of the intercreditor agreement has been paid in full and the pass
through trustee has distributed those payments to the holders of
the pass through certificates.
I-3
<PAGE>
For purposes of calculating Expected Distributions for the pass through
certificates of any pass through trust, any Make-Whole Amount paid on the 747
leased equipment note, AFE Trust note or owned equipment notes held in the pass
through trust that has not been distributed to the certificateholders of the
pass through trust, other than the Make-Whole Amount or a portion thereof
applied to distributions of interest on the pass through certificates of the
pass through trust or the reduction of the pool balance of the pass through
trust, will be added to the amount of Expected Distributions.
For purposes of determining the priority of distributions on account of the
redemption of 747 leased equipment note, AFE Trust note or owned equipment
notes issued pursuant to an indenture, clause (1) of the definition of Expected
Distributions set forth above shall be deemed to read as follows: "(1) accrued,
due and unpaid interest on the pass through certificates together with (without
duplication) accrued and unpaid interest on a portion of the pass through
certificates equal to the outstanding principal amount of the 747 leased
equipment note, AFE Trust note or owned equipment notes being redeemed or
prepaid (immediately prior to the redemption or prepayment)".
(Intercreditor Agreement, Sections 1.1 and 2.4(b))
"final distribution" for the pass through certificates of any pass through
trust on any distribution date, will be calculated under the following formula:
Calculation of distributions
(1) the total amount of all accrued and unpaid interest on those pass
through certificates, plus
(2) the pool balance of those pass through certificates as of the preceding
distribution date.
For purposes of calculating the final distribution for the pass through
certificates of any pass through trust, any premium paid on the 747 leased
equipment note, AFE Trust note and owned equipment notes, if any, held in that
pass through trust which has not been distributed to the certificateholders of
that pass through trust (other than the premium or a portion thereof applied as
the payment of interest on the pass through certificates of that pass through
trust or the reduction of the pool balance of that pass through trust) will be
added to the amount of the final distribution.
"final maturity date" means for the Class A-1 pass through certificates,
July 1, 2015; for the Class A-2 pass through certificates, January 1, 2012; for
the Class B pass through certificates, January 1, 2013; for the Class C-1 pass
through certificates, January 1, 2008; and for the Class C-2 pass through
certificates, January 1, 2014.
"leased equipment notes" means the 747 leased equipment notes and 757 leased
equipment notes.
"LIBOR" means, with respect to any interest period, the interest rate per
annum (calculated on the basis of a 360-day year and actual days elapsed) at
which deposits in United States dollars are offered to prime banks in the
London interbank market as indicated on display page 3750 (British Bankers
Association-LIBOR) of the Dow Jones Markets Service (or such other page as may
replace such display page 3750 for the purpose of displaying London interbank
offered rates for United States dollar deposits) or, if not so indicated, the
average (rounded upwards to the nearest 1/100%), as determined by the liquidity
provider, of such rates as indicated on the Reuters Screen LIBO Page (or such
other page as may replace such Reuters Screen LIBO Page for the purpose of
displaying London interbank offered rates for United States dollar deposits)
or, if neither such alternative is indicated, the average (rounded upwards to
the nearest 1/100%), as determined by the liquidity provider, of such rates
offered by the London Reference Banks to prime banks in the London interbank
market, in each case at or about 11:00 a.m. (London time) on the day two LIBOR
business days prior to the first day of such interest period for deposits of a
duration equal to such interest period (or such other period most nearly
corresponding to such period) in an amount substantially equal to the principal
amount of the applicable LIBOR Advance as of the first day of such interest
period. The liquidity provider will, if necessary, request that each of the
London Reference Banks provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the average of the quotations
(rounded upwards to the nearest 1/100%). If no such quotation can be obtained,
the rate will be the Base Rate.
I-4
<PAGE>
"liquidity event of default" means an event of default under each liquidity
facility, including (1) the acceleration of all the owned equipment notes and
leased equipment notes and (2) specified bankruptcy or similar events involving
United. (Liquidity Facilities, Section 1.01)
"Liquidity Expenses" means all Liquidity Obligations other than the
principal amount of any drawings under a liquidity facility and any interest
accrued on such Liquidity Obligations.
"Liquidity Obligations" means the obligations to reimburse or to pay the
liquidity provider all principal, interest, fees and other amounts owing to it
under each liquidity facility, the note purchase agreements, the 747 leased
aircraft participation agreement, the owned aircraft participation agreements
and the fee letter.
"London Reference Banks" means the principal London offices of National
Westminster Bank PLC, the Mitsubishi Trust and Banking Corporation and ABN AMRO
Bank N.V., or such other bank or banks as may from time to time be agreed to by
United and the liquidity provider.
"LTV Appraisal" means a fair market value appraisal, which may be a
"desktop" appraisal, performed by any nationally recognized aircraft appraiser
on the basis of an arm's-length transaction between an informed and willing
purchaser under no compulsion to buy and an informed and willing seller under
no compulsion to sell and both having knowledge of all relevant facts.
"LTV Collateral Amount" of any aircraft for any class of pass through
certificates means, as of any distribution date, the lesser of (1) the LTV
Ratio for that class of pass through certificates multiplied by the Appraised
Current Market Value of that aircraft (or with respect to any aircraft which
has suffered an event of loss, the amount of the insurance proceeds paid, or
payable to, the related indenture trustee for the event of loss to the extent
then held by that indenture trustee (and/or on deposit in the special payments
account) and (2) the outstanding principal amount of the owned equipment notes
secured by that aircraft or by leased equipment note(s) relating to that
aircraft after giving effect to any principal payments of the equipment notes
on or before that distribution date.
"LTV Ratio" means for the Class A-1 pass through certificates and the Class
A-2 pass through certificates, 45.0%, for the Class B pass through
certificates, 60.0%, and for the Class C-1 pass through certificates and the
Class C-2 pass through certificates, 69.0%.
"Make-Whole Amount" means, for any 747 leased equipment note, AFE Trust note
or owned equipment notes, an amount (as determined by an independent investment
banker of national standing selected by United) equal to the excess, if any,
determined under the following calculation:
Calculation of Make-Whole Amount
(1) the present value of the remaining scheduled payments of principal and
interest from the determination date to maturity of that 747 leased
equipment note, AFE Trust note or owned equipment note computed by
discounting the payments on a semiannual basis on each payment date
(assuming a 360-day year of twelve 30-day months) using a discount rate
equal to the Treasury Yield (after giving effect to any payment of such
interest on such date of determination), minus
(2) the outstanding principal amount of that 747 leased equipment note, AFE
Trust note or owned equipment note plus accrued interest to the date of
determination (after giving effect to any payment of such interest on
such date of determination).
For purposes of determining the Make-Whole Amount, "Treasury Yield" means, at
the date of determination with respect to any 747 leased equipment note, AFE
Trust note or owned equipment note, the interest rate (expressed as a
semiannual equivalent and as a decimal and, in the case of United States
Treasury bills, converted to a bond equivalent yield) determined to be the
annual rate equal to the semiannual yield to maturity for United States
Treasury securities maturing on the Average Life Date of that 747 leased
equipment note, AFE Trust note or owned equipment note and trading in the
public securities markets either as determined by interpolation between the
most recent weekly average yield to maturity for two series of United States
Treasury securities trading in the public securities markets, (1) one maturing
as close as possible to, but earlier than, the
I-5
<PAGE>
Average Life Date of that 747 leased equipment note, AFE Trust note or owned
equipment note and (2) the other maturing as close as possible to, but later
than, the Average Life Date of that 747 leased equipment note, AFE Trust note
or owned equipment note, in each case as published in the most recent H.15(519)
or, if a weekly average yield to maturity for United States Treasury securities
maturing on the Average Life Date of that 747 leased equipment note, AFE Trust
note or owned equipment note is reported in the most recent H.15(519), the
weekly average yield to maturity as published in such H.15(519). As used in the
definition of Treasury Yield, "H.15(519)" means, the weekly statistical release
designated as such, or any successor publication, published by the Board of
Governors of the Federal Reserve System. The date of determination of a Make-
Whole Amount is the third business day prior to the applicable payment or
redemption date. The "most recent H.15(519)" means the H.15(519) published
prior to the close of business on the third business day prior to the
applicable payment or redemption date. (Owned Aircraft Indenture, Section 1.01;
747 Leased Aircraft Indenture, Section 1.01; AFE Trust Indenture, Section 1.01)
"Maximum Available Commitment" means an amount equal to the then Maximum
Commitment of that liquidity facility at that time less the aggregate amount of
each interest drawing outstanding under that liquidity facility at that time;
provided that following a downgrade drawing, a non-extension drawing or final
drawing, the Maximum Available Commitment will be zero.
"Maximum Commitment" means initially (1) $32,174,805, in the case of the
liquidity facility for the Class A-1 pass through trust, (2) $37,721,782, in
the case of the liquidity facility for the Class A-2 pass through trust, and
(3) $24,127,219, in the case of the liquidity facility for the Class B pass
through trust, in each case, as the amount may be reduced in accordance with
the liquidity facilities.
"Non-Performing Equipment Note" means any owned equipment note or leased
equipment note that is not a Performing Equipment Note.
"owner participant" means the owner of the beneficial interest of an owner
trust in a leverage lease transaction.
"Performing Equipment Note" means an owned equipment note or leased
equipment note with respect to which no payment default has occurred and is
continuing (without giving effect to any acceleration); provided that in the
event of a bankruptcy proceeding under Title 11 of the United States Code, the
"Bankruptcy Code", under which United is a debtor any payment default existing
during the 60-day period under Section 1110(a)(2)(A) of the Bankruptcy Code (or
such longer period as may apply under Section 1110(b) of the Bankruptcy Code)
shall not be taken into consideration, unless during this Section 1110 period
the trustee in the proceeding or United (1) fails to agree pursuant to Section
1110 of the Bankruptcy Code to perform its obligations under the lease related
to that leased equipment note, in the case of leased aircraft, or under the
indenture, in the case of owned aircraft, or (2) does not cure any such payment
default under Section 1110(a)(2)(B) of the Bankruptcy Code before the
expiration of the period applicable to it as specified in Section 1110(a)(2)(B)
of the Bankruptcy Code. (Intercreditor Agreement, Section 1.1)
"pool balance" for the pass through certificates issued by any pass through
trust, as of any date, means (1) the original aggregate face amount of the pass
through certificates issued by that pass through trust that has not been
distributed to certificateholders, less (2) the total amount of all payments on
those pass through certificates other than payments of interest, Make-Whole
Amount or Break Amount or reimbursement of any costs and expenses. The pool
balance for each class of pass through certificates as of any distribution date
will be computed after giving effect to the payment of principal, if any, on
the 747 leased equipment note, AFE Trust note and owned equipment notes held by
the pass through trust. (Section 1.01)
"pool factor" for each pass through trust as of any distribution date is the
quotient (rounded to the seventh decimal place) computed by dividing the pool
balance by the original aggregate face amount of the pass through certificates
of that pass through trust. The pool factor as of any distribution date for
each class of pass through trust certificates will be computed after giving
effect to the payment and distribution of principal, if any, on the 747 leased
equipment note, AFE Trust note and owned equipment notes held by the pass
through trust. (Section 1.01)
I-6
<PAGE>
"PTC Event of Default" under each pass through trust agreement means the
failure to pay within ten business days of the due date either: the
outstanding pool balance of the applicable class of pass through certificates
on the final maturity date for that class or the interest due on that class of
pass through certificates on any distribution date, unless the subordination
agent has made interest drawings or a withdrawal from the cash collateral
account for that class of pass through certificates in an amount sufficient to
pay the interest and has distributed that amount to the relevant
certificateholders. (Intercreditor Agreement, Section 1.1)
"Reference Banks" means National Westminster Bank PLC, The Mitsubishi Trust
and Banking Corporation and ABN AMRO Bank N.V.
"Remaining Weighted Average Life" on a given date for any 747 leased
equipment note, AFE Trust note or owned equipment note is the number of days
equal to the quotient obtained under the following calculation:
Calculation of Remaining Weighted Average Life:
(1) divide the sum of each of the products obtained by multiplying:
(a) the amount of each then remaining scheduled payment of principal of
that 747 leased equipment note, AFE Trust note or owned equipment
note, by
(b) the number of days from and including that determination date to
but excluding the date on which the payment of principal is
scheduled to be made, by
(2) the then outstanding principal amount of that 747 leased equipment
note, AFE Trust note or owned equipment note. (Owned Aircraft
Indentures, Section 1.01; AFE Trust Indenture, Section 1.01)
"replacement liquidity facility" for any liquidity facility will mean an
irrevocable revolving credit agreement in substantially the form of the
replaced liquidity facility, including reinstatement provisions, or in such
other form (which may include a letter of credit, surety bond, financial
insurance policy or guaranty) as will permit the rating agencies to confirm in
writing their respective ratings then in effect for the pass through
certificates (before the downgrading of such ratings, if any, as result of the
downgrading of the liquidity provider), in a face amount (or in an aggregate
face amount) equal to the Required Amount for that liquidity facility. Without
limitation of the form that a replacement liquidity facility otherwise may
have, the replacement liquidity facility for any class of pass through
certificates may have a stated expiration date earlier than 15 days after the
final maturity date for that class so long as the replacement liquidity
facility provides for a non-extension drawing. (Intercreditor Agreement,
Section 1.1)
"Required Amount" means, with respect to any liquidity facility or the cash
collateral account, for any day and for any pass through trust, the aggregate
amount of interest, calculated at the interest rate applicable to the pass
through certificates issued by that pass through trust, that would be payable
in respect of the pass through certificates on the three successive regular
distribution dates following that day, or, if that day is a regular
distribution date, on that day and the succeeding two regular distribution
dates, in each case calculated on the basis of the pool balance of the pass
through certificates issued by that pass through trust and without regard to
expected future payments of principal on those pass through certificates.
(Liquidity Facilities, Section 1.1)
"Threshold Rating" means, with respect to the Class A-1 liquidity provider,
the Class A-2 liquidity provider and the Class B liquidity provider, (i) a
short-term unsecured debt rating of P-1 in the case of Moody's and A-1+, in
the case of Standard & Poor's, and (ii) for any person who does not have a
short-term unsecured debt rating from either or both the rating agencies, a
long-term unsecured debt rating of Aa3, in the case of Moody's, and AA-, in
the case of Standard & Poor's.
"Triggering Event" refers to (1) defaults under all owned aircraft
indentures and leased aircraft indentures that result in a PTC Event of
Default on the most senior class of pass through certificates, (2) the
acceleration of all of the outstanding owned equipment notes and leased
equipment notes or (3) some bankruptcy or insolvency events involving United.
(Intercreditor Agreement, Section 1.1)
I-7
<PAGE>
[LOGO OF AIRCRAFT INFORMATION SERVICES, INC.]
22 June 2000
Ms. Swati Sharma
Sr. Staff Specialist - Corporate Finance
United Airlines
1200 East Algonquin Road
Elk Grove Township, IL 60007
Subject: AISI Report No.: A0S039BVO
AISI Sight Unseen Adjusted Base Value Appraisal
Twenty Various Aircraft
Reference: (a) Goldman, Sachs & Co Fax Message 24 April 2000
(b) Goldman, Sachs & Co Telcon 10 May 2000
(c) Goldman, Sachs & Co Telcon 08 June 2000
(d) Goldman, Sachs & Co Telcon 22 June 2000
Dear Ms. Swati:
Aircraft Information Services, Inc. (AISI) is pleased to offer United Airlines
our opinion of the sight unseen base value, adjusted to account for the young
age of the fleet, of twenty aircraft as listed and defined in the above
reference (a), (b), (c) and (d) messages and in Table I of this report.
1. Methodology and Definitions
---------------------------
The standard terms of reference for commercial aircraft value are 'half-life
base market value' and 'half-life current market value' of an 'average'
aircraft. Base value is a theoretical value that assumes a balanced market while
current market value is the value in the real market; both assume a hypothetical
average aircraft condition. AISI value definitions are consistent with the
current definitions of the International Society of Transport Aircraft Trading
(ISTAT), those of 01 January 1994. AISI is a member of that organization and
employs an ISTAT Certified and Senior Certified Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance. Base
Headquarters, 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653
TEL: 949-582-8888 FAX: 949-582-8887 E-MAIL: [email protected]
<PAGE>
22 June 2000
AISI File No. A0S039BVO
Page - 2 -
values are typically given for aircraft in 'new' condition, 'average half-life'
condition, or in a specifically described condition unique to a single aircraft
at a specific time. An 'average' aircraft is an operable airworthy aircraft in
average physical condition and with average accumulated flight hours and cycles,
with clear title and standard unrestricted certificate of airworthiness, and
registered in an authority which does not represent a penalty to aircraft value
or liquidity, with no damage history and with inventory configuration and level
of modification which is normal for its intended use and age. AISI assumes
average condition unless otherwise specified in this report. 'Half-life'
condition assumes that every component or maintenance service which has a
prescribed interval that determines its service life, overhaul interval or
interval between maintenance services, is at a condition which is one-half of
the total interval. It should be noted that AISI and ISTAT value definitions
apply to a transaction involving a single aircraft, and that transactions
involving more than one aircraft are often executed at considerable and highly
variable discounts to a single aircraft price, for a variety of reasons relating
to an individual buyer or seller.
AISI defines a 'current market value', which is synonymous with the older term
'fair market value' as that value which reflects the real market conditions,
whether at, above or below the base value conditions. Assumption of a single
unit sale and definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than half-life
condition, and to account for better or worse than average physical condition,
and the inclusion of additional equipment, or absence of standard equipment.
2. Valuation
---------
Following is AISI's opinion of the base values for the twenty subject aircraft
in 2000 US Dollars. Valuations are presented in Table I subject to the
assumptions, definitions and disclaimers herein.
<PAGE>
22 June 2000
AISI File No. A0S039BVO
Page - 3 - Table I
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Registration Adjusted Base Value
Aircraft Model Serial Number Number Delivery Date Engine MTOW (Lbs.) 2000 US$
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B747-422 24322 N171UA Jun-89 PW 4056 875,000 $ 94,630,000**
-----------------------------------------------------------------------------------------------------------------------------
B757-222 Non Etop 26673 N567UA Nov-92 PW 2037 240,000 $ 39,440,000**
-----------------------------------------------------------------------------------------------------------------------------
B757-222 Non Etop 26674 N568UA Nov-92 PW 2037 240,000 $ 39,440,000**
-----------------------------------------------------------------------------------------------------------------------------
B757-222 Non Etop 26677 N569UA Nov-92 PW 2037 240,000 $ 39,440,000**
-----------------------------------------------------------------------------------------------------------------------------
B757-222 Non Etop 26678 N570UA Nov-92 PW 2037 240,000 $ 39,440,000**
-----------------------------------------------------------------------------------------------------------------------------
B757-222 Non Etop 26681 N571UA Dec-92 PW 2037 240,000 $ 39,440,000**
-----------------------------------------------------------------------------------------------------------------------------
B757-222 Non Etop 26682 N572UA Dec-92 PW 2037 240,000 $ 39,440,000**
-----------------------------------------------------------------------------------------------------------------------------
B757-222 Etop 28749 N596UA Mar-98 PW 2037 240,000 $ 53,470,000*
-----------------------------------------------------------------------------------------------------------------------------
A320-232 1104 N454UA Nov-99 V2527-A5 169,754 $ 43,940,000*
-----------------------------------------------------------------------------------------------------------------------------
A320-232 1105 N455UA Nov-99 V2527-A5 169,754 $ 43,950,000*
-----------------------------------------------------------------------------------------------------------------------------
A320-232 1128 N456UA Dec-99 V2527-A5 169,754 $ 44,030,000*
-----------------------------------------------------------------------------------------------------------------------------
A320-232 1146 N457UA Jan-00 V2527-A5 169,754 $ 45,680,000*
-----------------------------------------------------------------------------------------------------------------------------
A320-232 1163 N458UA Feb-00 V2527-A5 169,754 $ 45,750,000*
-----------------------------------------------------------------------------------------------------------------------------
A320-232 1192 N459UA Apr-00 V2527-A5 169,754 $ 45,850,000*
-----------------------------------------------------------------------------------------------------------------------------
B767-322ER 29241 N673UA Jan-00 PW 4052 360,000 $ 87,430,000*
-----------------------------------------------------------------------------------------------------------------------------
B767-322ER 29242 N674UA Apr-00 PW 4052 360,000 $ 87,780,000*
-----------------------------------------------------------------------------------------------------------------------------
B777-222ER 30213 N207UA Jul-99 PW 4090 640,000 $130,180,000*
-----------------------------------------------------------------------------------------------------------------------------
B777-222ER 30214 N208UA Nov-99 PW 4090 640,000 $130,630,000*
-----------------------------------------------------------------------------------------------------------------------------
B777-222ER 30215 N209UA Dec-99 PW 4090 640,000 $130,810,000*
-----------------------------------------------------------------------------------------------------------------------------
B777-222ER 30216 N21OUA Jan-00 PW 4090 640,000 $135,110,000*
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Totals $1,355,880,000
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Values adjusted due to relatively young age of aircraft.
**These aircraft are not adjusted for actual maintenance condition.
These aircraft are assumed to be in half life condition.
<PAGE>
22 June 2000
AISI File No. A0S040BVO
Page - 4 -
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ John D. McNicol
John D. McNicol
Vice President
Appraisals & Forecasts
<PAGE>
AvSOLUTIONS, Inc.
------------------------------------
Aviation Solutions
June 22, 2000
United Airlines
World Headquarters
P.O. Box 66100
Chicago, Illinois 60666
Ladies and Gentlemen,
AvSOLUTIONS is pleased to provide this opinion on the base value, as of
April 2000, of seven Boeing 757-200 aircraft, two Boeing 767-300 aircraft, four
Boeing 777-200B (ER) aircraft, six Airbus Industrie A320-200 aircraft and one
Boeing 747-400 aircraft (the aircraft). The Boeing 757-200 aircraft are powered
by Pratt & Whitney PW2037 engines. The Boeing 767-300 aircraft are powered by
Pratt & Whitney PW4052 engines. The Boeing 777-200B (ER) aircraft are powered by
Pratt & Whitney PW4090 engines. The Airbus Industrie A320-200 aircraft are
powered by International Aero Engines V2527-A5 engines. The Boeing 747-400
aircraft is powered by Pratt & Whitney PW4056 engines. The total of twenty
aircraft either have already been delivered or will be delivered to United
Airlines. A listing of the particular aircraft is provided as Attachment 1 of
this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
----------
Base value is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length, cash transaction between willing, able and knowledgeable parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
-------------------------
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transaction
10687 Gaskins Way, Suite 200, Manassas, Virginia 20109-2371, USA
Telephone: 703-330-0461 Fax: 703-330-0581
Email: [email protected]
<PAGE>
AvSOLUTIONS
--------------------------------------------------------------------------------
Page 2
United Airlines
are willing, able, prudent and knowledgeable, and under no unusual pressure for
a prompt sale, and that the transaction would be negotiated in an open and
unrestricted market on an arm's length basis, for cash equivalent consideration,
and given an adequate amount of time for effective market exposure to
perspective buyers, which AvSOLUTIONS considers to be ten to twenty months.
APPRAISAL METHODOLOGY
---------------------
The method employed by AvSOLUTIONS to appraise the current values of
aircraft and the associated equipment addresses the factors that influence the
market value of an aircraft, such as its age, condition, configuration, the
population of similar aircraft, similar aircraft on the market, operating costs,
cost to acquire a new aircraft, and the state of demand for transportation
services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed. Cross-
sectional data is then postulated and compared with reported market values at a
specified point in time. Such data reflects the effect of deterioration in
aircraft performance due to usage and exposure to the elements, as well as the
effect of obsolescence due to the evolutionary development and implementation of
new designs and materials.
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effects of different size and different design
philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
market values implies that the actual value realized will fall within a range
of values. Therefore, if a contemplated value falls within the specified
confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a
reasonable representation of the current market situation.
<PAGE>
AvSOLUTIONS
-------------------------------------------------------------------------------
Page 3
United Airlines
LIMITING CONDITIONS AND ASSUMPTIONS
-----------------------------------
In order to conduct this valuation, AvSOLUTIONS is solely relying on
information as supplied by United Airlines and from data within AvSOLUTIONS' own
database. In determining the base value of the subject total of twenty aircraft
described above, the following assumptions have been researched and determined:
1. AvSOLUTIONS has not inspected these aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or condition.
2. The aircraft either have already been delivered or will be delivered to
United Airlines.
3. The aircraft will be certified, maintained and operated under United States
Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The aircraft have no damage history.
6. The aircraft are in good condition.
7. AvSOLUTIONS considers the economic useful life of these aircraft to be at
least 32 years.
8. The values presented in this report assume that each of the aircraft, and all
of their major components, will be in at least a "half time/half life" condition
as determined by the then-current maintenance programs. Half-time and half-life
mean that half of the flying hours and/or cycles between major maintenance
events on the airframes, engines and other components are available to be flown.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each aircraft are as listed in
attachment 1.
<PAGE>
AvSOLUTIONS
--------------------------------------------------------------------------------
Page 4
United Airlines
STATEMENT OF INDEPENDENCE
-------------------------
This appraisal report represents the opinion of Aviation Solutions Inc.
(AvSOLUTIONS) and is intended to be advisory in nature. Therefore, AvSOLUTIONS
assumes no responsibility or legal liability for actions taken or not taken by
the Client or any other party with regard to the subject aircraft. By accepting
this report, the Client agrees that AvSOLUTIONS shall bear no responsibility or
legal liability regarding this report. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the Client's express consent.
AvSOLUTIONS hereby states that this valuation report has been independently
prepared and fairly represents the subject aircraft and AvSOLUTIONS' opinion of
their values. AvSOLUTIONS further states that it has no present or contemplated
future interest or association with the subject aircraft.
Signed,
/s/ Bryant Lynch
Bryant Lynch
Manager, Commercial Appraisals
<PAGE>
AvSOLUTIONS
--------------------------------------------------------------------------------
ATTACHMENT 1
EETC COLLATERAL SUMMARY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Boeing 757-222 N567UA Nov-92 PW2037 26673 240,000 $37,880,000
------------------------------------------------------------------------------------------------------------------
2 Boeing 757-222 N568UA Nov-92 PW2037 26674 240,000 $37,880,000
------------------------------------------------------------------------------------------------------------------
3 Boeing 757-222 N569UA Nov-92 PW2037 26677 240,000 $37,880,000
------------------------------------------------------------------------------------------------------------------
4 Boeing 757-222 N570UA Nov-92 PW2037 26678 240,000 $37,880,000
------------------------------------------------------------------------------------------------------------------
5 Boeing 757-222 N571UA Dec-92 PW2037 26681 240,000 $37,880,000
------------------------------------------------------------------------------------------------------------------
6 Boeing 757-222 N572UA Dec-92 PW2037 26682 240,000 $37,880,000
------------------------------------------------------------------------------------------------------------------
7 Boeing 757-222 N596UA Mar-98 PW2037 28749 240,000 $49,440,000
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8 Airbus A320-232 N454UA Nov-99 V2527-A5 1104 169,754 $43,880,000
-----------------------------------------------------------------------------------------------------------------------
9 Airbus A320-232 N455UA Nov-99 V2527-A5 1105 169,754 $43,880,000
-----------------------------------------------------------------------------------------------------------------------
10 Airbus A320-232 N456UA Dec-99 V2527-A5 1128 169,754 $43,880,000
-----------------------------------------------------------------------------------------------------------------------
11 Airbus A320-232 N457UA Jan-00 V2527-A5 1146 169,754 $44,230,000
-----------------------------------------------------------------------------------------------------------------------
12 Airbus A320-232 N458UA Feb-00 V2527-A5 1163 169,754 $44,230,000
-----------------------------------------------------------------------------------------------------------------------
13 Airbus A320-232 N459UA Apr-00 V2527-A5 1192 169,754 $44,570,000
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AvSOLUTIONS
--------------------------------------------------------------------------------
ATTACHMENT I
EETC COLLATERAL SUMMARY
page 2
<TABLE>
<CAPTION>
==========================================================================================
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
14 Boeing 767-322* N673UA Jan-00 PW4052 29241 360,000 $81,120,000
------------------------------------------------------------------------------------------
15 Boeing 767-322* N674UA Apr-00 PW4052 29242 360,000 $81,650,000
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
16 Boeing 777-222B (ER) N207UA Jul-99 PW4090 30213 640,000 $132,130,000
-------------------------------------------------------------------------------------------------
17 Boeing 777-222B (ER) N208UA Nov-99 PW4090 30214 640,000 $132,880,000
-------------------------------------------------------------------------------------------------
18 Boeing 777-222B (ER) N209UA Dec-99 PW4090 30215 640,000 $132,880,000
-------------------------------------------------------------------------------------------------
19 Boeing 777-222B (ER) N210UA Jan-00 PW4090 30216 640,000 $133,720,000
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
Aircraft Tail Delivery Serial MTOW
Number Aircraft Number Mo/Yr Engines Number (pounds) Base Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
20 Boeing 747-422 N171UA Jun-89 PW4056 24322 875,000 $83,640,000
------------------------------------------------------------------------------------------
</TABLE>
* This aircraft is structurally the same as a high gross weight (MTOW) Boeing
767-300ER. The aircraft was purchased to serve domestic routes, with limited
MTOW of 360,000 pounds and limited engine thrust of 52,000 pounds (each engine).
Potential future enhancement of this aircraft's capabilities by upgrading MTOW
and engine thrust would necessitate the payment of fees to both Boeing and to
Pratt & Whitney prior to recertification.
<PAGE>
Morten Beyer & Agnew
------------------------
Aviation Consulting Firm
The Current Base Value of
United Airlines 2000-1 EETC Aircraft
PREPARED FOR:
United Airlines
JUNE 22, 2000
Washington, D.C. London
2107 Wilson Blvd Lahinch 62, Lashmere
Suite 750 Copthorne
Arlington, Virginia 22201 West Sussex
Phone +703 276 3200 Phone +44 1342 716248
Fax +703 276 3201 Fax +44 1342 718967
<PAGE>
I. Introduction and Executive Summary
Morten Beyer & Agnew, Inc. (MBA), has been retained by United Airlines to
determine the Current Base Value of 20 aircraft as the valuation pertains to the
United Airlines 2000-1 EETC Securitization. The aircraft are further identified
in Section II of this report.
In performing this valuation, MBA did not inspect the aircraft or the historical
maintenance documentation, and we relied solely on information provided to us by
United Airlines. Based on the information set forth further in this report, it
is our opinion that the Current Base Value of this portfolio is $1,332,920,000
as noted in Section IV.
MBA uses the definition of certain terms, such as Current Market Value and Base
Value, as promulgated by the Appraisal Program of International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have a vested interest in the commercial aviation industry and who
have established a technical and ethical certification program for expert
appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that may be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Current Market
Value assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an
arm's-length basis, for cash or equivalent consideration, and given an adequate
amount of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements of
Market Value except that the market circumstances are assumed to be in a
reasonable state of equilibrium. Thus, Base Value pertains to an idealized
aircraft and market combination, but will not necessarily reflect the actual
Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
6/22/00
<PAGE>
II. Aircraft
<TABLE>
<CAPTION>
Registration
Aircraft Type MSN Number Delivery Date MGTOW
================================================================================
<S> <C> <C> <C> <C>
B757-222 26673 N567UA Nov-92 240,000
B757-222 26674 N568UA Nov-92 240,000
6757-222 26677 N569UA Nov-92 240,000
B757-222 26678 N570UA Nov-92 240,000
6757-222 26681 N571UA Dec-92 240,000
B757-222 26682 N572UA Dec-92 240,000
B757-222 28749 N596UA Mar-98 240,000
A320-232 1104 N454UA Nov-99 169,754
A320-232 1105 N455UA Nov-99 169,754
A320-232 1128 N456UA Dec-99 169,754
A320-232 1146 N457UA Jan-00 169,754
A320-232 1163 N458UA Feb-00 169,754
A320-232 1192 N459UA Apr-00 169,754
B767-322ER 29241 N673UA Jan-00 360,000
B767-322ER 29242 N674UA Apr-00 360,000
B777-222B 30213 N207UA Jul-99 640,000
B777-222B 30214 N208UA Nov-99 640,000
B777-222B 30215 N209UA Dec-99 640,000
B777-222B 30216 N21OUA Jan-00 640,000
B747-422 24322 N171UA Jun-89 875,000
</TABLE>
2 6/22/00
<PAGE>
III. Current Market Conditions
Boeing 757-200
The B-757 was conceived in 1978 as the successor to the B-727. First deliveries
took place in late 1982 as B-727 production was terminated. The aircraft was
somewhat slow in penetrating the market, as it came on-line in the depression of
the early 1980s, but has seen accelerating popularity in the late 1980s and 90s.
The aircraft is offered in two engine configurations, Rolls Royce and Pratt &
Whitney. The aircraft's popularity has increased as airlines have grown to
appreciate its fuel economy and operating efficiency. As of January 1, 2000, the
Rolls version had the greater market share, with 464 deliveries and 20 on order,
compared with 336 deliveries and 52 orders/options for the P&W version. Both
versions have achieved decent operator bases, with 42 airlines ordering the RR
version and 16 the P&W. A cargo version known as the PF (package freighter) is
also in production with 80 already produced and none on order. United Parcel
Service was the major purchaser, ordering 35 P&W powered models, and then 40
more Rolls Royce powered configurations along with 41 options. All B-757-20OPFs
currently on order have already been delivered. There has also been one combi
aircraft.
The B-757's capabilities have grown in the 18 years it has been produced, and it
is currently available at much higher gross weights and in an ER (extended
range) version used by several European carriers in transatlantic operations. In
late 1995 and 1996 a total of three B-757s were lost in accidents, with crew
reactions to emergency situations considered to be the probable cause. In the
prior 15 years only one had been lost in a hijacking situation in China.
The economic superiority of the B-757 over the smaller narrow bodies (B-737 and
MD-80) suggests that the heaviest casualties may befall these latter aircraft,
and that the airlines will tend to move up to the B-757. The major competitor to
the B-757 is not the smaller American twins, but rather the Airbus A319/320/321
series (particularly the A321, which is marginally smaller than the B-757). The
Airbus narrow body series has piled up an impressive order backlog, and is
increasingly penetrating the U.S. market, as seen by USAir's recent order for up
to 400--at the expense of the then-existing Boeing options. Current operating
costs suggests that the A320 is up to 25 percent more efficient than the B-737s
or MD-80s, and even equal to, or superior to, the B-757, but now Boeing's own
B-737-800/-900s also challenge the B-757 from below.
In the final analysis, the B-757 is assured of a firm share of the aircraft
market for many years to come in both passenger and cargo configuration. It has
excellent environmental characteristics has not experienced technical
difficulties and also should meet Stage 4 noise levels.
3 6/22/00
<PAGE>
Economics
The MBA Model shows the 757 to be one of the most efficient aircraft of any
type, size, or age. Its combination of capacity, low fuel consumption and
reasonable price all contribute to its outstanding economics. We expect that the
B-757 will prove to be one of the strongest players in the residual value market
for the next two decades.
------------------
Airbus A320 Family
------------------
The A320 was Airbus' first all new design since the launch of the original A300
in 1971. The program was initiated in 1983 and logged almost 400 orders prior to
first delivery in 1988. The A320s are now offered with both the CFM-56 and the
IAE V-2500 engine, with the CFM version having a long head start, but the V2500
gaining. At 12/31/99, 792 A320s have been delivered and 495 more are on order.
There are 176 outstanding orders (35.56 percent of the A320 total) and numerous
options held by nine leasing companies. The A320 has achieved a wide market base
on all continents, with a total of 79 current operators.
The A319 is the opposite of the stretched A321--that is, a truncated version of
the original aircraft. The program was officially launched with a modest six-
aircraft order by leasing giant ILFC in late 1992. Prospects were not
encouraging as more than one year went by before subsequent orders were placed.
However, Air Canada provided a major boost to Airbus with an order of 34 A319s
in April 1994 (all now delivered). Ironically, the carrier had reportedly
decided against ordering new aircraft to replace its aging DC-9 fleet when
Fokker Aircraft convinced the carrier to re-examine the benefits of new
airframes. ACA Chairman Hollis Harris agreed, but Fokker lost the battle to its
European competitor. As of the end of 1999, 583 A319s have been ordered, 206
delivered, and there are 377 outstanding orders.
The Northwest and Air Canada situations are significant due to the Airbus family
concept factor, (common type ratings and minimal differences training for pilots
of the A318 through A340 aircraft), which is the core of the manufacturer's goal
to develop entire fleets with major carriers. Air Canada, which operates A320s
already, chose this Airbus concept with both the A319 order and a 13-plane A340
order as well. Northwest Airlines, which operates 70 A320s (and has 12 on order)
ordered 68 A319s and switched their A340 order for 16 A330s for delivery beyond
2000.
Other carriers, including Air France Groupe and Lufthansa, have each ordered six
types of Airbuses, and currently operate 116 and 114 Airbus aircraft
respectively, and other major European operators are Swissair (54) and Iberia
(46). However, the European influence might tilt decision-makers at airlines
such as these. Airbus believes its concept will give its new designs
significant advantages over Boeing aircraft, and the 1999 order books, indicate
it is doing just that. MBA believes the combination of extremely efficient
4 6/22/00
<PAGE>
designs and the inherent savings in training and other costs make the Airbus
family an attractive avenue for an entire fleet refurbishment, as US Airways'
commitment for 400-some aircraft (including options) appears to justify.
The A320 family incorporates an increased amount of composites in its secondary
structure compared to older jets, a complete fly-by-wire control system, and a
computerized flight management system which, when engaged, virtually precludes
putting the aircraft into stalls or other extreme conditions. This system has
been blamed by some for two early incidents in which the crews placed the
aircraft in an untenable position close to the ground with the system
disconnected and from which it was unable to recover. These two aircraft were
totally cleared by the airworthiness authorities, as well as one involved in a
third incident in which the crew made a below-minimum approach in bad weather
and struck high ground. This third aircraft had no ground proximity warning
device installed, a device now required by the French government and long
required by many others. In general, all these components have held up well in
service, and the reliability of the aircraft has been excellent.
United's 1994 order for 50 A320s plus options (subsequently increased to 86) was
announced as a B-727 replacement, of which United operated 75 in late 1999.
United has 30 A320s and 19 A319s on order. It is obvious that other airlines
will use their large orders to surplus older aircraft as well. Alitalia, with 22
A321s in service and three on order, is replacing its fleet of MD-82s. As
mentioned, Air Canada's commitments for the A319 are rapidly replacing its fleet
of DC-9s. Thus the advent of the A320 family is hastening the retirement of
older, far less efficient jets. The A320s currently in service are operating at
seat mile costs as low as half of that for older aircraft. The combination of
all the above factors leads us to believe the A320 family will enjoy a long
production run and in-service useful life, with strong residual values.
The A320 also offers the advantage of being able to carry seven LD-3 cargo
containers--a feat not even the B-767 can perform. The fuselage is approximately
10 inches wider than that of the B-727/B-737/B-757 series, offering wider aisles
and roomier seats--a feature much appreciated by passengers. There are no cargo
or Combi models currently offered by Airbus, although such a configuration is
obviously possible. The exception is the A300 'Beluga' outsized special cargo
aircraft, which is already being leased for commercial applications but is
primarily in service for Airbus.
Economics
The A320/321 vies with the B-757 for top honors as the most efficient aircraft
in service. Great fuel efficiency, new technology design and low operating cost
parameters all combine to give these aircraft among the lowest seat mile costs
of any being built or in service. The MBA Model indicates that both will produce
very satisfactory operating and net ratios well into the next century. The A319
will not be quite as favorable, as is the case with most truncated derivatives
(747SP, L1011-500), but is accumulating new orders at a strong rate--255 during
the past two years, lifting the backlog to 377 as of 1/1/00.
The aircraft has shown an increasingly wide market penetration, and is also a
more likely choice for carriers with A330s or A340s that find a need for narrow
bodies and vice versa. Delivery slots will not be available in quantity for
several years.
5 6/22/00
<PAGE>
----------------
Boeing 767-300ER
----------------
The twin-aisle semi-wide body B-767 was launched in 1978 and entered service in
1982. The aircraft has undergone significant development in terms of gross
weight and capacity, affecting payload and range. The initial model, the B-767-
200, offered a MTOGW of 280,000 pounds, while the current 767-300ER is certified
at 412,000 pounds. Early development extended the range of the -200 as the ER
model, enabling it to fly the Atlantic nonstop. Initial routings were
circuitous, since the aircraft had to stay within 90 minutes of a landing place.
But as experience was gained, the FAA and international authorities approved
ETOPS (extended range twin-engine over water operations), and more direct routes
became possible. The first production models of the larger 767-300 were
delivered in 1986 in domestic configuration, soon to be followed by successively
higher gross weight Extended Range (ER) models.
Orders for the -200 slowed to a trickle following the introduction of the -300,
and it is probable that production of this model will be discontinued in the
near future, despite Continental's recent order. Much of the success of the
B-767 program is attributable to ETOPS operations, where these aircraft (and the
A310) have replaced B-747s, DC-10s and L-1011s on many long flights. So far
there have been no untoward incidents under the ETOPS programs. The 767 has an
exemplary overall safety record, with only three flight accidents--one
attributed to inadvertent thrust reverser deployment on a Lauda Air 767-300
over Bangkok, one Ethiopian -200 lost in a hijacking incident in the Comoro
Islands in 1996, and the third was the recent Egypt Air accident off the coast
of Nantucket.
Economics
The MBA Model indicates that it is hard to make money with the B-767.
Satisfactory margins are achieved only by classifying the B-767 as a narrow body
in terms of seating capacity. By definition, MBA has assumed that only 67.5
percent of maximum certified seating is installed in a wide body, compared to 85
percent in a narrow body. This is in accord with industry experience. By making
this narrow body assumption, we increased the available seating of the B-767-300
from 218 to 247. Interestingly, this compares with the experience of American
and Delta in their -300s. American uses theirs both domestically and
internationally, and has 215 seats installed. Delta's are all used domestically
and have 248 seats.
In the long term, the relatively high seat mile costs of the B-767s will make
them less desirable in the used market, and the demand for and price of these
aircraft will decline further than that of more desirable types. Their residual
values will also be impaired, and they will move into the cargo market.
6 6/22/00
<PAGE>
MBA has classified the aircraft as having seven-abreast seating. Interestingly,
British tour operators utilize the aircraft in an eight-abreast configuration,
thus increasing potential maximum seating from 290 seats in our model to 375
seats claimed by Boeing. With 375 seats, the B-767-300 becomes a potent economic
competitor. However, until the industry shows more signs of utilizing this
capability we will continue to use the conventional capacity.
--------------
Boeing 777-200
--------------
The B-777 is currently the world's largest wide body twin. It is Boeing's answer
to the A330 and, to a lesser extent, the Douglas MD-11, both of which filled a
gap between Boeing's B-767 and B-747 lines. The A330 and MD-11 had the distinct
marketing advantage of being in service from two and seven years respectively
before the B-777, and already had large order books and client lists. Boeing is
playing catch-up in this market segment, but is doing it with a typical Boeing
combination of power and finesse. Only five years since its introduction, 261
have been delivered with 191 on order. However, 1999 orders were a mere 23
aircraft, compared with 83 deliveries.
The initial B-777 design was the -200A followed by the -200B (formerly called
the IGW - Increased Gross Weight) and featured all three major high by-pass
engines: the P&W 4074, the Rolls Royce Trent 871, and the General Electric
90-B3. Gross weight has been increased to 545,000 pounds for the -200, 633,000
pounds for the -200B and 660,000 for the -300. A maximum seating capacity of 440
passengers is available in the -200/-200B model and 550 in the newly announced
-300 version. Fair Market Values for 2000 deliveries of the -200 versions are
$117.7 and $125.5 million, respectively, while the -300 is expected to premier
at $146.0 million.
Production of the low gross version is expected to cease after the -300 is
debuted, but it will coexist, even as the increased capacity B-767-400ER moves
into the lower end of the B-777 capacity market.
To an increasing degree, Boeing is competing against itself as it offers an even
more variegated selection of aircraft derivatives.
Economics
The B-777 has operating characteristics and seat mile costs very comparable to
the A330 and considerably better than the MD-11, according to the MBA economic
model. It particularly appeals to the large segment of the market which
traditionally buys Boeing. Helped by the normal maintenance-free ride of new
aircraft, United reported 1998 B777-200 DOCs at 3.01(cent) per ASM, the cheapest
in its fleet, and 13.3 percent below the B747-
7 6/22/00
<PAGE>
400. Ownership costs as a percent of DOCs were: 747-400--27.7 percent, and
777-200--20.3 percent in 1998.
The 777 has the initial advantage of low maintenance costs, an all-new
technological design, a two-man crew, low specific fuel consumption, and high
capacity. Its operating margin and net margin after financial costs is among the
best of all aircraft types, even though the projected lease costs are 28 percent
of total operating expense. The aircraft may require some modification of
airport gate facilities to handle its great wing span (folding wings are
available at extra cost, but no one has ordered them). The 777 is well-suited to
meet airline expansion needs in markets where added frequencies are no longer
possible due to slot and gate facility restrictions.
--------------
Boeing 747-400
--------------
The B-747-400 is the current state-of-the-art model of the 747 family. It is
offered with all three-engine manufacturers' power plants in passenger, Combi,
and cargo models. 512 -400s have been built as of January 1, 2000, and 66 remain
on order. The aircraft incorporates all of the design improvements developed
over the life of the 747 program, including the extended upper deck, a two-pilot
glass cockpit, a gross weight of 883,000 pounds at takeoff, and a range of up to
8,000 statute miles. The operator list is surprisingly thin in terms of numbers
of airlines, but some individual fleets are huge. The -400 had a total of 33
operators (21 passenger only, 3 combi only, and 9 both) as of December 1999,
including British Airways with 57 in service, and Singapore Airlines, with 37 in
service and 5 on order. Boeing produced 47 B-747-400s of all types in 1999, but
will cut production. A low gross weight, high-density model, designated as the
-400D, is also offered and is being used in the Japanese domestic market.
The continuing flow of new B-747-400s has created a surplus of older B-747-100s,
-200s, and -300s on the market. Until recently the new -400s have gone to meet
the pent-up demand for capacity. Half of the aircraft in service and on order
are from the Pacific Rim carriers, not counting 100 ordered by United and
Northwest for the same area and the fleets of the European carriers that will be
deployed on Pacific routes where demand is recovering.
We consider the long-term value of the 747-400 series to be virtually
bulletproof, even when Airbus builds its A3XX. It has suffered in the short term
because of forced sales in a down market, but its operational capabilities,
strong development history, and large market presence assure it a leading role
in the aircraft market for the next several decades.
8 6/22/00
<PAGE>
Economics
The MBA Economic Model shows both the new B-747-400 all-passenger and Combi
models. Operating margins are very high, but are largely offset at the net level
by the high costs of ownership. This effectively mandates utilization in long
haul, high utilization markets--which, of course, are what the aircraft was
built for. But in the event of low load factors and/or yields, the heavy
financial burden will be felt more strongly than with a cheaper, older aircraft.
9 6/22/00
<PAGE>
IV. Valuation
In developing the Current Base Value of this aircraft, MBA did not inspect the
aircraft or its historical maintenance documentation, but relied on partial
information supplied by the Client. Therefore, we used certain assumptions that
are generally accepted industry practice to calculate the value of aircraft when
more detailed information is not available. The principal assumptions are as
follows, for each aircraft:
1. The aircraft is in good overall condition and to be considered new if
not almost new.
2. The overhaul status of the airframe, engines, landing gear and other
major components are the equivalent of mid-time/mid-life unless
otherwise specified.
3. The historical maintenance documentation has been maintained to
acceptable international standards.
4. The specifications of the aircraft are those most common for an
aircraft of its type and vintage.
5. The aircraft is in a standard airline configuration.
6. The aircraft is current as to all Airworthiness Directives and Service
Bulletins.
7. Its modification status is comparable to that most common for an
aircraft of its type and vintage.
8. Its utilization is comparable to industry averages.
9. There is no history of accident or incident damage.
10. No accounting is made for lease obligations or terms of ownership.
10 6/22/00
<PAGE>
<TABLE>
<CAPTION>
Registration Current Base
Aircraft Type MSN Number Delivery Date MGTOW Value
=============================================================================
<S> <C> <C> <C> <C> <C>
B757-222 26673 N567UA Nov-92 240,000 40.36
B757-222 26674 N568UA Nov-92 240,000 40.36
B757-222 26677 N569UA Nov-92 240,000 40.36
B757-222 26678 N570UA Nov-92 240,000 40.36
B757-222 26681 N571UA Dec-92 240,000 40.52
B757-222 26682 N572UA Dec-92 240,000 40.52
B757-222 28749 N596UA Mar-98 240,000 53.19
A320-232 1104 N454UA Nov-99 169,754 43.00
A320-232 1105 N455UA Nov-99 169,754 43.00
A320-232 1128 N456UA Dec-99 169,754 43.17
A320-232 1146 N457UA Jan-00 169,754 43.35
A320-232 1163 N458UA Feb-00 169,754 43.43
A320-232 1192 N459UA Apr-00 169,754 43.61
B767-322ER 29241 N673UA Jan-00 360,000 87.55
B767-322ER 29242 N674UA Apr-00 360,000 88.10
B777-222B 30213 N207UA Jul-99 640,000 126.31
B777-222B 30214 N208UA Nov-99 640,000 128.38
B777-222B 30215 N209UA Dec-99 640,000 128.90
B777-222B 30216 N21OUA Jan-00 640,000 129.44
B747-422 24322 N171UA Jun-89 875,000 89.01
Values in ($000,000) Total 1,332.92
</TABLE>
11 6/22/00
<PAGE>
V. Covenants
This report has been prepared for the exclusive use of United Airlines and shall
not be provided to other parties by MBA without the express consent of United
Airlines.
MBA certifies that this report has been independently prepared and that it fully
and accurately reflects MBA's opinion as to the Current Base Value. MBA further
certifies that it does not have, and does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Current Base Value of the
subject aircraft and is intended to be advisory only in nature. Therefore, MBA
assumes no responsibility or legal liability for any actions taken or not taken
by United Airlines or any other party with regard to the subject aircraft. By
accepting this report, all parties agree that MBA shall bear no such
responsibility or legal liability.
PREPARED BY:
/s/ Bryson P. Monteleone
Bryson P. Monteleone
Director of Operations
REVIEWED BY:
/s/ Morten S. Beyer
Morten S. Beyer, Appraiser Fellow
Chairman and CEO
ISTAT Certified Senior Appraiser
#00198
12 6/22/00
<PAGE>
APPENDIX III
757 LEASED EQUIPMENT NOTES PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
757-222 N567UA 757-222 N568UA 757-222 N569UA
---------------- ---------------- ----------------
Leased Equipment Leased Equipment Leased Equipment
Notes Principal Notes Principal Notes Principal
Date Payments Payments Payments
---- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 2001.............. $ 145,358.52 $ 145,358.52 $ 145,358.52
July 1, 2001................. 822,223.88 822,223.88 822,223.88
January 1, 2002.............. 10,000.00 10,000.00 10,000.00
July 1, 2002................. 819,247.84 819,247.84 819,247.84
January 1, 2003.............. 32,507.20 32,507.20 32,507.20
July 1, 2003................. 845,146.10 845,146.10 845,146.10
January 1, 2004.............. 1,398,519.96 1,398,519.96 1,398,519.96
July 1, 2004................. 10,000.00 10,000.00 10,000.00
January 1, 2005.............. 1,735,024.55 1,735,024.55 1,735,024.55
July 1, 2005................. 10,000.00 10,000.00 10,000.00
January 1, 2006.............. 1,767,835.17 1,767,835.17 1,767,835.17
July 1, 2006................. 10,000.00 10,000.00 10,000.00
January 1, 2007.............. 2,377,666.26 2,377,666.26 2,377,666.26
July 1, 2007................. 10,000.00 10,000.00 10,000.00
January 1, 2008.............. 2,562,612.34 2,562,612.34 2,562,612.34
July 1, 2008................. 10,000.00 10,000.00 10,000.00
January 1, 2009.............. 3,453,062.86 3,453,062.86 3,453,062.86
July 1, 2009................. 10,000.00 10,000.00 10,000.00
January 1, 2010.............. 3,814,425.94 3,814,425.94 3,814,425.94
July 1, 2010................. 10,000.00 10,000.00 10,000.00
January 1, 2011.............. 4,427,720.24 4,427,720.24 4,427,720.24
July 1, 2011................. 4,727,146.81 4,727,146.81 4,727,146.81
</TABLE>
<TABLE>
<CAPTION>
757-222 N570UA 757-222 N571UA 757-222 N572UA
---------------- ---------------- ----------------
Leased Equipment Leased Equipment Leased Equipment
Notes Principal Notes Principal Notes Principal
Date Payments Payments Payments
---- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 2001.............. $ 145,358.52 $ 58,169.33 $ 58,169.33
July 1, 2001................. 822,223.88 874,862.99 874,862.99
January 1, 2002.............. 10,000.00 10,000.00 10,000.00
July 1, 2002................. 819,247.84 900,718.70 900,718.70
January 1, 2003.............. 32,507.20 10,000.00 10,000.00
July 1, 2003................. 845,146.10 867,238.82 867,238.82
January 1, 2004.............. 1,398,519.96 1,279,409.63 1,279,409.63
July 1, 2004................. 10,000.00 17,901.16 17,901.16
January 1, 2005.............. 1,735,024.55 1,754,021.26 1,754,021.26
July 1, 2005................. 10,000.00 10,000.00 10,000.00
January 1, 2006.............. 1,767,835.17 1,763,629.08 1,763,629.08
July 1, 2006................. 10,000.00 10,000.00 10,000.00
January 1, 2007.............. 2,377,666.26 1,917,380.04 1,917,380.04
July 1, 2007................. 10,000.00 10,000.00 10,000.00
January 1, 2008.............. 2,562,612.34 3,097,060.22 3,097,060.22
July 1, 2008................. 10,000.00 10,000.00 10,000.00
January 1, 2009.............. 3,453,062.86 3,464,265.92 3,464,265.92
July 1, 2009................. 10,000.00 10,000.00 10,000.00
January 1, 2010.............. 3,814,425.94 3,828,169.25 3,828,169.25
July 1, 2010................. 10,000.00 10,000.00 10,000.00
January 1, 2011.............. 4,427,720.24 4,464,074.73 4,464,074.73
July 1, 2011................. 4,727,146.81 4,731,695.37 4,731,695.37
</TABLE>
III-1
<PAGE>
APPENDIX IV
747 LEASED EQUIPMENT NOTE PRINCIPAL PAYMENTS, AFE TRUST NOTE PRINCIPAL PAYMENTS
AND OWNED EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES A-1
<TABLE>
<CAPTION>
747
Leased AFE
Owned Equipment Notes Equipment Trust
--------------------------------------------------------------------------- Note Note
N454UA N455UA N456UA N457UA N458UA N459UA ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 734,390.88 734,447.02 735,850.46 744,888.60 744,888.60 139,199.66 0.00 673,775.10
July 1, 2001 0.00 0.00 0.00 0.00 0.00 512,749.18 0.00 3,965,597.48
January 1, 2002 665,757.88 665,808.77 667,081.05 675,274.52 675,274.52 169,919.97 0.00 58,200.00
July 1, 2002 0.00 0.00 0.00 0.00 0.00 514,958.11 0.00 3,878,269.54
January 1, 2003 665,755.12 665,806.01 667,078.28 675,271.72 675,271.72 167,853.43 0.00 145,527.92
July 1, 2003 76,410.70 76,416.54 76,562.56 77,502.95 77,502.95 684,961.00 0.00 0.00
January 1, 2004 516,228.72 516,268.19 517,254.71 523,607.93 523,607.93 0.00 1,701,643.05 4,023,797.50
July 1, 2004 76,421.46 76,427.30 76,573.35 77,513.86 77,513.86 605,742.67 0.00 0.00
January 1, 2005 491,847.73 491,885.32 492,825.26 498,878.42 498,878.42 0.00 2,268,856.80 4,023,797.44
July 1, 2005 102,130.63 102,138.44 102,333.61 103,590.53 103,590.53 607,100.19 0.00 0.00
January 1, 2006 491,824.81 491,862.41 492,802.30 498,855.18 498,855.18 0.00 2,268,857.25 4,023,797.46
July 1, 2006 102,155.25 102,163.06 102,358.28 103,615.51 103,615.51 607,101.93 0.00 0.00
January 1, 2007 491,800.23 491,837.82 492,777.66 498,830.24 498,830.24 0.00 2,268,857.25 4,023,797.48
July 1, 2007 102,181.76 102,189.57 102,384.85 103,642.40 103,642.40 607,103.90 0.00 0.00
January 1, 2008 491,773.76 491,811.36 492,751.15 498,803.40 498,803.40 0.00 2,268,857.25 4,023,797.46
July 1, 2008 102,210.39 102,218.20 102,413.53 103,671.43 103,671.43 607,106.11 0.00 0.00
January 1, 2009 491,745.21 491,782.80 492,722.54 498,774.44 498,774.44 0.00 2,268,856.80 5,365,063.28
July 1, 2009 102,241.38 102,249.20 102,444.59 103,702.87 103,702.87 607,108.60 0.00 0.00
January 1, 2010 329,964.34 329,989.56 330,620.13 334,681.00 334,681.00 0.00 2,836,071.45 14,985,678.88
July 1, 2010 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 12,716,428.70 25,839,859.50
July 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 0.00 27,520,818.60
January 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 1,900,000.00 0.00
July 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 1,000,000.00 0.00
July 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2014 0.00 0.00 0.00 0.00 0.00 0.00 1,400,000.00 0.00
<CAPTION>
Owned Equipment Notes
-----------------------------------------------------------------------------------------
N596UA N673UA N674UA N207UA N208UA N209UA N210UA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 921,868.05 1,437,681.59 268,103.27 2,181,615.85 2,199,972.82 2,203,004.24 2,234,946.33
July 1, 2001 0.00 0.00 987,572.33 1,499,143.42 0.00 0.00 0.00
January 1, 2002 839,643.79 1,303,322.06 327,271.64 478,588.01 1,994,372.83 1,997,120.96 2,026,841.38
July 1, 2002 0.00 0.00 991,826.81 1,505,437.29 0.00 0.00 0.00
January 1, 2003 839,279.59 1,303,316.66 323,291.41 472,285.94 1,994,364.57 1,997,112.68 2,026,832.98
July 1, 2003 90,600.92 149,585.53 1,319,258.14 1,983,314.41 228,899.16 229,214.57 232,625.66
January 1, 2004 661,795.48 1,010,596.06 0.00 0.00 1,546,436.90 1,548,567.79 1,571,613.01
July 1, 2004 90,395.63 149,606.61 1,166,680.95 1,760,410.14 228,931.40 229,246.86 232,658.42
January 1, 2005 633,255.48 962,866.55 0.00 0.00 1,473,400.13 1,475,430.39 1,497,387.20
July 1, 2005 120,493.91 199,936.21 1,169,295.57 1,764,206.24 305,946.90 306,368.48 310,927.74
January 1, 2006 633,544.97 962,821.70 0.00 0.00 1,473,331.49 1,475,361.65 1,497,317.44
July 1, 2006 120,188.07 199,984.41 1,169,298.93 1,764,189.65 306,020.66 306,442.34 311,002.70
January 1, 2007 633,855.99 962,773.57 0.00 0.00 1,473,257.85 1,475,287.90 1,497,242.60
July 1, 2007 119,858.84 200,036.31 1,169,302.73 1,764,171.20 306,100.07 306,521.86 311,083.41
January 1, 2008 634,191.02 962,721.76 0.00 0.00 1,473,178.57 1,475,208.52 1,497,162.03
July 1, 2008 119,503.43 200,092.34 1,169,306.97 1,764,150.56 306,185.81 306,607.72 311,170.54
January 1, 2009 634,552.96 962,665.87 0.00 0.00 1,473,093.03 1,475,122.86 1,497,075.10
July 1, 2009 119,118.60 200,153.02 1,169,311.79 1,764,127.41 306,278.67 306,700.71 311,264.92
January 1, 2010 447,218.06 645,955.26 0.00 0.00 988,455.32 989,817.35 1,004,547.45
July 1, 2010 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
IV-1
<PAGE>
APPENDIX IV
747 LEASED EQUIPMENT NOTE PRINCIPAL PAYMENTS, AFE TRUST NOTE PRINCIPAL PAYMENTS
AND OWNED EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES A-2
<TABLE>
<CAPTION>
747
Leased AFE
Owned Equipment Notes Equipment Trust
----------------------------------------------------------------------------------- Note Note
N454UA N455UA N456UA N457UA N458UA N459UA ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2008 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2008 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2009 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2009 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2010 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2010 14,041,346.67 14,042,420.00 14,069,253.33 14,242,060.00 14,242,060.00 14,688,793.72 NA 58,200.00
January 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
July 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
January 1, 2014 0.00 0.00 0.00 0.00 0.00 0.00 NA 0.00
<CAPTION>
Owned Equipment Notes
-------------------------------------------------------------------------------------------------
N596UA N673UA N674UA N207UA N208UA N209UA N210UA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2008 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2008 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2009 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2009 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2010 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2010 16,296,397.16 27,488,066.67 28,291,115.45 40,937,618.12 42,062,860.00 42,120,820.00 42,746,988.88
January 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2011 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
IV-2
<PAGE>
APPENDIX IV
747 LEASED EQUIPMENT NOTE PRINCIPAL PAYMENTS, AFE TRUST NOTE PRINCIPAL PAYMENTS
AND OWNED EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES B
<TABLE>
<CAPTION>
747
Leased AFE
Owned Equipment Notes Equipment Trust
-------------------------------------------------------------------------------- Note Note
N454UA N455UA N456UA N457UA N458UA N459UA ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 254,699.51 254,718.98 255,205.71 258,340.30 258,340.30 54,776.15 0.00 0.00
July 1, 2001 0.00 0.00 0.00 0.00 0.00 190,124.95 0.00 917,197.16
January 1, 2002 240,141.62 240,159.97 240,618.89 243,574.31 243,574.31 56,595.04 0.00 0.00
July 1, 2002 0.00 0.00 0.00 0.00 0.00 183,393.62 0.00 1,047,806.38
January 1, 2003 234,528.16 234,546.08 234,994.27 237,880.61 237,880.61 57,483.71 0.00 0.00
July 1, 2003 25,262.68 25,264.62 25,312.89 25,623.80 25,623.80 228,929.40 0.00 0.00
January 1, 2004 196,655.21 196,670.24 197,046.05 199,466.29 199,466.29 0.00 0.00 1,341,265.78
July 1, 2004 16,862.35 16,863.64 16,895.87 17,103.39 17,103.39 218,234.47 198,675.47 0.00
January 1, 2005 172,560.71 172,573.90 172,903.67 175,027.37 175,027.37 0.00 557,610.13 1,341,265.84
July 1, 2005 34,043.54 34,046.15 34,111.20 34,530.18 34,530.18 211,168.43 0.00 0.00
January 1, 2006 163,941.60 163,954.14 164,267.43 166,285.06 166,285.06 0.00 756,285.75 1,341,265.82
July 1, 2006 34,051.75 34,054.35 34,119.43 34,538.50 34,538.50 202,367.31 0.00 0.00
January 1, 2007 163,933.41 163,945.94 164,259.22 166,276.75 166,276.75 0.00 756,285.75 1,341,265.80
July 1, 2007 34,060.59 34,063.19 34,128.28 34,547.47 34,547.47 202,367.97 0.00 0.00
January 1, 2008 57,421.72 57,426.11 57,535.84 58,242.53 58,242.53 0.00 756,285.75 3,820,300.62
July 1, 2008 30,456.55 30,458.88 30,517.08 30,891.91 30,891.91 89,819.63 0.00 58,200.00
January 1, 2009 5,290.31 5,290.72 5,300.83 5,365.93 5,365.93 0.00 756,285.60 14,753,496.50
July 1, 2009 0.00 0.00 0.00 0.00 0.00 5,407.18 0.00 58,200.00
January 1, 2010 209,312.00 209,328.00 209,728.00 212,304.00 212,304.00 0.00 6,617,500.05 7,240,942.14
July 1, 2010 0.00 0.00 0.00 0.00 0.00 213,936.00 0.00 0.00
January 1, 2011 209,312.00 209,328.00 209,728.00 212,304.00 212,304.00 0.00 0.00 0.00
July 1, 2011 4,674,634.67 4,674,992.00 4,683,925.33 4,741,456.00 4,741,456.00 4,991,840.00 0.00 0.00
January 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2014 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
<CAPTION>
Owned Equipment Notes
----------------------------------------------------------------------------------------------
N596UA N673UA N674UA N207UA N208UA N209UA N210UA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 319,235.53 498,612.94 105,500.73 756,622.25 762,988.77 764,040.12 774,910.22
July 1, 2001 0.00 0.00 366,187.10 553,973.18 0.00 0.00 0.00
January 1, 2002 301,674.67 470,113.66 109,003.97 159,402.73 719,378.53 720,369.79 731,090.07
July 1, 2002 0.00 0.00 353,222.33 534,959.50 0.00 0.00 0.00
January 1, 2003 294,810.19 459,124.45 110,715.57 161,740.79 702,562.60 703,530.69 714,000.37
July 1, 2003 29,954.21 49,455.54 440,925.80 662,895.35 75,677.98 75,782.26 76,910.02
January 1, 2004 249,742.02 384,982.41 0.00 0.00 589,108.77 589,920.53 598,699.51
July 1, 2004 19,945.74 33,010.61 420,326.99 632,702.18 50,513.59 50,583.19 51,335.95
January 1, 2005 221,271.29 337,813.77 0.00 0.00 516,930.25 517,642.55 525,345.92
July 1, 2005 40,164.64 66,645.40 406,717.57 612,778.27 101,982.30 102,122.83 103,642.58
January 1, 2006 211,181.66 320,940.57 0.00 0.00 491,110.50 491,787.22 499,105.81
July 1, 2006 40,062.69 66,661.47 389,766.31 588,063.22 102,006.89 102,147.45 103,667.57
January 1, 2007 211,285.33 320,924.53 0.00 0.00 491,085.95 491,762.64 499,080.87
July 1, 2007 39,952.95 66,678.77 389,767.58 588,057.07 102,033.36 102,173.95 103,694.47
January 1, 2008 86,874.84 112,411.73 0.00 0.00 172,014.96 172,251.99 174,815.38
July 1, 2008 35,609.52 59,623.32 172,995.65 273,845.65 91,236.96 91,362.68 92,722.30
January 1, 2009 27,161.87 10,356.59 0.00 0.00 15,847.88 15,869.72 16,105.89
July 1, 2009 0.00 0.00 10,414.42 39,639.71 0.00 0.00 0.00
January 1, 2010 265,702.13 409,760.00 0.00 0.00 627,024.00 627,888.00 637,232.00
July 1, 2010 0.00 0.00 412,048.00 621,792.00 0.00 0.00 0.00
January 1, 2011 265,702.13 409,760.00 0.00 0.00 627,024.00 627,888.00 637,232.00
July 1, 2011 5,402,609.93 9,151,306.67 9,614,453.33 13,886,688.00 14,003,536.00 14,022,832.00 14,231,514.67
</TABLE>
IV-3
<PAGE>
APPENDIX IV
747 LEASED EQUIPMENT NOTE PRINCIPAL PAYMENTS, AFE TRUST NOTE PRINCIPAL PAYMENTS
AND OWNED EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES C-1
<TABLE>
<CAPTION>
747
Leased AFE
Owned Equipment Notes Equipment Trust
----------------------------------------- Note Note
N454UA N455UA N456UA N457UA N458UA N459UA --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 NA NA NA NA NA NA NA 0.00
July 1, 2001 NA NA NA NA NA NA NA 4,668.20
January 1, 2002 NA NA NA NA NA NA NA 0.00
July 1, 2002 NA NA NA NA NA NA NA 0.00
January 1, 2003 NA NA NA NA NA NA NA 0.00
July 1, 2003 NA NA NA NA NA NA NA 4,961,610.18
January 1, 2004 NA NA NA NA NA NA NA 2,543,248.86
July 1, 2004 NA NA NA NA NA NA NA 73,528.24
January 1, 2005 NA NA NA NA NA NA NA 4,769,633.20
July 1, 2005 NA NA NA NA NA NA NA 58,200.00
January 1, 2006 NA NA NA NA NA NA NA 4,915,577.62
July 1, 2006 NA NA NA NA NA NA NA 58,200.00
January 1, 2007 NA NA NA NA NA NA NA 7,579,999.08
July 1, 2007 NA NA NA NA NA NA NA 58,200.00
January 1, 2008 NA NA NA NA NA NA NA 8,107,134.62
July 1, 2008 NA NA NA NA NA NA NA 0.00
January 1, 2009 NA NA NA NA NA NA NA 0.00
July 1, 2009 NA NA NA NA NA NA NA 0.00
January 1, 2010 NA NA NA NA NA NA NA 0.00
July 1, 2010 NA NA NA NA NA NA NA 0.00
January 1, 2011 NA NA NA NA NA NA NA 0.00
July 1, 2011 NA NA NA NA NA NA NA 0.00
January 1, 2012 NA NA NA NA NA NA NA 0.00
July 1, 2012 NA NA NA NA NA NA NA 0.00
January 1, 2013 NA NA NA NA NA NA NA 0.00
July 1, 2013 NA NA NA NA NA NA NA 0.00
January 1, 2014 NA NA NA NA NA NA NA 0.00
<CAPTION>
Owned Equipment Notes
---------------------------------------------------
N596UA N673UA N674UA N207UA N208UA N209UA N210UA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 NA NA NA NA NA NA NA
July 1, 2001 NA NA NA NA NA NA NA
January 1, 2002 NA NA NA NA NA NA NA
July 1, 2002 NA NA NA NA NA NA NA
January 1, 2003 NA NA NA NA NA NA NA
July 1, 2003 NA NA NA NA NA NA NA
January 1, 2004 NA NA NA NA NA NA NA
July 1, 2004 NA NA NA NA NA NA NA
January 1, 2005 NA NA NA NA NA NA NA
July 1, 2005 NA NA NA NA NA NA NA
January 1, 2006 NA NA NA NA NA NA NA
July 1, 2006 NA NA NA NA NA NA NA
January 1, 2007 NA NA NA NA NA NA NA
July 1, 2007 NA NA NA NA NA NA NA
January 1, 2008 NA NA NA NA NA NA NA
July 1, 2008 NA NA NA NA NA NA NA
January 1, 2009 NA NA NA NA NA NA NA
July 1, 2009 NA NA NA NA NA NA NA
January 1, 2010 NA NA NA NA NA NA NA
July 1, 2010 NA NA NA NA NA NA NA
January 1, 2011 NA NA NA NA NA NA NA
July 1, 2011 NA NA NA NA NA NA NA
</TABLE>
IV-4
<PAGE>
APPENDIX IV
747 LEASED EQUIPMENT NOTE PRINCIPAL PAYMENTS, AFE TRUST NOTE PRINCIPAL PAYMENTS
AND OWNED EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES C-2
<TABLE>
<CAPTION>
747
Leased AFE
Owned Equipment Notes Equipment Trust
----------------------------------------------------------------------------- Note Note
N454UA N455UA N456UA N457UA N458UA N459UA ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
July 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
July 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
July 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
July 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
July 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
July 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
July 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2008 67,568.09 67,573.26 67,702.38 68,533.94 68,533.94 0.00 0.00 NA
July 1, 2008 0.00 0.00 0.00 0.00 0.00 69,060.77 0.00 NA
January 1, 2009 67,568.09 67,573.26 67,702.38 68,533.94 68,533.94 0.00 17,524,601.34 NA
July 1, 2009 0.00 0.00 0.00 0.00 0.00 69,060.77 0.00 NA
January 1, 2010 67,568.09 67,573.26 67,702.38 68,533.94 68,533.94 0.00 0.00 NA
July 1, 2010 0.00 0.00 0.00 0.00 0.00 69,060.77 0.00 NA
January 1, 2011 67,568.09 67,573.26 67,702.38 68,533.94 68,533.94 0.00 0.00 NA
July 1, 2011 1,981,997.35 1,982,148.83 1,985,936.49 2,010,328.90 2,010,328.90 2,094,843.24 0.00 NA
January 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 6,109,974.93 NA
July 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 10,543,341.93 NA
July 1, 2013 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA
January 1, 2014 0.00 0.00 0.00 0.00 0.00 0.00 9,964.59 NA
<CAPTION>
Owned Equipment Notes
-------------------------------------------------------------------------------------------
N596UA N673UA N674UA N207UA N208UA N209UA N210UA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2004 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2005 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 1, 2007 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 1, 2008 85,771.41 132,274.79 0.00 0.00 202,409.87 202,688.78 205,143.44
July 1, 2008 0.00 0.00 133,013.38 200,720.93 0.00 0.00 0.00
January 1, 2009 85,771.41 132,274.79 0.00 0.00 202,409.87 202,688.78 205,705.12
July 1, 2009 0.00 0.00 133,013.38 200,720.93 0.00 0.00 0.00
January 1, 2010 85,771.41 132,274.79 0.00 0.00 202,409.87 202,688.78 205,705.12
July 1, 2010 0.00 0.00 133,013.38 200,720.93 0.00 0.00 0.00
January 1, 2011 85,771.41 132,274.79 0.00 0.00 202,409.87 202,688.78 205,705.12
July 1, 2011 2,344,418.57 3,880,060.54 4,034,739.23 6,088,534.76 5,937,356.20 5,945,537.50 6,034,016.82
</TABLE>
IV-5
<PAGE>
APPENDIX V
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
<TABLE>
<CAPTION>
N454UA N455UA N456UA N457UA
---------------- ---------------- ---------------- ----------------
Assumed Assumed Assumed Assumed
Aircraft LTV Aircraft LTV Aircraft LTV Aircraft LTV
Value Ratio Value Ratio Value Ratio Value Ratio
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July
31,
2000 43,606,667 66.7% 43,610,000 66.7% 43,693,333 66.7% 44,230,000 66.7%
January
1,
2001 42,298,467 66.4% 42,301,700 66.4% 42,382,533 66.4% 42,903,100 66.4%
July 1,
2001 42,298,467 66.4% 42,301,700 66.4% 42,382,533 66.4% 42,903,100 66.4%
January
1,
2002 40,990,267 66.3% 40,993,400 66.3% 41,071,733 66.3% 41,576,200 66.3%
July 1,
2002 40,990,267 66.3% 40,993,400 66.3% 41,071,733 66.3% 41,576,200 66.3%
January
1,
2003 39,682,067 66.3% 39,685,100 66.3% 39,760,933 66.3% 40,249,300 66.3%
July 1,
2003 39,682,067 66.0% 39,685,100 66.0% 39,760,933 66.0% 40,249,300 66.0%
January
1,
2004 38,373,867 66.4% 38,376,800 66.4% 38,450,133 66.4% 38,922,400 66.4%
July 1,
2004 38,373,867 66.1% 38,376,800 66.1% 38,450,133 66.1% 38,922,400 66.1%
January
1,
2005 37,065,667 66.7% 37,068,500 66.7% 37,139,333 66.7% 37,595,500 66.7%
July 1,
2005 37,065,667 66.3% 37,068,500 66.3% 37,139,333 66.3% 37,595,500 66.3%
January
1,
2006 35,757,467 66.9% 35,760,200 66.9% 35,828,533 66.9% 36,268,600 66.9%
July 1,
2006 35,757,467 66.5% 35,760,200 66.5% 35,828,533 66.5% 36,268,600 66.5%
January
1,
2007 34,449,267 67.2% 34,451,900 67.2% 34,517,733 67.2% 34,941,700 67.2%
July 1,
2007 34,449,267 66.8% 34,451,900 66.8% 34,517,733 66.8% 34,941,700 66.8%
January
1,
2008 33,141,067 67.5% 33,143,600 67.5% 33,206,933 67.5% 33,614,800 67.5%
July 1,
2008 33,141,067 67.1% 33,143,600 67.1% 33,206,933 67.1% 33,614,800 67.1%
January
1,
2009 31,832,867 68.1% 31,835,300 68.1% 31,896,133 68.1% 32,287,900 68.1%
July 1,
2009 31,832,867 67.8% 31,835,300 67.8% 31,896,133 67.8% 32,287,900 67.8%
January
1,
2010 30,524,667 68.7% 30,527,000 68.7% 30,585,333 68.7% 30,961,000 68.7%
July 1,
2010 30,524,667 22.7% 30,527,000 22.7% 30,585,333 22.7% 30,961,000 22.7%
January
1,
2011 29,216,467 22.8% 29,218,700 22.8% 29,274,533 22.8% 29,634,100 22.8%
July 1,
2011 0 0.0% 0 0.0% 0 0.0% 0 0.0%
<CAPTION>
N458UA N459UA N171UA N567UA
---------------- ---------------- ---------------- ----------------
Assumed Assumed Assumed Assumed
Aircraft LTV Aircraft LTV Aircraft LTV Aircraft LTV
Value Ratio Value Ratio Value Ratio Value Ratio
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July
31,
2000 44,230,000 66.7% 44,570,000 66.7% 89,010,000 87.1% 39,226,667 74.0%
January
1,
2001 42,903,100 66.4% 44,570,000 66.3% 89,010,000 87.1% 37,737,046 76.5%
July 1,
2001 42,903,100 66.4% 43,232,900 66.7% 85,024,478 91.1% 37,737,046 74.3%
January
1,
2002 41,576,200 66.3% 43,232,900 66.2% 85,024,478 91.1% 36,247,426 77.3%
July 1,
2002 41,576,200 66.3% 41,895,800 66.6% 81,038,955 95.6% 36,247,426 75.1%
January
1,
2003 40,249,300 66.3% 41,895,800 66.1% 81,038,955 95.6% 34,757,806 78.2%
July 1,
2003 40,249,300 66.0% 40,558,700 66.0% 77,053,433 100.6% 34,757,806 75.8%
January
1,
2004 38,922,400 66.4% 40,558,700 66.0% 77,053,433 98.4% 33,268,186 75.0%
July 1,
2004 38,922,400 66.1% 39,221,600 66.1% 73,067,910 103.4% 33,268,186 74.9%
January
1,
2005 37,595,500 66.7% 39,221,600 66.1% 73,067,910 99.6% 31,778,565 73.0%
July 1,
2005 37,595,500 66.3% 37,884,500 66.3% 67,753,881 107.4% 31,778,565 72.9%
January
1,
2006 36,268,600 66.9% 37,884,500 66.3% 67,753,881 102.9% 30,288,945 70.7%
July 1,
2006 36,268,600 66.5% 36,547,400 66.5% 62,439,851 111.7% 30,288,945 70.7%
January
1,
2007 34,941,700 67.2% 36,547,400 66.5% 62,439,851 106.8% 28,799,325 66.1%
July 1,
2007 34,941,700 66.8% 35,210,300 66.8% 57,125,821 116.8% 28,799,325 66.0%
January
1,
2008 33,614,800 67.5% 35,210,300 66.8% 57,125,821 111.5% 27,309,705 60.2%
July 1,
2008 33,614,800 67.1% 33,873,200 67.1% 51,811,791 122.9% 27,309,705 60.2%
January
1,
2009 32,287,900 68.1% 33,873,200 67.1% 51,811,791 83.2% 25,323,544 51.3%
July 1,
2009 32,287,900 67.8% 32,536,100 67.8% 46,497,761 92.8% 25,323,544 51.3%
January
1,
2010 30,961,000 68.7% 32,536,100 67.8% 46,497,761 72.4% 23,337,384 39.3%
July 1,
2010 30,961,000 22.7% 31,199,000 22.7% 39,855,224 84.5% 23,337,384 39.2%
January
1,
2011 29,634,100 22.8% 31,199,000 22.7% 39,855,224 52.6% 21,351,224 22.1%
July 1,
2011 0 0.0% 0 0.0% 33,212,687 63.1% 0 0.0%
January
1,
2012 0 0.0% 0 0.0% 33,212,687 39.0% 0 0.0%
July 1,
2012 0 0.0% 0 0.0% 26,570,149 48.8% 0 0.0%
January
1,
2013 0 0.0% 0 0.0% 26,570,149 5.3% 0 0.0%
July 1,
2013 0 0.0% 0 0.0% 19,927,612 7.1% 0 0.0%
January
1,
2014 0 0.0% 0 0.0% 0 0.0% 0 0.0%
</TABLE>
V-1
<PAGE>
APPENDIX V
LOAN TO VALUE RATIOS EQUIPMENT NOTES
<TABLE>
<CAPTION>
N568UA N569UA N570UA N571UA
---------------- ---------------- ---------------- ----------------
Assumed Assumed Assumed Assumed
Aircraft LTV Aircraft LTV Aircraft LTV Aircraft LTV
Value Ratio Value Ratio Value Ratio Value Ratio
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July
31,
2000 39,226,667 74.0% 39,226,667 74.0% 39,226,667 74.0% 39,280,000 74.1%
January
1,
2001 37,737,046 76.5% 37,737,046 76.5% 37,737,046 76.5% 37,788,354 76.9%
July 1,
2001 37,737,046 74.3% 37,737,046 74.3% 37,737,046 74.3% 37,788,354 74.5%
January
1,
2002 36,247,426 77.3% 36,247,426 77.3% 36,247,426 77.3% 36,296,709 77.6%
July 1,
2002 36,247,426 75.1% 36,247,426 75.1% 36,247,426 75.1% 36,296,709 75.1%
January
1,
2003 34,757,806 78.2% 34,757,806 78.2% 34,757,806 78.2% 34,805,063 78.3%
July 1,
2003 34,757,806 75.8% 34,757,806 75.8% 34,757,806 75.8% 34,805,063 75.8%
January
1,
2004 33,268,186 75.0% 33,268,186 75.0% 33,268,186 75.0% 33,313,418 75.3%
July 1,
2004 33,268,186 74.9% 33,268,186 74.9% 33,268,186 74.9% 33,313,418 75.3%
January
1,
2005 31,778,565 73.0% 31,778,565 73.0% 31,778,565 73.0% 31,821,772 73.3%
July 1,
2005 31,778,565 72.9% 31,778,565 72.9% 31,778,565 72.9% 31,821,772 73.3%
January
1,
2006 30,288,945 70.7% 30,288,945 70.7% 30,288,945 70.7% 30,330,127 71.1%
July 1,
2006 30,288,945 70.7% 30,288,945 70.7% 30,288,945 70.7% 30,330,127 71.0%
January
1,
2007 28,799,325 66.1% 28,799,325 66.1% 28,799,325 66.1% 28,838,481 68.1%
July 1,
2007 28,799,325 66.0% 28,799,325 66.0% 28,799,325 66.0% 28,838,481 68.0%
January
1,
2008 27,309,705 60.2% 27,309,705 60.2% 27,309,705 60.2% 27,346,835 60.4%
July 1,
2008 27,309,705 60.2% 27,309,705 60.2% 27,309,705 60.2% 27,346,835 60.4%
January
1,
2009 25,323,544 51.3% 25,323,544 51.3% 25,323,544 51.3% 25,357,975 51.4%
July 1,
2009 25,323,544 51.3% 25,323,544 51.3% 25,323,544 51.3% 25,357,975 51.4%
January
1,
2010 23,337,384 39.3% 23,337,384 39.3% 23,337,384 39.3% 23,369,114 39.4%
July 1,
2010 23,337,384 39.2% 23,337,384 39.2% 23,337,384 39.2% 23,369,114 39.4%
January
1,
2011 21,351,224 22.1% 21,351,224 22.1% 21,351,224 22.1% 21,380,253 22.1%
July 1,
2011 0 0.0% 0 0.0% 0 0.0% 0 0.0%
<CAPTION>
N572UA N596UA N673UA N674UA
---------------- ---------------- ---------------- ----------------
Assumed Assumed Assumed Assumed
Aircraft LTV Aircraft LTV Aircraft LTV Aircraft LTV
Value Ratio Value Ratio Value Ratio Value Ratio
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July
31,
2000 39,280,000 74.1% 52,033,333 66.7% 85,366,667 66.7% 85,843,333 66.7%
January
1,
2001 37,788,354 76.9% 50,372,695 66.4% 82,805,667 66.4% 85,843,333 66.3%
July 1,
2001 37,788,354 74.5% 50,372,695 66.4% 82,805,667 66.4% 83,268,033 66.7%
January
1,
2002 36,296,709 77.6% 48,712,057 66.4% 80,244,667 66.3% 83,268,033 66.2%
July 1,
2002 36,296,709 75.1% 48,712,057 66.4% 80,244,667 66.3% 80,692,733 66.6%
January
1,
2003 34,805,063 78.3% 47,051,418 66.3% 77,683,667 66.3% 80,692,733 66.1%
July 1,
2003 34,805,063 75.8% 47,051,418 66.0% 77,683,667 66.0% 78,117,433 66.0%
January
1,
2004 33,313,418 75.3% 45,390,780 66.4% 75,122,667 66.4% 78,117,433 66.0%
July 1,
2004 33,313,418 75.3% 45,390,780 66.2% 75,122,667 66.1% 75,542,133 66.1%
January
1,
2005 31,821,772 73.3% 43,730,142 66.8% 72,561,667 66.7% 75,542,133 66.1%
July 1,
2005 31,821,772 73.3% 43,730,142 66.4% 72,561,667 66.3% 72,966,833 66.3%
January
1,
2006 30,330,127 71.1% 42,069,504 67.0% 70,000,667 66.9% 72,966,833 66.3%
July 1,
2006 30,330,127 71.0% 42,069,504 66.6% 70,000,667 66.5% 70,391,533 66.5%
January
1,
2007 28,838,481 68.1% 40,408,865 67.3% 67,439,667 67.2% 70,391,533 66.5%
July 1,
2007 28,838,481 68.0% 40,408,865 66.9% 67,439,667 66.8% 67,816,233 66.8%
January
1,
2008 27,346,835 60.4% 38,748,227 67.7% 64,878,667 67.5% 67,816,233 66.8%
July 1,
2008 27,346,835 60.4% 38,748,227 67.3% 64,878,667 67.1% 65,240,933 67.1%
January
1,
2009 25,357,975 51.4% 37,087,589 68.3% 62,317,667 68.1% 65,240,933 67.1%
July 1,
2009 25,357,975 51.4% 37,087,589 67.9% 62,317,667 67.8% 62,665,633 67.8%
January
1,
2010 23,369,114 39.4% 35,426,950 68.9% 59,756,667 68.7% 62,665,633 67.8%
July 1,
2010 23,369,114 39.4% 35,426,950 22.9% 59,756,667 22.7% 60,090,333 22.7%
January
1,
2011 21,380,253 22.1% 33,766,312 22.9% 57,195,667 22.8% 60,090,333 22.7%
July 1,
2011 0 0.0% 0 0.0% 0 0.0% 0 0.0%
</TABLE>
V-2
<PAGE>
APPENDIX V
LOAN TO VALUE RATIOS EQUIPMENT NOTES
<TABLE>
<CAPTION>
N207UA N208UA N209UA N210UA
----------------- ----------------- ----------------- -----------------
Assumed Assumed Assumed Assumed
Aircraft LTV Aircraft LTV Aircraft LTV Aircraft LTV
Value Ratio Value Ratio Value Ratio Value Ratio
----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July
31,
2000 129,540,000 66.7% 130,630,000 66.7% 130,810,000 66.7% 132,756,667 66.7%
January
1,
2001 125,653,800 66.4% 126,711,100 66.4% 126,885,700 66.4% 128,773,967 66.4%
July 1,
2001 121,767,600 66.9% 126,711,100 66.4% 126,885,700 66.4% 128,773,967 66.4%
January
1,
2002 121,767,600 66.3% 122,792,200 66.3% 122,961,400 66.3% 124,791,267 66.3%
July 1,
2002 117,881,400 66.8% 122,792,200 66.3% 122,961,400 66.3% 124,791,267 66.3%
January
1,
2003 117,881,400 66.3% 118,873,300 66.3% 119,037,100 66.3% 120,808,567 66.3%
July 1,
2003 113,995,200 66.2% 118,873,300 66.0% 119,037,100 66.0% 120,808,567 66.0%
January
1,
2004 113,995,200 66.2% 114,954,400 66.4% 115,112,800 66.4% 116,825,867 66.4%
July 1,
2004 110,109,000 66.4% 114,954,400 66.1% 115,112,800 66.1% 116,825,867 66.1%
January
1,
2005 110,109,000 66.4% 111,035,500 66.7% 111,188,500 66.7% 112,843,167 66.7%
July 1,
2005 106,222,800 66.5% 111,035,500 66.3% 111,188,500 66.3% 112,843,167 66.3%
January
1,
2006 106,222,800 66.5% 107,116,600 66.9% 107,264,200 66.9% 108,860,467 66.9%
July 1,
2006 102,336,600 66.8% 107,116,600 66.5% 107,264,200 66.5% 108,860,467 66.5%
January
1,
2007 102,336,600 66.8% 103,197,700 67.2% 103,339,900 67.2% 104,877,767 67.2%
July 1,
2007 98,450,400 67.0% 103,197,700 66.8% 103,339,900 66.8% 104,877,767 66.8%
January
1,
2008 98,450,400 67.0% 99,278,800 67.5% 99,415,600 67.5% 100,895,067 67.5%
July 1,
2008 94,564,200 67.4% 99,278,800 67.1% 99,415,600 67.1% 100,895,067 67.1%
January
1,
2009 94,564,200 67.4% 95,359,900 68.1% 95,491,300 68.1% 96,912,367 68.1%
July 1,
2009 90,678,000 68.1% 95,359,900 67.8% 95,491,300 67.8% 96,912,367 67.8%
January
1,
2010 90,678,000 68.1% 91,441,000 68.7% 91,567,000 68.7% 92,929,667 68.7%
July 1,
2010 86,791,800 23.0% 91,441,000 22.7% 91,567,000 22.7% 92,929,667 22.7%
January
1,
2011 86,791,800 23.0% 87,522,100 22.8% 87,642,700 22.8% 88,946,967 22.8%
July 1,
2011 0 0.0% 0 0.0% 0 0.0% 0 0.0%
January
1,
2012 0 0.0% 0 0.0% 0 0.0% 0 0.0%
July 1,
2012 0 0.0% 0 0.0% 0 0.0% 0 0.0%
January
1,
2013 0 0.0% 0 0.0% 0 0.0% 0 0.0%
July 1,
2013 0 0.0% 0 0.0% 0 0.0% 0 0.0%
January
1,
2014 0 0.0% 0 0.0% 0 0.0% 0 0.0%
</TABLE>
V-3
<PAGE>
PROSPECTUS
[UAL LOGO] United Airlines
PASS THROUGH CERTIFICATES
Pass through trusts formed by United may offer for sale up to $1,500,000,000
of pass through certificates from time to time under this prospectus and one or
more prospectus supplements. Each pass through certificate will represent an
interest in a pass through trust. The property of the pass through trust will
include equipment notes issued by:
. a trust to finance or refinance a portion of the purchase price of an
aircraft that has been or will be leased to United as part of a leveraged
lease transaction; or
. United to finance or refinance all or a portion of the purchase price of
an aircraft owned or to be purchased by United.
Equipment notes issued by a trust are without recourse to United. Equipment
notes issued by United are with recourse to United. For each aircraft, the
owner trustee or United will issue one or more equipment notes with an interest
rate, final maturity date and ranking of priority of payment described in a
prospectus supplement.
The pass through trustee will distribute to the holders of pass through
certificates the interest paid on the equipment notes held in the related pass
through trust on the dates and at the rates indicated in a prospectus
supplement. Holders of pass through certificates will also receive
distributions of the principal paid on the equipment notes in scheduled amounts
and on dates specified in a prospectus supplement. Unless otherwise indicated
in a prospectus supplement, we will not list the pass through certificates on
any national securities exchange.
-----------
United will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any prospectus supplement
carefully before you invest.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------
The date of this Prospectus is July 19, 2000.
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that contains two forms
of prospectus to be used in connection with offerings of debt securities or
pass through certificates. This prospectus provides you with a general
description of pass through certificates that we may offer. Each time that we
sell pass through certificates, we will provide a prospectus supplement that
will contain specific information about the terms of that offering.
You should rely only on the information contained or incorporated by
reference in this prospectus or a prospectus supplement. United has not
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. United is not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus or any prospectus supplement, as
well as information United has previously filed with the Securities and
Exchange Commission and incorporated by reference, is accurate as of the date
on the front of those documents only. United's business, financial condition,
results of operations and prospects may have changed since those dates.
WHERE YOU CAN FIND MORE INFORMATION
United Air Lines, Inc. files reports, proxy statements and other information
with the SEC. You may access United's SEC filings over the Internet at the
SEC's web site at http://www.sec.gov. You may also read and copy any document
United files at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 to obtain
information on the operation of the public reference room.
United has filed with the SEC under the Securities Act of 1933 a
registration statement on Form S-3 relating to the securities. For further
information on United and the securities, you should refer to the registration
statement and its exhibits. This prospectus and the related prospectus
supplement summarizes material provisions of contracts and other documents that
United refers you to. Since the prospectus and the related prospectus
supplement may not contain all the information that you may find important, you
should review the full text of these documents. United has included forms of
these documents as exhibits to the registration statement or incorporated them
by reference into this prospectus.
INCORPORATION OF INFORMATION UNITED FILES WITH THE SEC
United is "incorporating by reference" certain information it files with the
SEC into this prospectus, which means:
. incorporated documents are considered part of this prospectus;
. United can disclose important information to you by referring you to
those documents; and
. information that United files with the SEC will automatically update and
supersede this prospectus.
United incorporates by reference its Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1999 and June 30, 1999, and its Current Report
on Form 8-K dated October 19, 1999, which United filed with the SEC under the
Securities Exchange Act of 1934.
United also incorporates by reference each of the following documents that
United will file with the SEC after the date of the initial filing of the
registration statement with the SEC and prior to effectiveness of the
registration statement or after the date of this prospectus but before the end
of the offering of the securities:
2
<PAGE>
. Reports filed under Sections 13(a) and (c) of the 1934 Act,
. Definitive proxy or information statements filed under Section 14 of the
1934 Act in connection with any subsequent stockholders' meeting, and
. Any reports filed under Section 15(d) of the 1934 Act.
You may request a copy of any filings referred to above, at no cost, by
writing or telephoning United at the following address:
Corporate Secretary's Office
United Air Lines, Inc.--WHQLD
P.O. Box 66100
Chicago, Illinois 60666
(847) 700-4453.
REPORTS TO PASS THROUGH CERTIFICATEHOLDERS
The pass through trustee under each pass through trust will provide the
certificateholders of each pass through trust with periodic statements
concerning the distributions made from that pass through trust. See
"Description of the Certificates--Reports to Certificateholders" for a
description of these periodic statements.
THE COMPANY
United Air Lines, Inc., was incorporated under the laws of the State of
Delaware on December 30, 1968. The world headquarters of the Company are
located at 1200 East 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 (847) 700-4000.
United is the principal subsidiary of UAL Corporation, a Delaware
corporation, and is wholly owned by UAL. United accounted for virtually all of
UAL's revenues and expenses in 1999. United is a major commercial air
transportation company, engaged in the transportation of persons, property and
mail throughout the United States and abroad.
During 1999, United carried, on average, more than 243,000 passengers per
day and flew more than 125 billion revenue passenger miles. It is the world's
largest airline as measured by revenue passenger miles flown, providing
passenger service in 26 countries.
United operates a global network, which encompasses major cities such as
Chicago, Denver, Los Angeles, New York, Miami, San Francisco, Washington-
Dulles, D.C., in the U.S., and Buenos Aires, Frankfurt, Hong Kong, London,
Mexico City, Paris, Sao Paulo, Sydney and Tokyo in the international markets.
United's network, supplemented with strategic airline alliances, provides
comprehensive transportation service within North America (the domestic
segment), within Latin America, Europe, and the Pacific (the international
segment), and between these two segments. Operating revenues attributed to
United's North America segment were approximately $12.5 billion in 1999, $12.0
billion in 1998, and $11.2 billion in 1997. Operating revenues attributed to
United's international segment were approximately $5.5 billion in 1999, $5.5
billion in 1998, and $6.1 billion in 1997.
Since October 1994, United has operated a service, United Shuttle, within
its domestic segment. This service is designed to provide both affordable and
profitable air service in highly competitive markets, as well as critical feed
traffic. United Shuttle is principally concentrated on the West Coast and in
Denver. United Shuttle offers approximately 500 daily flights on 30 routes
among 22 cities in the western United States.
3
<PAGE>
OUTLINE OF PASS THROUGH TRUST STRUCTURE
Each series of pass through certificates will be issued by a separate pass
through trust. Each separate pass through trust will be formed under a
supplemental agreement, between United and the pass through trustee named in
the series supplement, to a Pass Through Trust Agreement between United and the
pass through trustee. All pass through certificates issued by a particular pass
through trust will represent fractional undivided interests in that pass
through trust. The trust property held in each pass through trust will consist
of (a) equipment notes issued by United in connection with financing or
refinancing the purchase of one or more aircraft, (b) equipment notes issued by
one or more trusts in connection with the financing or refinancing one or more
leveraged lease transactions, as specified in the applicable prospectus
supplement, and (c) any other property described in the applicable prospectus
supplement.
United or the owner trustee may issue one or more equipment notes in
connection with each purchase or leveraged lease transaction. Each equipment
note may have different interest rates and final maturity dates and rankings of
priority of payment. Concurrently with the execution and delivery of each
series supplement, the pass through trustee, on behalf of the related pass
through trust, will enter into one or more agreements under which it will
purchase one or more equipment notes. Unless otherwise provided in a prospectus
supplement, the equipment notes that constitute the property of a pass through
trust will have the same interest rates as the interest rates on the pass
through certificates issued by the pass through trust and the same priority of
payment relative to each of the other equipment notes held by the pass through
trust. Unless otherwise provided in a prospectus supplement, the latest
maturity date for the equipment notes will occur on or before the final
distribution date applicable to the pass through certificates issued by the
pass through trust holding those equipment notes.
For each pass through trust, the total amount of the pass through
certificates will equal the total principal amount of the equipment notes
constituting the trust property of the pass through trust. The pass through
trustee will distribute payments of principal, any premium and interest,
received by it as holder of the equipment notes to the certificateholders of
the pass through trust that hold those equipment notes.
USE OF PROCEEDS
The pass through trustee will use proceeds from the sale of pass through
certificates issued by a pass through trust to purchase equipment notes. The
equipment notes are or will be issued by:
. a trust to finance or refinance a portion of the purchase price of an
aircraft that has been or will be leased to United, or
. United to finance or refinance all or a portion of the purchase price of
an aircraft owned or to be purchased by United.
For each leased aircraft, the owner trustee will issue the related equipment
notes, as nonrecourse obligations, and authenticated by a bank or trust
company, as indenture trustee under either a separate supplement to an existing
trust indenture and security agreement between the owner trustee and the
indenture trustee or a separate trust indenture and security agreement. Each
trust indenture and security agreement is referred to in this prospectus as a
"Leased Aircraft Indenture". The owner trustee will also obtain a portion of
the funding for the leased aircraft from an equity investment of an owner
participant(s). A leased aircraft may also be subject to other financing
arrangements that will be described in the applicable prospectus supplement. In
connection with the refinancing of a leased aircraft, the owner trustee may
refinance the existing equipment notes through the issuance of notes by a
separate trust, which will be described in the applicable prospectus
supplement.
We will issue the equipment notes relating to owned aircraft under either a
separate supplement to an existing trust indenture and mortgage or a separate
trust indenture and mortgage. Each trust indenture and
4
<PAGE>
mortgage is referred to in this prospectus as an "Owned Aircraft Indenture".
The term "Indenture" refers to any Leased Aircraft Indenture and any Owned
Aircraft Indenture.
If the pass through trustee does not use the proceeds of any offering of
pass through certificates to purchase equipment notes on the date of issuance
of the pass through certificates, it will hold the proceeds for the benefit of
the holders of the related pass through certificates under arrangements that we
will describe in the applicable prospectus supplement. If the pass through
trustee does not subsequently use any portion of the proceeds to purchase
equipment notes by the date specified in the applicable prospectus supplement,
it will return that portion of the proceeds to the holders of the related pass
through certificates.
In addition, pass through certificates may be offered subject to delayed
aircraft financing arrangements, such as the following:
. a pass through trust may purchase equipment notes issued by an owner
trustee prior to the purchase of an aircraft by the owner trustee or the
commencement of the related Lease to United.
. a pass through trust may purchase equipment notes issued by United prior
to the expected delivery date of an owned aircraft.
. the funds may be invested with a depositary or represented by escrow
receipts until used to purchase equipment notes.
In these circumstances, the prospectus supplement will describe how the
proceeds of the pass through certificates will be held or applied during any
delayed aircraft financing period, including any depositary or escrow
arrangements.
FLOW OF PAYMENTS
Each pass through trust may hold equipment notes relating to more than one
aircraft. A prospectus supplement will describe the number of aircraft included
in each offering and the interest rates, final maturity dates and rankings in
respect of priority of payment of the equipment notes held by each pass through
trust.
In a leased aircraft transaction, United will lease each aircraft from the
owner trustee under a separate Lease. United will make scheduled rent payments
for each aircraft under the Lease. As a result of the assignment under the
related Leased Aircraft Indenture of specified rights of the owner trustee
under the Lease, United will make the rent payments directly to the indenture
trustee. From these rent payments, the indenture trustee will pay to the pass
through trustee the interest, principal and any premium due from the owner
trustee (or any separate trust created in connection with the refinancing of
leased aircraft) on the equipment notes issued under the Indenture and held in
the pass through trust. After the indenture trustee has made the payments on
the equipment notes then due, the indenture trustee will pay the remaining
balance to the owner trustee for the benefit of the related owner participant.
The owner participant may be United or an affiliate of United. The pass through
trustee for each pass through trust will distribute to the related
certificateholders payments received on the equipment notes held in the pass
through trust.
In an owned aircraft transaction, United will make scheduled payments on the
equipment notes relating to each aircraft to the indenture trustee. From these
payments, the indenture trustee will pay to the pass through trustee for each
pass through trust the interest, principal and any premium due on the equipment
notes issued under the related Owned Aircraft Indenture and held in the related
pass through trust. The pass through trustee will distribute to the related
certificateholders payments received on the equipment notes held in the pass
through trust.
In addition, this description generally assumes that, on or before the date
of the sale of any series of pass through certificates, the related aircraft
shall have been delivered and the ownership or lease financing
5
<PAGE>
arrangements for such aircraft shall have been put in place. However, it is
possible that some or all of the aircraft related to a particular offering of
pass through certificates may be subject to delayed aircraft financing
arrangements. In the event of any delayed aircraft financing arrangements, some
terms of the pass through certificates will differ from the terms described in
this prospectus. The applicable prospectus supplement will reflect the material
differences arising from delayed aircraft financing arrangements.
DESCRIPTION OF THE CERTIFICATES
The discussion that follows is a summary of the terms of the pass through
certificates that we expect will be common to all series and is not complete.
The applicable prospectus supplement will describe most of the financial terms
and other specific terms of a particular series of pass through certificates.
The summary includes descriptions of the material terms of the Pass Through
Agreement. The form of Pass Through Agreement has been filed as an exhibit to
the registration statement of which this prospectus is a part. The series
supplement relating to each series of pass through certificates and the forms
of Indentures, Note Purchase Agreements, if any, Participation Agreements,
Leases, if the pass through certificates relate to a leased aircraft
transaction, intercreditor agreement, if any, liquidity facility, if any, Trust
Agreements and Collateral Agreements, if any, will be filed with the SEC as
exhibits to a post-effective amendment to this registration statement, a
Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report
on Form 10-K, as applicable, and this summary is qualified in its entirety by
the detailed information appearing in each of these documents. This summary
makes use of terms defined in and is qualified in its entirety by reference to
the Pass Through Agreement.
Each prospectus supplement will include a glossary of terms used in
connection with the pass through certificates offered thereby and the related
equipment notes. The applicable prospectus supplement will describe the
particular terms of the Indentures, the pass through certificates, the Leases
and the Participation Agreements relating to any particular offering of pass
through certificates. To the extent that any provision in any prospectus
supplement is inconsistent with any provision of this summary, the provision of
the prospectus supplement will control.
The pass through certificates of each pass through trust will be issued in
fully registered form only. Each pass through certificate will represent a
fractional undivided interest in the separate pass through trust formed by the
Pass Through Agreement and the related series supplement under which that pass
through certificate is issued. The property of each pass through trust will
include (1) the equipment notes held in that pass through trust, (2) all monies
at any time paid on the equipment notes, (3) all monies due and to become due
on the equipment notes and (4) funds from time to time deposited with the pass
through trustee in accounts relating to that pass through trust. If specified
in a prospectus supplement, the property of a pass through trust will also
include rights under an intercreditor agreement relating to cross-subordination
arrangements and monies receivable under a liquidity facility. Each pass
through certificate will represent a pro rata share of the outstanding
principal amount of the equipment notes and other property held in the related
pass through trust and will be issued, unless otherwise specified in a
prospectus supplement, in minimum denominations of $1,000 and integral
multiples of $1,000 in excess of $1,000.
A prospectus supplement will describe the specific series of pass through
certificates offered by that prospectus supplement, including:
(1) the specific designation and title of the pass through certificates
and the pass through trust;
(2) the pass through trustee for that series of pass through
certificates;
(3) the regular distribution dates and special distribution dates for
the pass through certificates and any cut-off date for the purchase of an
aircraft;
(4) the specific form of the pass through certificates;
6
<PAGE>
(5) whether the pass through certificates will be issued in accordance
with a book-entry system;
(6) a description of:
(a) the equipment notes to be purchased by that pass through trust,
including the period(s) within which, the price(s) at which, and the
terms and conditions upon which the equipment notes may or must be
repaid in whole or in part, by United or the related owner trustee;
(b) the payment priority of the equipment notes in relation to any
other equipment notes issued with respect to the related aircraft;
(c) any additional security or liquidity facilities for the pass
through certificates;
(d) any intercreditor issues among the holders of equipment notes
having different priorities issued by the same owner trustee;
(e) any provisions for defeasance or covenant defeasance; and
(f) any arrangements for the investment or other use of proceeds of
the pass through certificates prior to the purchase of equipment notes,
and any arrangements relating to any delayed aircraft financing
arrangements;
(7) a description of the related aircraft, including whether the
aircraft is a leased aircraft or an owned aircraft;
(8) a description of the related Participation Agreement or Note
Purchase Agreement and Indenture, including a description of events of
default under the Indenture, remedies exercisable upon the occurrence of an
event of default and any limitations on the exercise of remedies;
(9) if the pass through certificates relate to leased aircraft, a
description of the related Lease, Trust Agreement and any Collateral
Agreement, including:
(a) the name of the owner trustee;
(b) a description of the events of default under the Lease, remedies
exercisable upon the occurrence of an event of default and any
limitations on the exercise of remedies; and
(c) any rights of the owner trustee or owner participant to cure
failures of United to pay rent under the Lease;
(10) the extent, if any, to which the provisions of the operative
documents applicable to the equipment notes may be amended without the
consent of the holders of the equipment notes, or upon the consent of the
holders of a specified percentage of the total principal amount of the
equipment notes;
(11) a description of the related Indenture;
(12) a description of any intercreditor or subordination provisions
among the holders of pass through certificates, including any cross-
subordination provisions among the holders of pass through certificates in
separate pass through trusts;
(13) a description of any deposit or escrow agreement, any liquidity or
revolving credit facility or other like arrangement providing
collateralization, credit support or liquidity enhancement for any series
of pass through certificate or any class of equipment notes; and
(14) any other special terms of the pass through certificates.
The applicable prospectus supplement will also describe any special United
States federal income tax considerations and any other special information with
respect to that series of pass through certificates if:
. the pass through certificates are denominated in foreign or composite
currency; or
. the equipment notes are sold at a substantial discount below the
principal amount of the equipment notes.
7
<PAGE>
The equipment notes issued under an Indenture may be held in more than one
pass through trust and any pass through trust may hold equipment notes issued
under more than one Indenture. Unless otherwise provided in a prospectus
supplement, a pass through trust may only hold equipment notes having the same
priority of payment. Equipment notes that have the same priority of payment are
referred to as a "class".
Interest will be passed through to certificateholders of each pass through
trust at the rate payable on the equipment notes held in the pass through
trust, as specified for the pass through trust in the prospectus supplement.
The pass through certificates represent interests in the related pass
through trust only and all payments and distributions will be made only from
the trust property of the pass through trust. The pass through certificates do
not represent an interest in or obligation of United, the pass through trustee,
any related owner participant, the owner trustee in its individual capacity or
any affiliate of any of them. Each certificateholder by its acceptance of a
pass through certificate agrees to look solely to the income and proceeds from
the trust property of the related pass through trust as specified in the Pass
Through Agreement and the related series supplement.
The Pass Through Agreement and the Indentures will not contain any debt
covenants or provisions that would give certificateholders protection in the
event of a highly leveraged transaction involving United. However, the
certificateholders of each series will have the benefit of a lien on the
specific aircraft securing the related equipment notes held in the related pass
through trust.
To the extent described in a prospectus supplement, United may surrender
pass through certificates issued by a pass through trust to the pass through
trustee for that pass through trust. In this event, the pass through trustee
will transfer to United an equal principal amount of equipment notes relating
to a particular aircraft designated by United and will cancel the surrendered
pass through certificates.
Denominations, Registration and Transfer
Unless otherwise indicated in a prospectus supplement, distributions with
respect to the pass through certificates will be made, and the transfer of pass
through certificates will be registrable, at the office or agency to be
maintained by the pass through trustee in New York, New York, and at any other
office or agency maintained by the pass through trustee for this purpose. We
will issue pass through certificates in fully registered form, unless otherwise
indicated in a prospectus supplement. Unless we tell you otherwise in a
prospectus supplement, we will issue pass through certificates denominated in
U.S. dollars only in denominations of $1,000 and integral multiples of $1,000
in excess of $1,000. We will specify in the prospectus supplement the
denominations of any pass through certificates we issue denominated in a
foreign or composite currency.
We will exchange pass through certificates of any series for other pass
through certificates of the same series, principal amount and maturity date.
You may present pass through certificates, other than a global security, for
registration of transfer, with the form of transfer properly signed, at the
office of the registrar or of any transfer agent designated by the pass through
trustee for this purpose for any series of pass through certificates and
referred to in a prospectus supplement. The registrar or the transfer agent
will effect the transfer or exchange when it is satisfied with the documents of
title and identity of the person making the request. The Pass Through Agreement
designates the pass through trustee as the registrar. If a prospectus
supplement refers to any transfer agent in addition to the registrar for any
series of pass through certificates, the pass through trustee may at any time
rescind the designation of any transfer agent or approve a change in the
location through which any transfer agent acts. The pass through trustee must
maintain a transfer agent in each place of payment for that series. The pass
through trustee may at any time designate additional transfer agents with
respect to any series of pass through certificates.
8
<PAGE>
No service charge will be made for any registration of transfer or exchange
of the pass through certificates, but the pass through trustee may require
payment of any amount needed to cover any tax or other governmental charge
imposed in connection with the transfer or exchange.
Payments and Paying Agents
Unless otherwise indicated in a prospectus supplement, the pass through
trustee will distribute the amounts on deposit in the applicable certificate
account (1) by check mailed to the address of each certificateholder of record
of that series on the record date with respect to a regular distribution date
as it appears in the register or (2) by wire transfer to an account maintained
by the nominee of the depository.
Unless otherwise indicated in a prospectus supplement, the pass through
trustee will serve as paying agent and the corporate trust office of the pass
through trustee will be designated as the paying agent office for payments with
respect to pass through certificates. We will name in a prospectus supplement
any paying agent outside the United States and any other paying agent in the
United States initially designated by the pass through trustee for the pass
through certificates. The pass through trustee may at any time designate
additional paying agents or rescind the designation of any paying agent or
approve a change in the office through which any paying agent acts. The pass
through trustee will be required to maintain a paying agent in each place of
payment for that series.
The pass through trustee will repay to the appropriate indenture trustees
all moneys held by the pass through trustee for the payment of distributions
that remain unclaimed at the end of two years after the final distribution date
for the pass through certificates. The pass through trustee will give written
notice of the repayment to the related owner trustees, the owner participants
and United.
Book-Entry Securities
Unless we provide otherwise in a prospectus supplement, the pass through
certificates will be represented by one or more fully registered certificates.
These certificates are called "global securities." Each global security will be
deposited with a depository. The depository will initially be The Depository
Trust Company. The global security will be registered in the name of the
depository or its nominee. Except in the circumstances described in
"Certificated Form" below, no certificateholder will receive a certificated
pass through certificate. If the total principal amount of any issue of pass
through certificates exceeds $200 million, one certificate will be issued for
each $200 million of principal amount and an additional certificate will be
issued for any remaining principal amount of that issue.
The Depository Trust Company or "DTC" is a limited-purpose trust company
organized under the New York Banking Law. It is a "banking organization" within
the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered under the provisions of
Section 17A of the 1934 Act. DTC holds securities that its participants deposit
with it. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, which
eliminates the need for physical movement of securities certificates. Direct
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. A number of DTC's direct
participants and the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. own
DTC. Other persons, such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, have access to DTC's book-entry system, either directly or
indirectly. These other entities are referred to as "indirect participants."
The rules applicable to DTC and its participants are on file with the SEC.
Purchases of pass through certificates under the DTC system must be made by
or through direct participants. Direct participants will receive a credit for
the pass through certificates on DTC's records. The
9
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ownership interest of each actual purchaser of each pass through certificate
will be recorded on the direct and indirect participants' records. Each actual
purchaser is referred to as a "beneficial owner." Beneficial owners will not
receive written confirmation from DTC of their purchase, but beneficial owners
are expected to receive written confirmations providing details of the
transaction and periodic statements of their holdings, from the direct or
indirect participant through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the pass through certificates
will be accomplished by entries made on the books of participants acting on
behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interests in pass through certificates, except if
the use of the book-entry system for the pass through certificates is
discontinued. The laws of some states require that certain purchasers of
securities take physical delivery of securities in definitive form. These
limits and laws may impair the ability to transfer beneficial interests in the
global security.
So long as the depository for the global security, or its nominee, is the
registered owner of the global security, it will be considered the sole owner
or holder of the pass through certificates represented by the global security.
Except as provided below, owners of beneficial interests in pass through
certificates represented by the global security will not be entitled to have
pass through certificates represented by the global security registered in
their names, will not receive or be entitled to receive physical delivery of
pass through certificates in definitive form and will not be considered the
owners or holders of the pass through certificates under the Pass Through
Agreement.
To facilitate subsequent transfers, all pass through certificates deposited
by participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of pass through certificates with DTC and their
registration in the name of Cede causes no change in the beneficial ownership
of the pass through certificates. DTC has no knowledge of the actual beneficial
owners of the pass through certificates; its records reflect only the identity
of the direct participants to whose accounts the pass through certificates are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers. Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them. These arrangements are subject to any applicable
statutory or regulatory requirements.
Neither DTC nor Cede will consent or vote with respect to pass through
certificates. Under its usual procedures, DTC mails an omnibus proxy to the
pass through trustee as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the pass through certificates are credited on
the record date. Those direct participants will be identified in a listing
attached to the omnibus proxy.
The pass through trustee or a paying agent, which may also be the pass
through trustee, will make distributions with respect to the pass through
certificates represented by the global security to the depository as the
registered owner of the global security.
We expect that the depository upon receipt of any distribution will credit
direct participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the global security for the related pass
through certificates as shown on the records of the depository. We also expect
that payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name".
The participants, and not DTC, the paying agent, the pass through trustee, the
indenture trustee, the owner trustee or United, will be responsible for
payments to the beneficial owners. The pass through trustee is responsible for
the payment of distributions with respect to the global security to DTC. DTC is
responsible for the disbursement of these payments to direct participants. The
direct and indirect participants are responsible for the disbursement of these
payments to the beneficial owners.
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If the depository with respect to a global security is at any time unwilling
or unable to continue as depository and a successor depository is not appointed
within 90 days, the pass through trustee will issue pass through certificates
in certificated form in exchange for the pass through certificates represented
by the global security.
The information in this section concerning the depository and the
depository's book-entry system has been obtained from sources that United
believes to be reliable, but United takes no responsibility for the accuracy of
the information.
In addition to holding pass through certificates through participants or
indirect participants of DTC in the United States as described above, you may
hold your pass through certificates through Clearstream or Euroclear in Europe
if they are participants of these systems, or indirectly through organizations
which are participants in these systems.
Clearstream and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Clearstream's and
Euroclear's names on the books of their respective depositaries which in turn
will hold these positions in customers' securities accounts in the depositaries
names on the books of DTC.
Transfers between Clearstream participants and Euroclear participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Clearstream
participants or Euroclear participants, on the other hand, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing systems by its depositary. Cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in this system in accordance with its rules
and procedures and within its established deadlines (European time). If the
transaction meets its settlement requirements, the relevant European
international clearing system will deliver instructions to its depositary to
take action to effect final settlement on its behalf by delivering or receiving
pass through certificates in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Clearstream participants and Euroclear participants may not deliver
instructions directly to the depositaries.
Because of time-zone differences, credits of pass through certificates
received in Clearstream or Euroclear as a result of a transaction with a DTC
participant will be made during subsequent securities settlement processing and
dated the business day following the DTC settlement date. These credits or any
transactions in the pass through certificates settled during the securities
settlement processing will be reported to the relevant Euroclear or Clearstream
participants on the business day following the DTC settlement date. Cash
received in Clearstream or Euroclear as a result of sales of pass through
certificates by or through a Clearstream participant or a Euroclear participant
to a DTC participant will be received with value on the DTC settlement date but
will be available in the relevant Clearstream or Euroclear cash account only as
of the business day following settlement in DTC.
Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream holds securities for its participating organizations
and facilitates the clearance and settlement of securities transactions between
Clearstream participants through electronic book-entry changes in accounts of
Clearstream participants, which eliminates the need for physical movement of
certificates. Transactions may be settled in Clearstream in any of 28
currencies, including United States dollars. Clearstream provides to
Clearstream participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations and may include the underwriters.
Indirect access to Clearstream is also available to others,
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such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Clearstream participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment,
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 29 currencies, including United States dollars. Euroclear
includes various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of
New York (the "Euroclear Operator"), under contract with Euro-clear Clearance
System S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear participants. Euroclear participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the Underwriters.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
The Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law govern
securities clearance accounts and cash accounts with the Euroclear Operator.
These terms and conditions govern transfers of securities and cash with
Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the
terms and conditions only on behalf of Euroclear participants, and has no
record of or relationship with persons holding though Euroclear participants.
Distributions with respect to pass through certificates held through
Clearstream or Euroclear will be credited to the cash accounts of Clearstream
participants or Euroclear participants in accordance with the relevant system's
rules and procedures, to the extent received by its depositary. These
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Clearstream or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
certificateholder under the Pass Through Agreement or any other related
document on behalf of a Clearstream participant or Euroclear participant only
in accordance with its relevant rules and procedures and subject to its
depositary's ability to effect action on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of pass through certificates among
participants of DTC, Clearstream and Euroclear, they are under no obligation to
perform or continue to perform these procedures and these procedures may be
discontinued at any time.
Except as required by law, neither United, the pass through trustee nor the
paying agent will have any liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the pass
through certificates of any series held by Cede & Co, by Clearstream or by
Euroclear in Europe, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Certificated Form. The pass through trustee will issue certificates in fully
registered, certificated form to certificateholders, or their nominees, rather
than to DTC or its nominee, only if DTC advises the pass through
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trustee in writing that it is no longer willing or able to discharge properly
its responsibilities as depository with respect to the pass through
certificates and United is unable to locate a qualified successor or if United,
at its option, elects to terminate the book-entry system through DTC. In this
event, the pass through trustee will notify all certificateholders through DTC
participants of the availability of certificated pass through certificates.
Upon surrender by DTC of the definitive global certificate representing the
series of pass through certificates and receipt of instructions for
reregistration, the pass through trustee will reissue the pass through
certificates in certificated form to certificateholders or their nominees.
Certificates in certificated form will be freely transferable and
exchangeable at the office of the pass through trustee upon compliance with the
requirements set forth in the Pass Through Agreement and the applicable series
supplements.
Payments and Distributions
United will make scheduled payments of interest and principal on the
equipment notes related to owned aircraft to the indenture trustee under the
related Owned Aircraft Indenture. The indenture trustee will distribute these
interest and principal payments to the pass through trustee for each of the
pass through trusts that hold these equipment notes.
Upon commencement of the Lease for any leased aircraft, United will make
scheduled rent payments for each leased aircraft under the related Lease to the
owner trustee. These scheduled rent payments to the indenture trustee under the
applicable Indenture will provide the funds necessary to make the corresponding
payments of principal and interest due from the owner trustee on the equipment
notes issued under the Leased Aircraft Indenture.
Subject to the effect of any cross-subordination provisions set forth in the
applicable prospectus supplement, the pass through trustee will distribute
payments of principal, any premium and interest on the equipment notes held in
each pass through trust, upon receipt, to certificateholders of that pass
through trust on the dates and in the currency specified in the applicable
prospectus supplement, except in cases when some or all of the equipment notes
are in default as described in the applicable prospectus supplement.
Payments of interest and principal on the equipment notes held in each pass
through trust will be scheduled to be received by the pass through trustee on
the dates specified in a prospectus supplement. These scheduled payments of
interest and principal on the equipment notes are referred to as "scheduled
payments." The dates specified for distributions of scheduled payments to the
pass through trustee in a prospectus supplement are referred to as "regular
distribution dates." Subject to the effect of any cross-subordination
provisions described in a prospectus supplement, for each pass through trust,
the pass through trustee will distribute on each regular distribution date to
the related certificateholders any scheduled payment received by the pass
through trustee on the regular distribution date.
If the pass through trustee does not receive a scheduled payment on or
before a regular distribution date but receives the scheduled payment within
five business days after the regular distribution date, the pass through
trustee will distribute the scheduled payment to the certificateholders on the
date received. The pass through trustee will make each distribution of a
scheduled payment to the certificateholders of record on the fifteenth day
prior to each regular distribution date, subject to any exceptions specified in
a prospectus supplement. Subject to the effect of any cross-subordination
provisions described in the applicable prospectus supplement, each
certificateholder will be entitled to receive a pro rata share of any
distribution. If the pass through trustee receives a scheduled payment more
than five business days after a regular distribution date, it will be treated
as a special payment and will be distributed as described in the next
paragraph.
For any pass through trust, any payments of principal, any premium or
interest, other than scheduled payments, received by the pass through trustee
on any of the equipment notes held in the pass through trust will be
distributed on the special distribution dates specified in a prospectus
supplement. These payments
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received (1) for the prepayment of the equipment notes, (2) upon the prepayment
by the related owner trustee of the equipment notes following a default, and
(3) on account of the sale of the equipment notes by the pass through trustee
are referred to as "special payments". Prior to any special payment for a pass
through trust, the pass through trustee will notify the certificateholders of
record of that pass through trust of the special payment and the anticipated
special distribution date. The pass through trustee will make each distribution
of a special payment, other than the final distribution, for any pass through
trust to the certificateholders of record on the fifteenth day prior to the
special distribution date, unless otherwise specified in a prospectus
supplement. Subject to the effect of any cross-subordination provisions set
forth in a prospectus supplement, each certificateholder will be entitled to
receive a pro rata share of any distribution of a special payment.
If any distribution date is not a business day, distributions scheduled to
be made on that distribution date will be made on the next business day and,
unless otherwise provided in a prospectus supplement, without additional
interest.
Pool Factors
The "pool factor" for any pass through trust will decline in proportion to
the scheduled repayments of principal on the equipment notes held in a pass
through trust as described in a prospectus supplement. However, if any
equipment notes held in a pass through trust have been prepaid, a scheduled
repayment of principal on the equipment notes has not been made or specified
actions have been taken following a default on the equipment notes, the pool
factor and the pool balance of the pass through trust will be recomputed after
giving effect to that event and notice of the new computation will be mailed to
the certificateholders of that pass through trust. Each pass through trust will
have a separate pool factor.
Unless otherwise described in a prospectus supplement, the "pool balance"
for each pass through trust indicates, as of any date, the total original face
amount of the pass through certificates less the total amount of all payments
made in respect of the pass through certificates other than payments of
interest or premium on the pass through certificates or reimbursement of any
costs or expenses incurred in connection with the pass through certificates.
The pool balance for each pass through trust as of any distribution date will
be computed after giving effect to the payment of principal, if any, on the
equipment notes or other trust property held in that pass through trust and the
distribution of principal being made on that date.
Unless otherwise described in a prospectus supplement, the "pool factor" for
each pass through trust as of any distribution date is the quotient (rounded to
the seventh decimal place) computed by dividing (1) the pool balance, by (2)
the total original face amount of the pass through certificates of the pass
through trust. The pool factor for each pass through trust as of any
distribution date will be computed after giving effect to the payment of
principal, if any, on the equipment notes held in the pass through trust and
the distribution of principal being made on that date. The pool factor for each
pass through trust will initially be 1.0000000; the pool factor for each pass
through trust will decline as described above to reflect reductions in the pool
balance of the pass through trust. For any pass through trust, the amount of
any certificateholder's pro rata share of the pool balance of the pass through
trust can be determined by multiplying the original denomination of the
certificateholder's pass through certificate by the pool factor for the pass
through trust as of the applicable distribution date.
Reports to Certificateholders
On each distribution date for a pass through trust, the pass through trustee
will include with each distribution of a scheduled payment or special payment
to certificateholders of record a statement, giving effect to the distribution
being made on that distribution date. The statement will provide the following
information (per $1,000 in aggregate amount of pass through certificates for
the pass through trust, as to (1) and (2) below):
(1) the amount of the distribution allocable to principal and allocable
to premium, if any;
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(2) the amount of the distribution allocable to interest; and
(3) the pool balance and the pool factor for that pass through trust.
So long as the pass through certificates of any related pass through trust
are registered in the name of Cede & Co., as nominee for DTC, on the record
date prior to each distribution date, the pass through trustee will request
from DTC a securities position listing that will provide the names of all DTC
participants reflected on DTC's books as holding interests in the pass through
certificates of the related pass through trust on that record date. On each
distribution date, the pass through trustee will mail to DTC and each
participant the statement described above. The pass through trustee will also
make available additional copies as requested by the DTC participant, to be
available for forwarding to certificateholders.
In addition, after the end of each calendar year, the pass through trustee
will prepare and deliver to each certificateholder of each pass through trust
at any time during the preceding calendar year a report containing the sum of
the amounts of principal, any premium and interest with respect to each pass
through trust for that calendar year or, if that person was a certificateholder
during a portion of that calendar year, for the applicable portion of that
calendar year. The pass through trustee will prepare this report on the basis
of information supplied to the pass through trustee by the DTC participants,
and the pass through trustee will deliver this report to the DTC participants
to be available for forwarding by the DTC participants to certificateholders.
If pass through certificates of a pass through trust are issued in
certificated form, the related pass through trustee will prepare and deliver
the information described above to each certificateholder of record of the pass
through trust as the name of the certificateholder appears on the records on
the registrar for the pass through trust.
Voting of Equipment Notes
Subject to the effect of any cross-subordination and intercreditor
provisions described in a prospectus supplement, the pass through trustee, as
holder of the equipment notes held in each pass through trust, has the right to
vote and give consents and waivers in respect of those equipment notes under
the related Indentures. The Pass Through Agreement describes:
. the circumstances in which the pass through trustee will direct any
action or cast any vote as the holder of the equipment notes held in the
applicable pass through trust at its own discretion;
. the circumstances in which the pass through trustee will seek
instructions from the certificateholders of that pass through trust; and
. if applicable, the percentage of certificateholders required to direct
the pass through trustee to take any action.
Prior to an event of default with respect to any pass through trust, the
principal amount of the equipment notes held in that pass through trust
directing any action or being voted for or against any proposal will be in
proportion to the principal amount of pass through certificates held by the
certificateholders of that pass through trust taking the corresponding
position. If specified in a prospectus supplement, the right of the pass
through trustee to vote and give consents and waivers with respect to the
equipment notes held in the related pass through trust may, in the
circumstances provided in an intercreditor agreement to be executed by the pass
through trustee, be exercisable by another person specified in the prospectus
supplement.
Events of Default and Certain Rights Upon an Event of Default
The Pass Through Agreement defines an event of default for any pass through
trust as the occurrence and continuance of an event of default under one or
more of the related Indentures. What constitutes an event of default for a
particular pass through trust may be varied by the applicable series supplement
to the Pass Through Trust Agreement and described in the applicable prospectus
supplement. The applicable prospectus
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supplement will describe the indenture events of default under the indentures
for the leased aircraft and will include events of default under the related
Leases. If any equipment notes are supported by a liquidity facility or other
credit enhancement arrangement, the events of default or indenture events of
default may include events of default under the liquidity facility or other
credit enhancement arrangement.
Because the equipment notes outstanding under an Indenture may be held in
more than one pass through trust, a continuing indenture event of default under
the Indenture would result in an event of default with respect to each pass
through trust. All the equipment notes issued under the same Indenture will
relate to a specific aircraft. There will be no cross-collateralization or
cross-default provisions in the Indentures, unless otherwise specified in a
prospectus supplement. Consequently, unless otherwise provided in a prospectus
supplement, events resulting in an indenture event of default under any
particular Indenture will not necessarily result in an indenture event of
default occurring under any other Indenture. If an indenture event of default
occurs in fewer than all of the Indentures related to a pass through trust, the
equipment notes issued under the related Indentures with respect to which an
indenture event of default has not occurred will continue to be held in the
pass through trust and the pass through trustee will continue to distribute
payments of principal of, and any premium and interest on, the equipment notes
to the certificateholders of the pass through trust as originally scheduled,
subject to the terms of any intercreditor, subordination or similar
arrangements applicable to that pass through trust.
Under each Indenture relating to a leased aircraft, the related owner
trustee and the owner participant will have the right under some circumstances
to cure an indenture event of default that results from the occurrence of a
lease event of default under the related Lease. If the owner trustee or the
owner participant chooses to exercise its cure right, the indenture event of
default and consequently the event of default under any pass through trust
holding the related equipment notes will be deemed to be cured. The prospectus
supplement will contain a more detailed discussion of the rights to cure
defaults and the effects of the exercise of those rights. Unless otherwise
provided in a prospectus supplement, in the case of any pass through
certificates or equipment notes entitled to the benefits of a liquidity
facility or similar arrangement, a drawing under any liquidity facility or
arrangement for the purpose of making a payment of interest as a result of the
failure by United to have made a corresponding payment will not cure an
indenture event of default related to the failure by United.
The ability of the certificateholders of any one pass through trust to cause
the indenture trustee for any equipment notes held in the pass through trust to
accelerate the payment on the equipment notes under the related Indenture or to
direct the exercise of remedies by the indenture trustee under the related
Indenture will depend, in part, upon the proportion of the total principal
amount of the equipment notes outstanding under the Indenture and held in the
pass through trust to the total principal amount of all equipment notes
outstanding under that Indenture. In addition, if cross-subordination
provisions are applicable to the pass through certificates, the ability of the
certificateholders of any one pass through trust holding equipment notes issued
under related Indentures to cause the indenture trustee to accelerate the
equipment notes or to direct the exercise of remedies by the indenture trustee
under the related Indenture will depend, in part, on the relative ranking of
priority of equipment notes held in the pass through trust.
Each pass through trust will hold equipment notes with different terms from
those of the equipment notes held in any other pass through trust. Therefore,
the certificateholders of a pass through trust may have divergent or
conflicting interests from those of the certificateholders of the other pass
through trusts holding equipment notes relating to the same Indenture. In
addition, so long as the same institution or an affiliate of that institution
acts as pass through trustee of one or more pass through trusts holding
equipment notes issued under that Indenture, in the absence of instructions
from the certificateholders of any pass through trust, the pass through trustee
for that pass through trust could be faced with a potential conflict of
interest upon an indenture event of default. In that event, we expect that the
pass through trustee would resign as pass through trustee of one or all of the
affected pass through trusts, and a successor pass through trustee would be
appointed.
The prospectus supplement for a series of pass through certificates will
specify whether and under what circumstances the pass through trustee may or
will sell for cash to any person all or part of the equipment notes
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held in the related pass through trust. A person other than the pass through
trustee may exercise the right to make a sale if the applicable series of pass
through certificates are subject to any intercreditor, subordination or similar
arrangements, and the proceeds or any sale will be distributed as prescribed by
those arrangements. Any proceeds received by the pass through trustee upon any
sale that are distributable to the certificateholders of a particular pass
through trust will be deposited in an account established by the pass through
trustee for the benefit of the certificateholders of that pass through trust
and will be distributed to the certificateholders of that pass through trust on
a special distribution date. The market for equipment notes in default may be
very limited and thus, it may not be possible to sell them for a reasonable
price. Furthermore, if the same institution acts as pass through trustee of
multiple pass through trusts, it may be faced with a conflict in deciding from
which pass through trust to sell equipment notes to available buyers. If the
pass through trustee sells any equipment notes with respect to which an
indenture event of default exists for less than their outstanding principal
amount, the certificateholders of the pass through trust will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against United, the pass through trustee or any other person,
including, in the case of any leased aircraft, the related owner trustee or
owner participant. Neither the pass through trustee nor the certificateholders
of that pass through trust could take any action with respect to any remaining
equipment notes held in that pass through trust as long as no indenture events
of default existed with respect to the remaining equipment notes.
For any pass through trust, the pass through trustee will deposit into the
special payments account for that pass through trust any amount distributed to
the pass through trustee by the indenture trustee under any Indenture on
account of the equipment notes held in that pass through trust following an
indenture event of default under the Indenture and the pass through trustee
will distribute that amount to the certificateholders of that pass through
trust on a special distribution date. In addition, if an Indenture provides
that the applicable owner trustee or owner participant may, under circumstances
specified in the Indenture, redeem or purchase some or all of the outstanding
equipment notes issued under that Indenture, the pass through trustee will
deposit in the special payments account for that pass through trust the price
paid by the owner trustee or owner participant to the pass through trustee for
any of the equipment notes issued under that Indenture and held in that pass
through trust. The pass through trustee will distribute the price paid to the
certificateholders of that pass through trust on a special distribution date.
Any funds held by the pass through trustee in the special payments account for
that pass through trust will, to the extent practicable, be invested by the
pass through trustee in permitted investments pending the distribution of these
funds on a special distribution date. The applicable prospectus supplement will
describe these permitted investments.
The Pass Through Agreement provides that the pass through trustee will,
within 90 days after the occurrence of a default under any pass through trust,
notify the certificateholders of the pass through trust by mail of all uncured
or unwaived defaults with respect to the pass through trust known to it.
However, the pass through trustee will be protected in withholding such notice
if it in good faith determines that the withholding of such notice is in the
interests of the certificateholders, except in the case of default in the
payment of principal of, or any premium or interest on, any of the equipment
notes held in the pass through trust. The term "default" means the occurrence
of any event of default with respect to a pass through trust, except that in
determining whether an event of default has occurred any grace period or notice
in connection with that event of default will be disregarded.
The Pass Through Agreement provides that for each pass through trust,
subject to the duty of the pass through trustee during a default to act with
the required standard of care, the pass through trustee is entitled to be
indemnified by the certificateholders of the pass through trust before
proceeding to exercise any right or power under the pass through trust or any
intercreditor agreement at the request of the certificateholders.
The applicable prospectus supplement will specify the percentage of
certificateholders entitled to waive, or to instruct the pass through trustee
to waive, any past default or event of default with respect to that pass
through trust and its consequences. The prospectus supplement will also specify
the percentage of certificateholders of that pass through trust, or of any
other pass through trust holding equipment notes issued
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under related Indentures, entitled to waive, or to instruct the pass through
trustee or the indenture trustee to waive, any past indenture event of default
under any related Indenture and annul any direction given with respect to that
indenture event of default.
Subject to any intercreditor agreement, in some cases, the
certificateholders of a majority of the total fractional undivided interests in
a pass through trust (a) may on behalf of all certificateholders of that pass
through trust or (b) if the pass through trustee is the controlling party under
an intercreditor agreement, may direct the pass through trustee to instruct the
applicable indenture trustee to, waive any past default with respect to that
pass through trust and annul any direction given by the certificateholders to
the pass through trustee or the indenture trustee with respect to the default.
However, subject to any intercreditor agreement, all of the certificateholders
of that pass through trust must consent in order to waive (1) a default in
payment of the principal of, or any premium or interest on, any of the
equipment notes held in the pass through trust and (2) a default in respect of
any covenant or provision of the Pass Through Agreement or the related series
supplement that cannot be modified or amended without the consent of each
certificateholder of the pass through trust affected by the waiver. Any waiver
will be effective to waive any past default if, but only if, the correlative
indenture event of default has been waived under the related Indenture by the
requisite holders of the equipment notes outstanding under the Indenture.
Modifications of the Pass Through Agreement
The Pass Through Agreement contains provisions permitting United and the
pass through trustee to enter into a supplement to the pass through trust
agreement or any note purchase agreement or any intercreditor, subordination or
similar agreement or liquidity facility, without the consent of the
certificateholders of the pass through trust, to:
(1) provide for the formation of any pass through trust and the issuance
of the related pass through certificates;
(2) evidence the succession of another corporation to United and the
assumption by that corporation of United's obligations under the Pass
Through Agreement, the series supplement, any note purchase agreement and
any intercreditor, subordination or similar agreement or liquidity
facility;
(3) add to the covenants of United for the benefit of the related
certificateholders;
(4) surrender any right or power conferred upon United in the Pass
Through Agreement or any series supplement, any note purchase agreement or
any intercreditor, subordination or similar agreement or liquidity
facility;
(5) cure any ambiguity or correct or supplement any defective or
inconsistent provision of the Pass Through Agreement or a series
supplement, any note purchase agreement, any intercreditor agreement or any
liquidity facility or make or modify any other provisions in regard to
matters or questions arising thereunder that will not adversely affect the
interests of the related certificateholders;
(6) correct or supplement the description of property that constitutes
trust property or the conveyance of the property to the pass through
trustee;
(7) evidence and provide for a successor pass through trustee for some
or all of the pass through trusts or add to or change any provision of the
Pass Through Agreement or any series supplement, any note purchase
agreement, any intercreditor, subordination or like agreement or liquidity
facility as necessary to facilitate the administration of the pass through
trusts under those agreements by more than one pass through trustee;
(8) comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which any pass through
certificates may be listed or of any regulatory body;
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(9) modify, eliminate or add to the provisions of the Pass Through
Agreement or any series supplement to the extent necessary to continue to
qualify the Pass Through Agreement or the series supplement, any note
purchase agreement, any intercreditor, subordination or similar agreement
or liquidity facility under the Trust Indenture Act of 1939, as amended, or
any similar federal statute and add to the pass through agreement or the
series supplement, any note purchase agreement, any intercreditor,
subordination or similar agreement or liquidity facility other provisions
as may be expressly permitted by the Trust Indenture Act;
(10) provide information to the pass through trustee as required in the
Pass Through Agreement;
(11) add to or change the Pass Through Agreement and any series
supplement to facilitate the issuance of any pass through certificates in
bearer form or to facilitate or provide for the issuance of any pass
through certificates in global form in addition to or in place of pass
through certificates in certificated form;
(12) provide for the delivery of pass through certificates or any
supplement to the Pass Through Agreement in or by means of any
computerized, electronic or other medium, including computer diskette;
(13) modify, eliminate or add to the provisions of the Pass Through
Agreement or any applicable series supplement to reflect the substitution
of a replacement aircraft for any aircraft;
(14) make any other amendments or modifications which will only apply to
any pass through trust established thereafter; and
(15) modify any provision under the Pass Through Agreement that will not
adversely affect the interests of the certificateholders.
No modification may cause the pass through trust to fail to qualify as a
"grantor trust" for federal income tax purposes.
The Pass Through Agreement also provides that United and the pass through
trustee, with the consent of the certificateholders evidencing fractional
undivided interests together representing not less than a majority in interest
of the affected pass through trust, may execute supplemental agreements adding
any provisions to or changing or eliminating any of the provisions of the Pass
Through Agreement, to the extent relating to the pass through trust, and the
applicable series supplement, any note purchase agreement, any intercreditor,
subordination or similar agreement or any liquidity facility or modifying the
rights of the certificateholders. No supplemental agreement may, however,
without the consent of each affected certificateholder:
(1) reduce the amount of, or delay the timing of, any payments on the
equipment notes held in the pass through trust, or distributions in respect
of any pass through certificate of the pass through trust; or
(2) change the date or place of payment or change the currency in which
the pass through certificates are payable other than that provided for in
the pass through certificates;
(3) impair the right of any certificateholder to take legal action for
the enforcement of any payment when due;
(4) permit the disposition of any equipment note included in the trust
property, except as provided in the Pass Through Agreement or a series
supplement, any note purchase agreement, any intercreditor, subordination
or similar agreement or liquidity facility;
(5) alter the priority of distributions specified in any relevant
intercreditor agreement in a manner materially adverse to the holders of
the pass through certificates of that series; or
(6) reduce the percentage of the total fractional undivided interests of
the pass through trust that must consent to approve any supplemental
agreement or to waive compliance with the Pass Through Agreement or to
waive events of default.
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Modification, Consents and Waivers Under the Indenture and Related Agreements
The prospectus supplement will specify the pass through trustee's
obligations if the pass through trustee, as the holder of any equipment notes
held in a pass through trust, receives a request for its consent to any
amendment or modification of or waiver under the Indenture or other documents
relating to the equipment notes, including any Lease.
Cross-Subordination Issues
The equipment notes issued under an Indenture may be held in more than one
pass through trust and a pass through trust may hold equipment notes issued
under more than one related Indenture. Unless otherwise provided in a
prospectus supplement, only equipment notes of the same class may be held in
the same pass through trust. A pass through trust that holds equipment notes
that are junior in priority of payment to the equipment notes held in another
pass through trust formed as part of the same offering of pass through
certificates as a practical matter are subordinated to the other pass through
trust. In addition, the pass through trustees on behalf of one or more pass
through trusts may enter into an intercreditor or subordination agreement that
establishes priorities among series of pass through certificates or provides
that distributions on the pass through certificates will be made to the
certificateholders of a particular pass through trust before they are made to
the certificateholders of one or more other trusts. For example, an agreement
may provide that payments made to a pass through trust on account of a
subordinate class of equipment notes issued under one Indenture may be
subordinated to the prior payment of all amounts owing to certificateholders of
a pass through trust that holds senior equipment notes issued under that
Indenture or any related Indentures.
A prospectus supplement related to an issuance of pass through certificates
will describe any intercreditor agreement and the cross-subordination
provisions and any related terms, including the percentage of
certificateholders under any pass through trust which are permitted to (1)
grant waivers of defaults under any related Indenture, (2) consent to the
amendment or modification of any related Indentures or (3) direct the exercise
of remedial actions under any related Indentures.
Termination of Pass Through Trusts
The obligations of United and the pass through trustee with respect to a
pass through trust will terminate upon the distribution to the
certificateholders of that pass through trust of all amounts required to be
distributed to them under the Pass Through Agreement and the series supplement
and the disposition of all property held in the pass through trust. The pass
through trustee will notify each certificateholder of record of the pass
through trust by mail of the termination of the pass through trust, the amount
of the proposed final payment and the proposed date for the distribution of the
final payment for the pass through trust. The final distribution for each
certificateholder of the pass through trust will be made only upon surrender of
that certificateholder's pass through certificates at the office or agency of
the pass through trustee specified in the termination notice.
Delayed Purchase
If, on the date of issuance of any pass through certificates, all of the
proceeds from the sale of the pass through certificates are not used to
purchase the equipment notes contemplated to be held in the related pass
through trust, the equipment notes may be purchased by the pass through trustee
at any time on or prior to the cut-off date specified in the prospectus
supplement related to the pass through certificates.
In this event, the pass through trustee will hold the proceeds from the sale
of the pass through certificates not used to purchase equipment notes under an
arrangement described in the applicable prospectus supplement. This arrangement
may include:
(1) the investment of the proceeds by the pass through trustee in
specified permitted investments;
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(2) the deposit of the proceeds in a deposit or escrow account held by a
separate depositary or escrow agent; or
(3) the purchase by the pass through trustee of debt instruments issued
on an interim basis by United, which may be secured by a collateral account
or other security or property described in the applicable prospectus
supplement.
The applicable prospectus supplement will describe the arrangements with
respect to the payment of interest on funds so held. If any proceeds are not
subsequently utilized to purchase equipment notes by the date specified in the
applicable prospectus supplement, including by reason of a casualty to one or
more aircraft, the proceeds will be returned to the holders of the related pass
through certificates.
Merger, Consolidation and Transfer of Assets
United may not consolidate with or merge into any other corporation or
transfer all or substantially all of its assets as an entirety to any other
corporation, unless, among other things, United is the surviving corporation or
the successor or transferee corporation expressly assumes all the obligations
of United under the Pass Through Agreement.
Liquidity Facility
A prospectus supplement may provide that one or more payments of interest on
the pass through certificates of one or more series will be supported by a
liquidity facility issued by an institution identified in the prospectus
supplement. The provider of the liquidity facility may have a claim senior to
the certificateholders' as specified in the prospectus supplement.
The Pass Through Trustee; the Indenture Trustee
We will name the pass through trustee for each of the pass through trusts in
a prospectus supplement. The pass through trustee and any of its affiliates may
hold pass through certificates in their own names. The pass through trustee may
act as trustee under other financings by United.
The pass through trustee may resign as trustee under any or all of the pass
through trusts at any time. United may remove the pass through trustee and
appoint a successor trustee, or any certificateholder of the pass through trust
holding pass through certificates for at least six months may, on behalf of
that certificateholder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the pass through trustee and the
appointment of a successor trustee, if the pass through trustee:
(1) fails to comply with Section 310 of the Trust Indenture Act, after
written request for compliance by United or any pass through
certificateholder of the pass through trust holding pass through
certificates for at least six months;
(2) ceases to be eligible to continue as pass through trustee;
(3) becomes incapable of acting as pass through trustee, or
(4) is adjudged bankrupt or insolvent.
In addition, the certificateholders holding more than 50% in total amount of
the related pass through certificates may remove the pass through trustee of
any pass through trust at any time.
Unless otherwise provided in the prospectus supplement, in the case of the
resignation or removal of the pass through trustee, United or the
certificateholders holding more than 50% in total amount of the related pass
through certificates may appoint a successor pass through trustee. The
resignation or removal of the pass through trustee for any pass through trust
and the appointment of the successor trustee for the pass through
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trust does not become effective until acceptance of the appointment by the
successor trustee. Under the resignation and successor trustee provisions, it
is possible that a different trustee could be appointed to act as the successor
trustee with respect to each pass through trust. All references in this
prospectus to the pass through trustee are to the pass through trustee acting
in that capacity under each of the pass through trusts and should be read to
take into account the possibility that each of the pass through trusts could
have a different successor trustee in the event of a resignation or removal.
The pass through agreement provides that United will pay, or cause to be
paid, the pass through trustee's fees and expenses and indemnify the pass
through trustee against specified liabilities described in the prospectus
supplement.
DESCRIPTION OF THE EQUIPMENT NOTES
The discussion that follows is a summary that is not complete and does not
describe every aspect of the equipment notes. Where no distinction is made
between the equipment notes relating to leased aircraft and owned aircraft or
between their respective Indentures, the summary applies to any equipment note
and any Indenture. The prospectus supplement will describe most of the
financial terms and other specific terms of any series of equipment notes.
Because the terms of the specific equipment notes may differ from the general
information provided below, you should rely on the information in the
prospectus supplement instead of the information in this prospectus if the
information in the prospectus supplement is different from the information
below. The applicable prospectus supplement will describe the specific terms of
the equipment notes, the Indentures, the Participation Agreements, the Leases,
if any, and any other agreements, relating to any particular offering of pass
through certificates.
For each owned aircraft, United will issue equipment notes as direct
obligations of United and the indenture trustee will authenticate the equipment
notes under an owned aircraft Indenture. Unless otherwise specified in a
prospectus supplement, all of the equipment notes issued under the same owned
aircraft indenture will relate to a specific owned aircraft and will not be
secured by any other aircraft. The prospectus supplement will specify owned
aircraft relating to each Owned Aircraft Indenture and the related equipment
notes. United will be directly obligated under each Owned Aircraft Indenture to
make payments of principal of, and any premium and interest on, the related
equipment notes.
For each leased aircraft, the owner trustee will issue equipment notes as
nonrecourse obligations of the owner trustee, in each case acting for a
separate owner trust for the benefit of an owner participant, and the indenture
trustee will authenticate the equipment notes under a Leased Aircraft
Indenture. All of the equipment notes issued under the same Leased Aircraft
Indenture will relate to and will be secured by a specific leased aircraft and
will not be secured by any other aircraft. In each case, the owner trustee will
lease the leased aircraft to United under a separate Lease between the owner
trustee and United.
Upon the commencement of the Lease for any leased aircraft, United will be
obligated to make rent payments under the Lease that will be sufficient to pay
the principal of, and accrued interest on, the related equipment notes when and
as due and payable. The equipment notes related to leased aircraft will not,
however, be obligations of, or guaranteed by, United. United's obligations to
pay rent and to cause other payments to be made under each Lease will be
general obligations of United.
For any owned aircraft, if specified in a prospectus supplement, United may
arrange for an owner trustee, acting for an owner trust for the benefit of an
owner participant, to purchase the owned aircraft from us and lease the
aircraft back to us under a "net lease," after the sale of the related
equipment notes to the pass through trustee for each applicable pass through
trust and the offering and sale of the related pass through certificates under
the prospectus supplement. In addition, if specified in the prospectus
supplement, United may substitute other aircraft, cash and/or U.S. government
securities in place of the owned aircraft securing the related equipment notes.
The prospectus supplement will describe terms and conditions of any sale and
leaseback transaction or substitution.
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Equipment Notes may be issued under delayed aircraft financing arrangements,
such as the following:
. the owner trustee may issue equipment notes prior to the purchase of
leased aircraft by the owner trustee or the commencement of the related
Leases.
. United may issue equipment notes prior to the expected delivery date of
the owned aircraft.
The applicable prospectus supplement will describe any delayed aircraft
financing arrangements, including any arrangements for the collateralization of
the related equipment notes with cash, permitted investments or other property,
and any depositary or escrow arrangement under which the proceeds from the sale
of the equipment notes will be deposited with a third party depositary or
escrow agent.
If the anticipated aircraft financing transactions have not been completed
by the date specified in the applicable prospectus supplement, including if due
to a casualty to one or more aircraft, the related equipment notes will be
prepaid at the price specified in the prospectus supplement. Alternatively, if
the Lease related to any equipment notes has not commenced by the date
specified in the prospectus supplement and if the prospectus supplement so
permits, United at its option may convert the proposed leveraged lease
financing into an owned aircraft financing and the equipment notes, with some
modifications, will become equipment notes issued by United.
The applicable prospectus supplement will describe any refinancing
arrangements with respect to any aircraft, including whether a separate trust
will be created to issue notes.
Principal and Interest Payments
The pass through trustee will pass through interest received by the pass
through trustee on the equipment notes constituting trust property of each pass
through trust to the certificateholders of that pass through trust on a pro
rata basis on the dates and at the rate indicated in a prospectus supplement.
The equipment notes may bear interest at a fixed or a floating rate or may be
issued at a discount.
Each pass through trust will hold equipment notes on which principal is
payable in scheduled amounts and on specified dates as indicated in a
prospectus supplement. The pass through trustee will pass through principal
received by the pass through trustee on the equipment notes to the
certificateholders of the related pass through trust as specified in the
prospectus supplement.
If any date scheduled for any payment of principal of, or any premium or
interest on, the equipment notes is not a business day, that payment will be
made on the next succeeding business day without any additional interest,
unless otherwise provided in the applicable prospectus supplement.
Prepayment
A prospectus supplement will describe the circumstances, whether voluntary
or involuntary, under which the related equipment notes may or must be prepaid
prior to the stated maturity date of the equipment notes, in whole or in part,
any premium applicable upon some prepayments and other terms applying to the
prepayment of the equipment notes.
Security
The equipment notes related to leased aircraft issued under each Leased
Aircraft Indenture will be secured by:
(1) an assignment by the related owner trustee to the indenture trustee
of the owner trustee's rights, except for the limited rights described
below and in the prospectus supplement, under the applicable Lease,
including the right to receive rent and other payments; and
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(2) a security interest granted to the indenture trustee in the related
leased aircraft, subject to the rights of United under the Lease and other
property or rights, if any, described in the applicable prospectus
supplement.
The assignment by the owner trustee to the indenture trustee of its rights
under each Lease will exclude rights of the owner trustee and the related owner
participant relating to:
(1) indemnification by United;
(2) proceeds of public liability insurance payable to the owner trustee
in its individual capacity and to the owner participant under insurance
maintained by United under the Lease;
(3) proceeds of any insurance policies separately maintained by the
owner trustee in its individual capacity or by the owner participant;
(4) proceeds of any insurance policies maintained by United that are not
required to be maintained under the Lease; and
(5) any rights of the owner trustee or owner participant to enforce
payment of the amounts listed in clauses (1) through (4) above.
The prospectus supplement will describe any limitations on the right of the
indenture trustee to exercise any of the rights of the owner trustee under the
related Lease, except the right to receive payments of rent due.
United's obligations in respect of each leased aircraft will be those of a
lessee under a "net lease." Accordingly, United will be obligated, among other
things, to pay all costs of operating and maintaining the aircraft.
The prospectus supplement will describe the required insurance coverage for
the aircraft.
The equipment notes issued under each owned aircraft indenture will be
secured by a security interest granted to the indenture trustee in all of
United's right, title and interest in and to the related owned aircraft. Each
Owned Aircraft Indenture will require United to pay all costs of operating and
maintaining the aircraft.
Unless otherwise specified in a prospectus supplement, there will be no
cross-collateralization provisions in the Indentures. As a result, unless
otherwise specified in the prospectus supplement, the equipment notes issued in
respect of one of the aircraft will not be secured by any other aircraft and,
in the case of equipment notes related to leased aircraft, the related Leases.
Unless otherwise specified in a prospectus supplement, there will be no cross-
default provisions in the Indentures. As a result, unless so specified, events
resulting in an event of default under any particular Indenture may not result
in an event of default occurring under any other Indenture.
Section 1110 of the U.S. Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo
used by air carriers operating under certificates issued by the Secretary of
Transportation under Chapter 447 of the Transportation Code to take possession
of the aircraft in compliance with the provisions of the lease, conditional
sale contract or security agreement, as the case may be, is not affected by:
(a) the automatic stay provision of the Bankruptcy Code, which provision
enjoins the taking of any action against a debtor by a creditor during the
reorganization period;
(b) the provision of the Bankruptcy Code allowing the trustee in
reorganization or the debtor-in-possession to use, sell or lease property
of the debtor during the reorganization period;
(c) the confirmation of a plan of reorganization under Chapter 11 by the
bankruptcy court; and
(d) any power of the bankruptcy court to enjoin a repossession.
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Section 1110 provides, however, that the right of a lessor, conditional
vendor or holder of a security interest to take possession of an aircraft in
the event of a default may not be exercised for 60 days following the date of
commencement of the reorganization proceedings unless specifically permitted by
the bankruptcy court. These rights to take possession may not be exercised at
all if, within the 60-day period, the trustee in reorganization or the debtor-
in-possession agrees to perform the debtor's obligations that become due on or
after that date and cures all existing monetary defaults. The prospectus
supplement for each offering will discuss the availability of the benefits of
Section 1110 of the Bankruptcy Code with respect to the related aircraft.
The indenture trustee will invest and reinvest funds, if any, held from time
to time by the indenture trustee with respect to any aircraft, including funds
held as the result of an event of loss to the aircraft or termination of the
Lease, at the direction of United, except, with respect to a leased aircraft,
in the case of a lease event of default under the applicable Lease or, with
respect to an owned aircraft, in the case of an indenture event of default
under the applicable Indenture, in investments described in the related
Indenture. United will pay the amount of any net loss resulting from any
investment directed by it.
Additional Notes
The applicable prospectus supplement specifies any circumstances and
conditions under which United or the owner trustee may finance modifications,
alterations, additions, improvements to, or replacement parts for, an aircraft
through the issuance and sale of additional equipment notes. A supplement to
the related Indenture will establish the terms, conditions and designations of
any additional equipment notes.
Registration of the Aircraft
Unless otherwise specified in a prospectus supplement, United, except under
specified circumstances, must register and keep each aircraft registered under
Title 49 of the United States Code (the "Transportation Code"), in the name of
United, in the case of an owned aircraft, or in the name of the owner trustee,
after commencement of a Lease in the case of a leased aircraft. United must
also record and maintain the recordation of the Indenture and the Lease, if
any, relating to each aircraft under the Transportation Code. This recordation
of the Indenture and the Lease, if any, relating to each aircraft will give the
indenture trustee a security interest in each aircraft perfected under the
Transportation Code, which perfected security interest will, with limited
exceptions, be recognized in those jurisdictions that have ratified the
Convention on the International Recognition of Rights in Aircraft (the
"Convention").
United may, in specified circumstances, register any aircraft in countries
other than the United States. Each aircraft may be operated by United, or
placed under lease, sublease or interchange arrangements with carriers
domiciled outside of the United States. If an indenture event of default
occurs, the ability of the indenture trustee to realize on its security
interest in the aircraft could be adversely affected as a legal or practical
matter if the aircraft were located outside the United States. There is no
guarantee that, even if that jurisdiction is a party to the Convention, as a
practical matter, the indenture trustee would be able to realize upon its
security interest if an indenture event of default occurs.
Payments and Limitations of Liability
For each leased aircraft, the related owner trustee will lease the leased
aircraft to United for a term expiring on a date not earlier than the latest
maturity date of the equipment notes issued with respect to that leased
aircraft, unless the Lease is previously terminated as permitted by the terms
of the Lease. The owner trustee under the related Indenture will assign to the
indenture trustee the basic rent and other specified payments of United under
each Lease to provide the funds necessary to pay principal of and interest due
from the owner trustee on the equipment notes issued under that Indenture. Each
Lease will provide that under no circumstances will basic rent payments by
United be less than the scheduled payments of principal and interest on the
related equipment notes.
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Except when United purchases a leased aircraft and assumes the equipment
notes related to that leased aircraft, the equipment notes related to leased
aircraft will not be obligations of, or guaranteed by, United. Neither the
owner trustee nor the indenture trustee, in their individual capacities, will
be liable to any certificateholder or, in the case of the owner trustee, in its
individual capacity, to United or the indenture trustee for any amounts payable
or for any liability under the equipment notes or the Indentures, except as
provided in the Indentures and the Participation Agreements and except for the
gross negligence or willful misconduct of the owner trustee. Except when United
has assumed any equipment notes related to a leased aircraft, all amounts
payable under the equipment notes related to leased aircraft, other than
payments made in connection with an optional redemption or purchase of
equipment notes by the related owner trustee or the related owner participant,
will be made only from the assets subject to the lien of the Indenture. These
assets include rent payable by United under the Lease with respect to that
leased aircraft and amounts received under any applicable liquidity facility or
similar arrangement.
Defeasance of the Indentures and the Equipment Notes
Unless otherwise specified in the applicable prospectus supplement, the
obligations under the applicable Indenture of the related owner trustee or
United will be discharged on the date that the owner trustee or United, as the
case may be, deposits with the related indenture trustee a sufficient amount of
money or U.S. government obligations to make all required payments on the
related equipment notes when those payments are due. The due dates may include
one or more redemption dates. All payments must be made in accordance with the
terms of the equipment notes. The owner trustee or United, as applicable, will
remain obligated to register the transfer or exchange of equipment notes, to
replace stolen, lost, destroyed or mutilated equipment notes, to maintain
paying agencies and hold money for payment in trust. A discharge may occur only
if the Internal Revenue Service has published a ruling stating that holders of
the equipment notes will not recognize income, gain or loss for federal income
tax purposes as a result of the deposit, defeasance and discharge and will be
subject to federal income tax on the same amounts and in the same manner and at
the same times as would have been the case if the deposit, defeasance and
discharge had not occurred.
The holders of equipment notes will have no beneficial interest in or other
rights with respect to the related aircraft or other assets subject to the lien
of the related Indenture and this lien will terminate:
(1) upon defeasance;
(2) upon payment in full of the principal of, and any premium and
interest on, all equipment notes issued under the Indenture on the maturity
date; or
(3) upon deposit with the indenture trustee of money sufficient to pay
when due payments of principal of, and any premium and interest on, the
equipment notes, no earlier than one year before the maturity date.
Assumption of Obligations by United
If specified in the applicable prospectus supplement with respect to any
leased aircraft, United may purchase the leased aircraft before the end of the
term of the related Lease. In connection with this purchase, United may assume
on a full recourse basis all of the obligations of the owner trustee, other
than its obligations in its individual capacity, under the Indenture with
respect to the aircraft, including the obligations to make payments in respect
of the related equipment notes. In this event, specified provisions of the
related Lease, including provisions relating to maintenance, possession and use
of the aircraft, liens, insurance and events of default will be deemed to be
incorporated into the Indenture. The equipment notes issued under the Indenture
will continue to be outstanding and secured by the aircraft. The applicable
prospectus supplement will describe the terms and conditions of any assumption.
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Owner Participant; Revisions to Agreements
If specified in the applicable prospectus supplement, at the time pass
through certificates are issued, United may still be seeking owner participants
for the owner trusts relating to an aircraft. United or an affiliate will hold
the beneficial interest under the owner trust agreement relating to this
aircraft until the date upon which a prospective owner participant commits to
participate in the purchase price of the aircraft. The applicable prospectus
supplement will specify any deadline to obtain the commitment of an owner
participant. United or its affiliates will transfer to the owner participant on
that date United's or the affiliate's beneficial interest under the owner trust
agreement. Prospective owner participants may request revisions to the
participation agreement, Lease, trust agreement and Indenture so that the terms
of the agreements applicable to these aircraft may differ from the description
of the agreements contained in the applicable prospectus supplement. The
prospectus supplement will describe the extent to which any terms can be
changed at the request of prospective owner participants.
Indenture Events of Default and Remedies
For any pass through trust, a prospectus supplement will describe the
indenture events of default under the Indentures related to the equipment notes
to be held by the pass through trust, the remedies that the indenture trustee
may exercise with respect to the related aircraft, either at its own initiative
or upon instruction from holders of the related equipment notes, and other
provisions relating to the occurrence of an indenture event of default and the
exercise of remedies.
Liquidity Facility
The applicable prospectus supplement may provide that a "liquidity facility"
will support payments of principal, any premium or interest on, the equipment
notes of one or more series, or distributions in respect of the pass through
certificates of one or more series. A liquidity facility may include a letter
of credit, a revolving credit agreement, an insurance policy, surety bond or
financial guaranty, or any other type of agreement or arrangement for the
provision of liquidity support. The applicable prospectus supplement will
identify the institution or institutions providing any liquidity facility.
Unless otherwise provided in the applicable prospectus supplement, the provider
of any liquidity facility will have a senior claim on the assets securing the
affected equipment notes and on the trust property of the affected pass through
trusts.
Intercreditor Issues
Equipment notes may be issued in different classes, which means that the
equipment notes may have different payment priorities even though issued by the
same owner trustee and relate to the same aircraft. In this event, the
applicable prospectus supplement will describe the priority of distributions
among the equipment notes and any liquidity facilities, the ability of any
class to exercise and enforce any or all remedies with respect to the related
aircraft and, if the equipment notes are related to leased aircraft, the Lease,
and other intercreditor terms and provisions.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences of the purchase, ownership and disposition of the pass through
certificates is directed to initial purchasers of the pass through certificates
at the "issue price" who hold the pass through certificates as a capital asset.
This discussion is based on current provisions of the Internal Revenue Code of
1986, as amended, called the "Code", proposed, temporary and final Treasury
regulations under the Code, and published rulings and court decisions, in
effect as of the date of this prospectus. Changes to existing tax laws,
regulations, rulings and court decisions, which could have retroactive effect,
may alter the consequences described below. This discussion does not address
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federal income tax consequences applicable to investors that are subject to
special treatment under the United States federal income tax laws, including
banks and thrifts, insurance companies, regulated investment companies, dealers
in securities, holders that will hold the certificates as a position in a
"straddle" for tax purposes or as part of a "synthetic security" or "conversion
transaction" or other integrated investment compromised of the certificates and
one or more other investments, foreign investors, trusts or estates and pass-
through entities with any of these specified investors as equity holders. You
should read this discussion in conjunction with any additional discussion of
federal income tax consequences and additional opinions included in the
applicable prospectus supplement. You should consult your own tax advisors
about the application of the United States federal income tax laws to your
particular situation as well as any tax consequences arising under the laws of
any state, local or foreign jurisdiction. The pass through trusts are not
indemnified for any federal income taxes that may be imposed upon them. Any
income taxes imposed on a pass through trust could result in a reduction in
amounts available for distribution to certificateholders.
General
The pass through trusts will not themselves be subject to federal income
taxation. Except as discussed in a prospectus supplement, based upon an
interpretation of analogous authorities under existing law, each pass through
trust should be classified as a grantor trust for federal income tax purposes.
We assume in the following discussion that the pass through trusts will be
classified as grantor trusts.
Each certificateholder will be required to report on its federal income tax
return its pro rata share of the gross income from each of the equipment notes
and any other property held in the related pass through trust, under the
certificateholder's usual method of accounting. Each certificateholder may
deduct, consistent with its method of accounting, its pro rata share of the
fees and expenses paid or incurred by the pass through trust as provided in
Section 162 or 212 of the Code. Some fees and expenses may, however, be borne
by parties other than the certificateholders. The pass through trust may be
treated as having constructively received these fees and expenses so that each
certificateholder would be required to include in income and would be entitled
to deduct its pro rata share of these constructively-received fees and
expenses. Certificateholders who are individuals, estates or trusts will be
allowed to deduct expenses only to the extent they exceed, together with the
certificateholder's other miscellaneous itemized deductions, 2% of the
certificateholder's adjusted gross income. This deduction may be reduced
further by Section 68 of the Code if an individual's adjusted gross income
exceeds specified levels.
If an equipment note held by a pass through trust is prepaid for an amount
that differs from a certificateholder's aggregate adjusted basis in the
equipment note, the certificateholder will be considered to have sold his pro
rata share of that equipment note, and will recognize any gain or loss equal to
the difference between the certificateholder's adjusted basis and the amount
realized from the prepayment. However, any amount realized from prepayment
which is attributable to accrued interest would be taxable as interest income
if not previously included in income. A certificateholder's adjusted basis is
determined by allocating the purchase price for the pass through certificate
among the equipment notes and other property in the pass through trust in
proportion to their fair market values at the time of purchase of the pass
through certificate. Any gain or loss will be long-term capital gain or loss if
the equipment note has been held for more than one year. Net capital gains of
individuals are, in general, taxed at lower rates than items of ordinary
income. An owner participant's conveyance of its interest in an owner trust
will not constitute a taxable event to the remaining holders of interests in
the equipment notes. However, if (a) United were to assume an owner trust's
obligations under the equipment notes, or (b) an owner trust were to assume
United's obligations under the equipment notes, the assumption would be treated
for federal income tax purposes as a taxable exchange resulting in taxable gain
or loss to the certificateholders under the rules discussed above. In
calculating the taxable gain or loss, the amount realized will be equal to the
fair market value of a certificateholder's pro rata share of the equipment
notes at that time.
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Sales of Pass Through Certificates
A certificateholder who sells a pass through certificate will recognize
capital gain or loss, equal to the difference between the amount realized on
the sale, except for amounts representing accrued interest taxable as interest
income, if not previously included in income, and the certificateholder's
adjusted tax basis in the pass through certificate. In general, a
certificateholder's adjusted tax basis in a certificate will equal the purchase
price for the certificate. Gain or loss will be long-term capital gain or loss
if the pass through certificate was held for more than one year, except for
amounts attributable to property held by pass through trust for one year or
less. Any long-term capital gains are taxable to corporate taxpayers at
ordinary income tax rates and to individual taxpayers at a maximum rate of 20%.
Corporate taxpayers may deduct capital losses only to the extent of capital
gains. Individual taxpayers may deduct capital losses only to the extent of
capital gains plus $3,000 of other income.
Bond Premium
A certificateholder generally will be considered to have acquired an
interest in an equipment note at a bond premium if the certificateholder's tax
basis allocable to the equipment note exceeds the remaining principal amount of
the equipment note allocable to the certificateholder's pass through
certificate. A certificateholder may be able to amortize the bond premium,
generally on a constant yield basis, as a reduction to interest income with
corresponding reductions in the certificateholder's tax basis in the equipment
note. You should consult your own tax advisors regarding the advisability and
consequences of an election to amortize any bond premium on the equipment
notes.
Original Issue Discount
Unless specified in the applicable prospectus supplement, the equipment
notes will not be issued with original issue discount unless the aggregation
rules contained in the Treasury regulations apply. Under those rules, if one
investor purchases pass through certificates issued by more than one pass
through trust, some of the investor's interests in the equipment notes must be
combined as a single debt instrument, which, for purposes of calculating and
amortizing any original issue discount, has a single issue price, maturity
date, stated redemption price at maturity and yield to maturity. If the
aggregation rules apply to an investor, the equipment notes could be treated as
having been issued with original issue discount to that investor. Generally, a
holder of a debt instrument issued with more than a de minimis amount of
original issue discount must include the original issue discount in income for
federal income tax purposes as it accrues, in advance of the receipt of the
cash, under a method that takes into account the compounding of interest. You
should consult your own tax advisors regarding the aggregation and original
issue discount rules.
Backup Withholding
Payments made on pass through certificates, and proceeds from the sale of
pass through certificates to or through brokers, may be subject to a "backup"
withholding tax of 31% unless the certificateholder complies with reporting
procedures specified in Treasury regulations or is exempt from these
requirements. Any withheld amounts will be allowed as a credit against the
certificateholder's federal income tax and may entitle the certificateholder to
a refund if the required information is furnished to the Internal Revenue
Service. The Internal Revenue Service may impose penalties on a
certificateholder who is required to supply information but does not do so in
the proper manner. You should consult your own tax advisors about your
eligibility for, and the procedure for obtaining, exemption from backup
withholding.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, an
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974 or an individual retirement account or an
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employee benefit plan subject to section 4975 of the Internal Revenue Code may,
subject to legal restrictions, purchase and hold pass through certificates. A
fiduciary of an employee benefit plan must determine that the purchase and
holding of a pass through certificate is consistent with its fiduciary duties
under ERISA and does not result in a non-exempt prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to the fiduciary responsibility provisions of ERISA. The pass
through certificates may, subject to legal restrictions, be purchased and held
by such plans.
PLAN OF DISTRIBUTION
The pass through certificates may be sold through agents, to or through
underwriters, directly to other purchasers or through agents.
We may effect the distribution of the pass through certificates from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to the prevailing market prices or at negotiated prices.
Agents designated by United from time to time may solicit offers to purchase
pass through certificates. The applicable prospectus supplement will name any
agent involved in the offer or sale of the pass through certificates and
specify any commissions payable by United to that agent. Unless otherwise
indicated in a prospectus supplement, any agent will act on a best efforts
basis for the period of its appointment. The Securities Act may deem an agent
to be an underwriter of the pass through certificates so offered and sold.
If pass through certificates are sold by means of an underwritten offering,
United will execute an underwriting agreement with an underwriter or
underwriters at the time an agreement for that sale is reached. The prospectus
supplement that the underwriters will use to resell the pass through
certificates to the public will specify the managing underwriter or
underwriters, as well as any other underwriters, and the terms of the
transaction, including any commissions, discounts and any other compensation of
the underwriters and dealers. If underwriters are utilized in the sale of the
pass through certificates, the underwriters will acquire the pass through
certificates for their own account and they may resell the pass through
certificates from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices
determined by the underwriters at the time of sale. Pass through certificates
may be offered to the public either through underwriting syndicates represented
by managing underwriters or directly by the managing underwriters. If
underwriters are utilized in the sale of the pass through certificates, unless
otherwise indicated in the prospectus supplement, the underwriting agreement
will provide that the obligations of the underwriters are subject to specified
conditions precedent and that the underwriters with respect to a sale of pass
through certificates must purchase all of the pass through certificates if any
are purchased.
If a dealer is utilized in the sale of the pass through certificates, the
pass through certificates will be sold by the pass through trustee to the
dealer as principal. The dealer may then resell the pass through certificates
to the public at varying prices to be determined by the dealer at the time of
resale. The 1933 Act may deem a dealer to be an underwriter of the pass through
certificates so offered and sold. The applicable prospectus supplement will
name the dealer and describe the terms of the transaction.
Offers to purchase pass through certificates may be solicited directly and
the sale of the pass through certificates may be made directly to institutional
investors or others, who may be deemed to be underwriters within the meaning of
the 1933 Act with respect to any resale of the pass through certificates. The
prospectus supplement will describe the terms of any sales.
Under agreements which may be entered into by United, underwriters and
agents who participate in the distribution of pass through certificates may be
entitled to indemnification by United against specified liabilities, including
liabilities under the 1933 Act.
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Unless otherwise provided in a prospectus supplement, United does not intend
to apply for the listing of any series of pass through certificates on a
national securities exchange. If the pass through certificates of any series
are sold to or through underwriters, the underwriters may make a market in the
pass through certificates, as permitted by applicable laws and regulations. No
underwriter would be obligated, however, to make a market in the pass through
certificates. The underwriters, in their sole discretion, could discontinue any
market making at any time. Accordingly, we can give no assurance as to the
liquidity of, or trading markets for, the pass through certificates of any
series.
The underwriters or agents and their associates may be customers of, engage
in transactions with, and perform services for, United in the ordinary course
of business.
If so indicated in the applicable prospectus supplement, agents,
underwriters or dealers may be authorized to solicit offers by some
institutions to purchase pass through certificates at the public offering
prices set forth in the applicable prospectus supplement under delayed delivery
contracts providing for payment and delivery on a specified date or dates. The
applicable prospectus supplement will indicate the commission that will be paid
to agents, underwriters and dealers soliciting purchases of pass through
certificates under delayed delivery contracts accepted by United.
LEGAL MATTERS
Unless otherwise indicated in a prospectus supplement, Mayer, Brown & Platt,
Chicago, Illinois, counsel for United, and counsel for any agents, dealers or
underwriters will pass upon the legality of the pass through certificates
offered by this prospectus.
EXPERTS
Unless otherwise indicated in a prospectus supplement, Arthur Andersen LLP,
independent public accountants, have audited the audited financial statements
and schedules included or incorporated by reference in this prospectus, any
prospectus supplement and elsewhere in the registration statement as indicated
in their audit reports, and the audited financial statements and schedules are
included or incorporated by reference in this prospectus in reliance upon the
authority of that firm as experts in giving audit reports.
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