<PAGE> 1
Filed pursuant to 424(b)(2)
Registration No. 333-48494
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT DELIVER THESE SECURITIES UNTIL A FINAL
PROSPECTUS SUPPLEMENT IS DELIVERED IN FINAL FORM. THIS PRELIMINARY
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO
SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS SUPPLEMENT (Subject to Completion, Dated December 1,
2000)
(To Prospectus dated November 16, 2000)
$1,510,015,000
[UNITED AIRLINES LOGO]UNITED AIRLINES
2000-2 Pass Through Trusts
PASS THROUGH CERTIFICATES, SERIES 2000-2
------------------------
This prospectus supplement relates to new pass through certificates to be issued
by four 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
equipment notes issued by United to finance 35 aircraft owned by United.
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 April 1 and October 1 of each year, beginning on April 1, 2001.
The pass through trustee will distribute the principal paid on the equipment
notes in scheduled amounts and on dates specified in this prospectus supplement.
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. The Class C pass through certificates will
rank junior to the Class A-1, Class A-2 and Class B pass through certificates.
Westdeutsche Landesbank Girozentrale, New York Branch, 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 on the pass through certificates of such class.
INVESTING IN THE PASS THROUGH CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-13.
------------------------
<TABLE>
<CAPTION>
FINAL EXPECTED PRICE TO
PASS THROUGH CERTIFICATES FACE AMOUNT* INTEREST RATE DISTRIBUTION DATE* PUBLIC
--------------------------------------- ------------ ------------- ------------------ --------
<S> <C> <C> <C> <C>
Class A-1.............................. $340,397,000 % October 1, 2010 100%
Class A-2.............................. 711,133,000 April 1, 2011 100
Class B................................ 270,517,000 October 1, 2009 100
Class C................................ 187,968,000 October 1, 2005 100
</TABLE>
---------------
* Indicative only and subject to change.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters will purchase all of the pass through certificates if any are
purchased. The aggregate proceeds from the sale of the pass through certificates
will be $1,510,015,000. We will pay the underwriters a commission of $ .
Morgan Stanley & Co. Incorporated expects to deliver the pass through
certificates to purchasers on December , 2000. Interest on the pass through
certificates will accrue from the date of delivery. The pass through
certificates will not be listed on any national securities exchange.
------------------------
Bookrunner
MORGAN STANLEY DEAN WITTER
------------------------
Senior Co-Managers
Chase Securities Inc. Credit Suisse First Boston Goldman, Sachs & Co.
------------------------
Co-Managers
Banc of America Securities LLC Commerzbank Capital Markets Corp.
Loop Capital Markets LLC Merrill Lynch & Co. Salomon Smith Barney
December , 2000.
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
SUMMARY..................................................... S-2
RISK FACTORS................................................ S-14
THE COMPANY................................................. S-18
RECENT DEVELOPMENTS......................................... S-18
RATIO OF EARNINGS TO FIXED CHARGES.......................... S-18
SELECTED FINANCIAL DATA..................................... S-19
USE OF PROCEEDS............................................. S-20
DESCRIPTION OF THE PASS THROUGH CERTIFICATES................ S-20
DESCRIPTION OF THE LIQUIDITY FACILITIES..................... S-33
DESCRIPTION OF THE INTERCREDITOR AGREEMENT.................. S-37
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS.............. S-43
DESCRIPTION OF THE EQUIPMENT NOTES.......................... S-45
FEDERAL INCOME TAX CONSEQUENCES............................. S-56
CONNECTICUT TAXES........................................... S-59
ERISA CONSIDERATIONS........................................ S-59
UNDERWRITING................................................ S-62
LEGAL MATTERS............................................... S-63
EXPERTS..................................................... S-63
APPENDIX I GLOSSARY....................................... I-1
APPENDIX II APPRAISALS..................................... II-1
APPENDIX III EQUIPMENT NOTE PRINCIPAL PAYMENTS............. III-1
APPENDIX IV LOAN TO VALUE RATIOS OF EQUIPMENT NOTES......... IV-1
PROSPECTUS
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
RATIO OF EARNINGS TO FIXED CHARGES.......................... 4
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.......................... 21
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 27
ERISA CONSIDERATIONS........................................ 29
PLAN OF DISTRIBUTION........................................ 29
LEGAL MATTERS............................................... 30
EXPERTS..................................................... 30
</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. 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.
i
<PAGE> 3
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 certain 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 and the
documents incorporated by reference 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 and the documents
incorporated by reference, the words "expects," "plans," "anticipates," and
similar expressions are intended to identify forward-looking statements. All
forward-looking statements are based upon information available to us on the
date such statements are made. We undertake no obligation to publicly update or
revise any forward-looking statement after the date of this prospectus
supplement, 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 Annual Report on Form 10-K for the fiscal year ended December 31,
1999, our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
2000, June 30, 2000 and September 30, 2000, our Quarterly Report on Form 10-Q/A
for the fiscal quarter ended September 30, 2000, and our Current Reports on Form
8-K filed on May 26, 2000, July 19, 2000, August 1, 2000, August 11, 2000 and
August 17, 2000, and the Current Reports of UAL Corporation on Form 8-K filed on
May 24, 2000, August 17, 2000 and September 29, 2000, and on Form 8-K/A filed on
June 21, 2000.
S-1
<PAGE> 4
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
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Face Amount.............. $340,397,000 $711,133,000 $270,517,000 $187,968,000
Ratings:
Moody's.......................... Aa2 Aa2 A1 A3
Standard & Poor's................ AAA AAA AA- A-
Initial Loan to Aircraft Value
Ratio (cumulative)............... 44.9% 44.9% 56.5% 64.5%
Expected Highest Loan to Aircraft
Value Ratio (cumulative)......... 44.9% 44.9% 60.9% 67.9%
Expected Principal Distribution
Window (in years)................ 0.3-9.8 10.3 8.8 4.8
Initial Average Life (in years).... 5.0 10.3 8.8 4.8
Regular Distribution Dates......... April 1 and April 1 and April 1 and April 1 and
October 1 October 1 October 1 October 1
Final Expected Regular Distribution
Date............................. October 1, 2010 April 1, 2011 October 1, 2009 October 1, 2005
Final Maturity Date................ April 1, 2012 October 1, 2012 April 1, 2011 April 1, 2007
Minimum Denomination............... $1,000 $1,000 $1,000 $1,000
Section 1110 Protection............ Yes Yes Yes Yes
Liquidity Facility Coverage........ 3 semiannual 3 semiannual 3 semiannual 3 semiannual
interest payments interest payments interest payments interest payments
</TABLE>
------------
* In this preliminary prospectus supplement, the aggregate face amounts, initial
loan to aircraft value ratios, expected principal distribution windows,
initial average lives, final expected distribution dates and final maturity
dates provided above are indicative only and subject to change.
In calculating the initial loan to aircraft value ratios, we assumed an
aggregate appraised aircraft value of $2,341,812,020. 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 indenture.
S-2
<PAGE> 5
EQUIPMENT NOTES AND THE AIRCRAFT*
The pass through trusts will hold secured equipment notes issued by United
for each of ten Airbus A319-131 aircraft, six Airbus A320-232 aircraft, three
Boeing 747-422 aircraft, seven Boeing 757-222 aircraft, and nine Boeing
777-200ER aircraft. All of the aircraft have been delivered to, and are being
operated by, United. The equipment notes issued with respect to an aircraft will
be secured by a security interest in such aircraft. The following table provides
certain information about the aircraft and the equipment notes for the aircraft.
<TABLE>
<CAPTION>
INITIAL
AIRCRAFT OUTSTANDING
REGISTRATION AIRCRAFT PRINCIPAL APPRAISED
NUMBER AIRCRAFT TYPE DELIVERY DATE AMOUNT VALUE
------------ ---------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
N809UA.......................... Airbus A319-131 19-May-98 $20,549,000 $31,943,333
N810UA.......................... Airbus A319-131 29-Jun-98 20,570,000 31,976,667
N811UA.......................... Airbus A319-131 02-Jul-98 20,805,000 31,976,667
N812UA.......................... Airbus A319-131 09-Jul-98 20,805,000 31,976,667
N813UA.......................... Airbus A319-131 23-Jul-98 20,914,000 32,143,333
N814UA.......................... Airbus A319-131 05-Aug-98 20,914,000 32,143,333
N815UA.......................... Airbus A319-131 11-Aug-98 20,914,000 32,143,333
N816UA.......................... Airbus A319-131 02-Sep-98 20,934,000 32,176,667
N817UA.......................... Airbus A319-131 08-Sep-98 20,934,000 32,176,667
N818UA.......................... Airbus A319-131 01-Oct-98 20,956,000 32,210,000
N437UA.......................... Airbus A320-232 20-Feb-97 23,472,000 36,556,667
N438UA.......................... Airbus A320-232 29-May-97 23,548,000 36,673,333
N439UA.......................... Airbus A320-232 11-Jun-97 23,569,000 36,706,667
N440UA.......................... Airbus A320-232 07-Jul-97 23,879,000 36,756,667
N447UA.......................... Airbus A320-232 01-Jul-98 24,954,000 38,353,333
N450UA.......................... Airbus A320-232 29-Jul-98 24,954,000 38,353,333
N119UA.......................... Boeing 747-422 29-Mar-99 92,402,000 145,076,667
N120UA.......................... Boeing 747-422 12-Apr-99 92,551,000 145,296,667
N121UA.......................... Boeing 747-422 22-Apr-99 92,553,000 145,300,000
N591UA.......................... Boeing 757-222 28-Jun-96 29,169,000 45,520,000
N592UA.......................... Boeing 757-222 10-Jul-96 29,569,000 45,586,667
N593UA.......................... Boeing 757-222 12-Aug-96 29,601,000 45,636,667
N594UA.......................... Boeing 757-222 11-Sep-96 29,645,000 45,703,333
N589UA.......................... Boeing 757-222 24-Oct-97 32,060,000 49,350,000
N590UA.......................... Boeing 757-222 31-Dec-97 32,104,000 49,416,667
N595UA.......................... Boeing 757-222 04-Feb-98 32,771,000 50,943,333
N784UA.......................... Boeing 777-200ER 29-Apr-97 72,684,000 113,200,000
N785UA.......................... Boeing 777-200ER 21-May-97 72,850,000 113,457,783
N787UA.......................... Boeing 777-200ER 05-Jun-97 70,184,000 109,306,724
N789UA.......................... Boeing 777-200ER 11-Aug-97 74,313,000 114,386,878
N790UA.......................... Boeing 777-200ER 28-Aug-97 74,313,000 114,386,878
N791UA.......................... Boeing 777-200ER 28-Aug-97 74,313,000 114,386,878
N793UA.......................... Boeing 777-200ER 07-Oct-97 74,518,000 114,703,545
N797UA.......................... Boeing 777-200ER 20-Feb-98 75,872,000 117,943,333
N798UA.......................... Boeing 777-200ER 28-Feb-98 75,872,000 117,943,333
</TABLE>
------------
* In this preliminary prospectus supplement, the initial outstanding principal
amount of the equipment notes for each aircraft provided above is indicative
only and subject to change.
S-3
<PAGE> 6
The appraised value of each aircraft provided above has been calculated by
removing the highest and the lowest of five appraisals and taking the average of
the remaining three. The appraisals were provided by five independent appraisal
and consulting firms, Aircraft Information Services, Inc., AVITAS, Inc.,
AvSolutions Inc., BK Associates, Inc. and Morten Beyer & Agnew, Inc. as of
November 21, 2000, October 26, 2000, November 27, 2000, November 22, 2000 and
November 2, 2000, respectively. 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.
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 April 1 and October 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
equipment notes 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 equipment notes for any other
aircraft. Appendix IV to this prospectus supplement sets forth the aggregate LTV
ratios for the equipment notes issued for each individual aircraft, which should
also be considered. The holders of the Class A-1, Class A-2 and Class B pass
through trust certificates will, however, benefit from cross-subordination of
the equipment notes issued for each aircraft.
<TABLE>
<CAPTION>
OUTSTANDING BALANCES
ASSUMED ---------------------------------------------------------
AGGREGATE CLASS A-1 CLASS A-2 CLASS B CLASS C
DATE AIRCRAFT VALUE CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
December , 2000.... $2,341,812,020 $340,397,000 $711,133,000 $270,517,000 $187,968,000
April 1, 2001........ 2,300,891,582 322,049,000 711,133,000 270,517,000 187,968,000
October 1, 2001...... 2,266,012,891 306,352,000 711,133,000 270,517,000 187,968,000
April 1, 2002........ 2,225,092,452 288,009,000 711,133,000 270,517,000 187,968,000
October 1, 2002...... 2,190,213,761 272,317,000 711,133,000 270,517,000 187,968,000
April 1, 2003........ 2,149,293,322 253,973,000 711,133,000 270,517,000 187,968,000
October 1, 2003...... 2,114,414,631 238,274,000 711,133,000 270,517,000 187,968,000
April 1, 2004........ 2,073,494,192 219,931,000 711,133,000 270,517,000 187,968,000
October 1, 2004...... 2,038,615,502 204,236,000 711,133,000 270,517,000 187,968,000
April 1, 2005........ 1,997,695,063 185,893,000 711,133,000 270,517,000 187,968,000
October 1, 2005...... 1,962,816,372 170,195,000 711,133,000 270,517,000 0
April 1, 2006........ 1,921,895,933 151,851,000 711,133,000 270,517,000 0
October 1, 2006...... 1,887,017,242 136,155,000 711,133,000 270,517,000 0
April 1, 2007........ 1,846,096,803 117,811,000 711,133,000 270,517,000 0
October 1, 2007...... 1,811,218,112 102,118,000 711,133,000 270,517,000 0
April 1, 2008........ 1,770,297,674 83,773,000 711,133,000 270,517,000 0
October 1, 2008...... 1,735,418,983 68,077,000 711,133,000 270,517,000 0
April 1, 2009........ 1,694,498,544 49,733,000 711,133,000 270,517,000 0
October 1, 2009...... 1,659,619,853 34,036,000 711,133,000 0 0
April 1, 2010........ 1,618,699,414 15,692,000 711,133,000 0 0
October 1, 2010...... 1,583,820,723 0 711,133,000 0 0
April 1, 2011........ 1,542,900,285 0 0 0 0
</TABLE>
S-4
<PAGE> 7
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
DATE LTV LTV LTV LTV
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
December , 2000......................... 44.9% 44.9% 56.5% 64.5%
April 1, 2001............................. 44.9 44.9 56.7 64.8
October 1, 2001........................... 44.9 44.9 56.8 65.1
April 1, 2002............................. 44.9 44.9 57.1 65.5
October 1, 2002........................... 44.9 44.9 57.3 65.8
April 1, 2003............................. 44.9 44.9 57.5 66.2
October 1, 2003........................... 44.9 44.9 57.7 66.6
April 1, 2004............................. 44.9 44.9 57.9 67.0
October 1, 2004........................... 44.9 44.9 58.2 67.4
April 1, 2005............................. 44.9 44.9 58.4 67.9
October 1, 2005........................... 44.9 44.9 58.7 NA
April 1, 2006............................. 44.9 44.9 59.0 NA
October 1, 2006........................... 44.9 44.9 59.2 NA
April 1, 2007............................. 44.9 44.9 59.6 NA
October 1, 2007........................... 44.9 44.9 59.8 NA
April 1, 2008............................. 44.9 44.9 60.2 NA
October 1, 2008........................... 44.9 44.9 60.5 NA
April 1, 2009............................. 44.9 44.9 60.9 NA
October 1, 2009........................... 44.9 44.9 NA NA
April 1, 2010............................. 44.9 44.9 NA NA
October 1, 2010........................... NA 44.9 NA NA
April 1, 2011............................. NA NA NA NA
</TABLE>
------------
* The assumed aggregate aircraft value, the periodic outstanding balances and
the resulting LTV ratios for each class of certificates are indicative only
and subject to change.
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 and
by approximately 4% 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-5
<PAGE> 8
CASH FLOW/STRUCTURE CHART
The following diagram illustrates the structure of the offering of the
certificates and cash flows.
[CHART]
Note: The equipment notes are not cross-collateralized.
S-6
<PAGE> 9
THE OFFERING
Pass Through Trusts........ United and State Street Bank and Trust Company of
Connecticut, National Association, as pass through
trustee, will form four pass through trusts under
four 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
-- Class C pass through certificates
Each class of pass through certificates will
represent 100% of the fractional undivided
interests in the corresponding pass through trust.
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 the equipment notes to be held by such pass
through trust. The equipment notes will be full
recourse obligations of United.
United will issue the equipment notes under 35
separate indentures. United will use the proceeds
from the issuance of the equipment notes for
general corporate purposes, possibly including, but
not limited to, the repayment of indebtedness,
financing of capital expenditures or funding of
potential acquisitions or other business
transactions.
Subordination Agent, Pass
Through Trustee and
Indenture Trustee........ State Street Bank and Trust Company of Connecticut,
National Association.
Liquidity Provider......... Initially, Westdeutsche Landesbank Girozentrale,
New York Branch.
Trust Property............. The property of each pass through trust will
include:
-- For the Class A-1 pass through trust, the
Series A-1 equipment notes.
-- For the Class A-2 pass through trust, the
Series A-2 equipment notes.
-- For the Class B pass through trust, the
Series B equipment notes.
S-7
<PAGE> 10
-- For the Class C pass through trust, the
Series C equipment notes.
-- All rights of the pass through trust under
the intercreditor agreement and the note
purchase agreement described below.
-- For each of the Class A-1, Class A-2, Class B
and Class C 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...................... April 1 and October 1, commencing on April 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 equipment notes held
in each pass through trust to the holders of the
pass through certificates of that pass 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
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, if any, and interest made on any
equipment notes resulting from any early redemption
of any equipment notes on a special distribution
date after not less than 15 days' notice to the
holders of the pass through certificates.
Intercreditor Agreement.... The pass through trustees, the liquidity provider
and the subordination agent will enter into the
intercreditor agreement. The intercreditor
agreement states how the subordination agent will
distribute payments made on the equipment notes and
under 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 equipment notes and the
related indentures.
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;
S-8
<PAGE> 11
-- Second, to the holders of the Class B pass
through certificates; and
-- Third, to the holders of the Class C 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
Trustee.................... The holders of at least a majority of the
outstanding principal amount of equipment notes
issued under each 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 such equipment 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. The remedies
that may be exercised under each indenture include
accelerating the relevant equipment notes or
foreclosing the lien on the aircraft securing such
equipment notes.
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 pass
through trustee.
-- Under specified circumstances, and
notwithstanding the foregoing, the liquidity
provider with the largest amount of
S-9
<PAGE> 12
unreimbursed liquidity obligations under the
liquidity facilities.
In exercising remedies during the nine months after
the earliest of: (1) the acceleration of the
equipment notes issued under any indenture or (2)
the bankruptcy of United, the controlling party may
not sell the related equipment notes or the
aircraft subject to the lien of that indenture 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.
-- The Class C certificateholders may purchase
all of 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, Class B and Class C 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.
Despite the subordination provisions applicable to
the pass through certificates, the holders of the
pass through certificates issued by each pass
through trust will be entitled to receive and
retain the proceeds of drawings under the liquidity
facility for that pass through trust.
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
S-10
<PAGE> 13
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.
Equipment Notes
(a) Issuer............... United will issue Series A-1, Series A-2, Series B
and Series C equipment notes, which will be
acquired, respectively, by the Class A-1, Class
A-2, Class B and Class C pass through trusts.
(b) Interest............. The equipment notes held in the Class A-1, Class
A-2, Class B and Class C pass through trusts will
accrue interest at the respective rates per annum
indicated on the cover page of this prospectus
supplement. Interest on the equipment notes will be
payable on April 1 and October 1 of each year,
commencing on April 1, 2001. Interest on the
equipment notes will be calculated on the basis of
a 360-day year consisting of twelve 30-day months.
(c) Principal............ Amortizing Notes. Principal payments on the Series
A-1 equipment notes are scheduled to be received in
specified amounts on April 1 or October 1 or both
in specified years, commencing on April 1, 2001 and
ending on either April 1, 2010 or October 1, 2010,
depending on the terms of the particular equipment
note.
Bullet Maturity Notes. The entire principal amount
of the Series A-2, Series B and Series C equipment
notes is scheduled to be paid on the date specified
for each series below:
<TABLE>
<CAPTION>
NOTES DATE
----- ----
<S> <C>
Series A-2 equipment notes............. April 1, 2011
Series B equipment notes............... October 1, 2009
Series C equipment notes............... October 1, 2005
</TABLE>
(d) Redemption........... Aircraft Event of Loss. If an event of loss occurs
with respect to an aircraft, we will redeem all of
the equipment notes issued for such aircraft under
the related indenture, unless we replace such
aircraft. The redemption price will be the unpaid
principal amount of the related equipment notes,
together with accrued interest, but without any
make-whole amount.
Optional Redemption. At any time prior to
maturity, United may redeem any series of equipment
notes related to an aircraft with Rating Agency
approval, or all of the equipment notes related to
an aircraft. The redemption price will be the
unpaid principal amount of those equipment notes,
together with accrued interest, plus a make-whole
amount, if any.
S-11
<PAGE> 14
(e) Security............. United will secure the equipment notes issued for
each aircraft by a security interest in the
aircraft.
United will not cross-collateralize the equipment
notes. This means that the equipment notes 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 equipment notes for any other aircraft.
By virtue of the intercreditor agreement, all of
the equipment notes will be effectively
cross-subordinated. This means that payments
received on a junior series of 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 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.
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 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....... In general, employee benefit plans subject to Title
I of ERISA or Section 4975 of the Internal Revenue
Code, or entities that may be deemed to hold the
assets of those plans, will be eligible to purchase
the certificates, subject to the conditions and
circumstances that apply to those plans.
Each person who acquires a certificate will be
deemed to have represented and warranted that
either:
(a) no employee benefit plan assets have been
used to purchase that certificate, or
S-12
<PAGE> 15
(b) the purchase and holding of that certificate
are exempt from the prohibited transaction
restrictions of ERISA and Section 4975 of the
Internal Revenue Code pursuant to one or more
prohibited transaction statutory or
administrative exemptions. See "ERISA
Considerations."
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-
Class C....................... A3 A-
</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.
Threshold Rating
Requirements for the
Liquidity Provider....... The liquidity provider must have the following
short-term unsecured debt ratings:
<TABLE>
<CAPTION>
STANDARD &
CERTIFICATES MOODY'S POOR'S
------------ ------- ----------
<S> <C> <C>
Class A-1, Class A-2 and Class
B........................... P-1 A-1+
Class C....................... P-1 A-1
</TABLE>
If the liquidity provider does not have short-term
unsecured debt ratings, the liquidity provider must
have the following long-term unsecured debt
ratings:
<TABLE>
<CAPTION>
STANDARD &
CERTIFICATES MOODY'S POOR'S
------------ ------- ----------
<S> <C> <C>
Class A-1, Class A-2 and Class
B........................... Aa3 AA-
Class C....................... A3 A-
</TABLE>
Liquidity Provider
Rating..................... The initial liquidity provider meets the short-term
threshold rating requirements described above.
S-13
<PAGE> 16
RISK FACTORS
You should carefully consider the following risk factors as well as other
information contained in this prospectus supplement and the accompanying
prospectus as well as the information incorporated by reference into this
prospectus supplement and the prospectus before deciding to invest in the pass
through certificates.
Appraisals and Realizable
Value of Aircraft.......... Five 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 of 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
equipment notes for any aircraft or the full amount
of distributions expected to be paid 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/or
lease the aircraft. It may be difficult,
time-consuming and expensive for an 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.
In addition, some jurisdictions may allow for other
liens or other third party rights to have priority
over an indenture trustee's security interest in an
aircraft. As a result, the benefits of the related
indenture
S-14
<PAGE> 17
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 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 equipment notes. If
this occurs, the interest accruing on the remaining
equipment notes 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 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 equipment note even if all
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 accelerating the applicable
equipment notes or foreclosing the lien on the
aircraft securing such equipment notes. 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.
S-15
<PAGE> 18
-- 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 pass
through trustee.
-- Under specified circumstances, and
notwithstanding the foregoing, the liquidity
provider with the greatest amount owed to it.
The market for any aircraft or 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 (except in the second bullet point
below), any indenture trustee or any pass through
trustee if the controlling party takes the
following actions:
-- It sells any equipment notes for less than
their outstanding principal amount; or
-- It sells any aircraft for less than the
outstanding principal amount of the related
equipment notes.
The equipment notes will not be
cross-collateralized. This means that the equipment
notes 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
equipment notes related to the aircraft will not be
available to cover shortfalls, if any, on the
equipment notes 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-
Class C........................ A3 A-
</TABLE>
A rating is not a recommendation to purchase, hold
or sell pass through certificates and the rating
does not address market price of the pass through
certificates or suitability of investing in the
pass through certificates 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 the debt
of United or the liquidity provider by the rating
agency. Following the announcement by UAL
Corporation and US Airways
S-16
<PAGE> 19
Group, Inc. of the approval of a merger agreement
under which US Airways Group, Inc. would become a
wholly owned subsidiary of UAL Corporation, 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.
The rating agencies base the rating of each class
of the pass through certificates primarily on the
default risk of the equipment notes that are held
for that class, 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 equipment notes and
the subordination provisions applicable to the pass
through certificates. These 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 an event of loss 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.
No Protection Against
Highly Leveraged or
Extraordinary
Transactions; Pending
Merger with US Airways... The pass through certificates, the equipment notes
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 that it had entered into a
definitive merger agreement with US Airways Group,
Inc. under which US Airways Group will be acquired
by UAL. The transaction, which UAL anticipates
closing in the first quarter of 2001, is subject to
regulatory clearance and other customary closing
conditions. Definitive financing plans have not yet
been determined although UAL expects to incur
additional indebtedness to finance the acquisition.
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.
S-17
<PAGE> 20
THE COMPANY
United Air Lines, Inc. was incorporated under the laws of the State of
Delaware on December 30, 1968. Our world headquarters are located at 1200 East
Algonquin Road, Elk Grove Township, Illinois 60007. Our mailing address is P.O.
Box 66100, Chicago, Illinois 60666, and our telephone number 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. We are 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. We are 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. Our 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 our 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 our international segment were
approximately $5.5 billion in 1999, $5.5 billion in 1998, and $6.1 billion in
1997.
Since October 1994, we have operated a service, United Shuttle, within our
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, and offers approximately 500 daily flights on 30 routes among 22 cities
in the western United States.
RECENT DEVELOPMENTS
On May 24, 2000, UAL announced that it had entered into a definitive merger
agreement with US Airways Group, Inc., the parent corporation of US Airways,
pursuant to which US Airways will be acquired by UAL in an all-cash transaction
valued at $4.3 billion. Additionally, UAL will assume approximately $1.5 billion
in US Airways debt and $5.8 billion in aircraft operating leases. On October 12,
2000, the stockholders of US Airways approved the merger. The merger agreement
was filed as an exhibit to a Form 8-K Current Report filed on May 26, 2000 by
United with the SEC. The transaction, which UAL anticipates closing in the first
quarter of 2001, is still subject to regulatory clearance and other customary
closing conditions. Definite financing arrangements have not yet been determined
although UAL expects to incur additional indebtedness to finance the
acquisition.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges is set forth below for the periods
indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- ----------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1.65 3.13 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, extraordinary items and
cumulative effect of accounting change, interest expense, undistributed earnings
of affiliates, the portion of rental expense representative of an interest
factor and capitalized interest. Fixed charges consist of interest expense and
the portion of rental expense representative of an interest factor.
S-18
<PAGE> 21
SELECTED FINANCIAL DATA
The following table presents our summary consolidated financial data and
certain operating data for the periods indicated. We derived the annual
historical financial data from our audited consolidated financial statements and
the notes to those financial statements, which are incorporated by reference in
the prospectus accompanying this prospectus supplement.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 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............................... $14,547 $13,514 $17,967 $17,518 $17,335 $16,317 $14,895
------- ------- ------- ------- ------- ------- -------
Earnings before extraordinary items and
cumulative effect of accounting change......... 354 1,095 1,207 803 941 601 371
Extraordinary loss on early extinguishment of
debt, net of tax............................... (6) (3) (3) -- (9) (67) (30)
Cumulative effect of accounting change, net of
tax............................................ (209) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings..................................... $ 139 $ 1,092 $ 1,204 $ 803 $ 932 $ 534 $ 341
======= ======= ======= ======= ======= ======= =======
Total assets at period end....................... $23,812 $21,791 $21,543 $18,830 $15,768 $12,901 $11,393
Long-term debt and capital lease obligations,
including current portion...................... $ 5,765 $ 5,485 $ 5,455 $ 5,373 $ 4,259 $ 3,309 $ 3,553
Revenue passengers (millions).................... 64 66 87 87 84 82 79
Revenue passenger miles (millions)(1)............ 95,927 94,909 125,465 124,609 121,426 116,697 111,811
Available seat miles (millions)(2)............... 131,645 132,744 176,686 174,008 169,110 162,843 158,569
Passenger load factor(3)......................... 72.9% 71.5% 71.0% 71.6% 71.8% 71.7% 70.5%
Breakeven passenger load factor.................. 68.0% 64.4% 64.9% 64.9% 66.0% 66.0% 66.1%
Passenger revenue per passenger mile (in
cents)(4)...................................... 13.3 12.5 12.5 12.4 12.6 12.4 11.8
Operating revenue per available seat mile (in
cents)......................................... 11.1 10.2 10.2 10.1 10.3 10.0 9.4
Operating expense per available seat mile (in
cents)......................................... 10.4 9.3 9.4 9.2 9.5 9.3 8.9
Operating expense per available seat mile
excluding ESOP charges (in cents).............. 10.3 8.9 9.0 8.8 8.9 8.9 8.6
Fuel gallons consumed (millions)................. 2,329 2,300 3,065 3,029 2,964 2,883 2,822
Average price per gallon of jet fuel (in
cents)......................................... 76.9 55.7 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-19
<PAGE> 22
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
equipment notes to be held by that pass through trust. We will issue the
equipment notes under 35 separate indentures. We will use the proceeds from the
issuance of the equipment notes for general corporate purposes, possibly
including, but not limited to, the repayment of indebtedness, financing of
capital expenditures or funding of potential acquisitions or other business
transactions.
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.
This 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 and the
intercreditor agreement, each of which we will file as an exhibit to a Current
Report on Form 8-K with the SEC after completion of this offering.
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 equipment notes held
by each pass through trust will differ.
The references 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 four United Air Lines 2000-2
pass through trusts: the Class A-1 pass through trust, the Class A-2 pass
through trust, the Class B pass through trust and the Class C pass through
trust. 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 four separate supplements to the pass through
trust agreement. The Class A-1 pass through trust will purchase the Series A-1
equipment notes. The Class A-2 pass through trust will purchase the Series A-2
equipment notes. The Class B pass through trust will purchase the Series B
equipment notes. The Class C pass through trust will purchase the Series C
equipment notes. The initial total principal balance of the 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 will consist
of:
-- for the Class A-1 pass through trust, the Series A-1 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 under those
notes;
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-- for the Class A-2 pass through trust, the Series A-2 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 B pass through trust, the Series B 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 pass through trust, the Series C 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 agreement;
-- for the Class A-1, Class A-2, Class B and Class C 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 trust 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, the pass through trustees, the
subordination agent, any indenture 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 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, if any, and interest on the equipment notes, if any, or 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, Series A-2, Series B and Series C equipment notes held in
the Class A-1, Class A-2, Class B and Class C 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 April 1 and October 1 of each year, commencing on April
1, 2001. 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 equipment notes
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months.
The liquidity provider will provide a separate liquidity facility to each
pass through trust to support distributions of interest applicable to the pass
through certificates to be issued by such pass through trust.
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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
applicable interest rate shown on the cover of this prospectus supplement 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, principal of, interest or Make-Whole 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 will
receive and retain the proceeds of drawings under the liquidity facility for
that pass through trust. 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 equipment notes in installments on April 1 and October 1 in
specified years, commencing on April 1, 2001 and ending on either April 1, 2010
or October 1, 2010, depending on the terms of the particular equipment note. The
entire principal amount of the Series A-2 equipment notes is scheduled for
payment on April 1, 2011. The entire principal amount of the Series B equipment
notes is scheduled for payment on October 1, 2009. The entire principal amount
of the Series C equipment notes is scheduled for payment on October 1, 2005.
We refer to scheduled payments of interest or principal on the equipment
notes as "scheduled payments," and to April 1 and October 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 April 1, 2012, for the Class A-2 pass through certificates is
October 1, 2012, for the Class B pass through certificates is April 1, 2011 and
for the Class C pass through certificates is April 1, 2007.
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 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 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 equipment note or the collateral under any indenture other than a
scheduled payment, (1) in the case of an early redemption of any equipment note,
on 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 equipment notes 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
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<PAGE> 25
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 such pass through trust, one or more accounts for
the deposit of payments representing special payments received by such 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 it receives relating to a pass through trust in the
certificate account of that pass through trust, and deposit any special payments
that it 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 of the final distribution given by the
pass through trustee. Distributions for pass through certificates issued in
global form will be made as described in "--Book-Entry Registration; Delivery
and Form" below.
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 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)
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<PAGE> 26
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 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 on each distribution
date. (Section 4.03(a))
The following table sets forth the expected aggregate principal
amortization schedule for the 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 equipment notes held in the pass through trust
are redeemed or if a default in payment of the principal of the equipment notes
occurred.
<TABLE>
<CAPTION>
CLASS A-1 TRUST CLASS A-2 TRUST CLASS B TRUST CLASS C TRUST
----------------------- ------------------------ ------------------------ ------------------------
SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED EXPECTED
PAYMENTS OF POOL PAYMENTS OF POOL PAYMENTS OF POOL PAYMENTS OF POOL
DATE PRINCIPAL FACTOR PRINCIPAL FACTOR PRINCIPAL FACTOR PRINCIPAL FACTOR
---- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........ $18,348,000 0.9460982 $ 0 1.0000000 $ 0 1.0000000 $ 0 1.0000000
October 1, 2001...... 15,697,000 0.8999844 0 1.0000000 0 1.0000000 0 1.0000000
April 1, 2002........ 18,343,000 0.8460974 0 1.0000000 0 1.0000000 0 1.0000000
October 1, 2002...... 15,692,000 0.7999982 0 1.0000000 0 1.0000000 0 1.0000000
April 1, 2003........ 18,344,000 0.7461082 0 1.0000000 0 1.0000000 0 1.0000000
October 1, 2003...... 15,699,000 0.6999885 0 1.0000000 0 1.0000000 0 1.0000000
April 1, 2004........ 18,343,000 0.6461015 0 1.0000000 0 1.0000000 0 1.0000000
October 1, 2004...... 15,695,000 0.5999935 0 1.0000000 0 1.0000000 0 1.0000000
April 1, 2005........ 18,343,000 0.5461065 0 1.0000000 0 1.0000000 0 1.0000000
October 1, 2005...... 15,698,000 0.4999897 0 1.0000000 0 1.0000000 187,968,000 0.0000000
April 1, 2006........ 18,344,000 0.4460997 0 1.0000000 0 1.0000000 0 0.0000000
October 1, 2006...... 15,696,000 0.3999888 0 1.0000000 0 1.0000000 0 0.0000000
April 1, 2007........ 18,344,000 0.3460988 0 1.0000000 0 1.0000000 0 0.0000000
October 1, 2007...... 15,693,000 0.2999968 0 1.0000000 0 1.0000000 0 0.0000000
April 1, 2008........ 18,345,000 0.2461038 0 1.0000000 0 1.0000000 0 0.0000000
October 1, 2008...... 15,696,000 0.1999929 0 1.0000000 0 1.0000000 0 0.0000000
April 1, 2009........ 18,344,000 0.1461029 0 1.0000000 0 1.0000000 0 0.0000000
October 1, 2009...... 15,697,000 0.0999891 0 1.0000000 270,517,000 0.0000000 0 0.0000000
April 1, 2010........ 18,344,000 0.0460991 0 1.0000000 0 0.0000000 0 0.0000000
October 1, 2010...... 15,692,000 0.0000000 0 1.0000000 0 0.0000000 0 0.0000000
April 1, 2011........ 0 0.0000000 711,133,000 0.0000000 0 0.0000000 0 0.0000000
</TABLE>
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 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 equipment note to certificateholders of pass through certificates of the
related pass through trust with the special payment.
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<PAGE> 27
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 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 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. Consequently, events resulting in an
indenture event of default under any particular indenture for the equipment
notes for any aircraft may or may not result in an indenture event of default
under any other indenture for the equipment notes for any other aircraft. If an
indenture event of default occurs in fewer than all of the indentures, United
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.
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
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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 during the continuation of an indenture event
of default under any indenture, the controlling party will direct the indenture
trustee under the indenture in the exercise of remedies and may direct the
acceleration and sale of the equipment notes issued under the affected indenture
or direct the foreclosure on and sale of the aircraft related to the equipment
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 Equipment Notes or Aircraft." Each
indenture trustee will distribute the proceeds of the sale of any aircraft in
accordance with the provisions of the relevant 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 or equipment note(s) at the time of the
existence of an indenture event of default may 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 equipment notes for less than their outstanding principal
amount, plus accrued interest or (2) an indenture trustee sells any aircraft for
less than the outstanding principal amount of the related equipment notes, 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), 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 equipment notes as long as no
indenture event of default is continuing with respect to those 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 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 equipment
notes held in a pass through trust, or the proceeds from the sale of any
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, if any, or interest on any 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
equipment notes held by such pass through trust were issued.
Subject to specified qualifications set forth in each pass through trust
agreement and 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
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<PAGE> 29
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 the equipment notes. (Section 6.03)
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, if any, or
interest on any equipment note held in the pass through trust; 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 such pass
through trust affected by the modification or amendment. (Section
6.04)
Each indenture will provide that, with specified exceptions, the holders of
the majority of the total unpaid principal amount of the 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. 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 10 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 either the Class A-1 or Class A-2 certificateholders are then
represented by the controlling party, the certificateholders of such
class that is not so represented may purchase all of the pass through
certificates of such class that is so represented.
-- The Class B certificateholders may purchase all of the Class A-1 and
Class A-2 pass through certificates.
-- The Class C certificateholders may purchase all of 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 and
Class C pass through certificates.
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 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 10-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
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<PAGE> 30
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
the 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 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 and the participation
agreements; and
-- United has delivered a certificate signed by its President or any
Vice President and an opinion or opinions of counsel indicating that
the transaction, in effect, complies with the above conditions.
In addition, after giving effect to the transaction, no indenture event of
default shall have occurred and be continuing. (Section 5.02)
The pass through trust agreement, the trust supplements, the note purchase
agreement and the indentures, 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."
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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
agreement or any liquidity facility, without the consent of the holders of any
of the pass through certificates 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, the 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, the 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, the 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;
-- 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 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, the
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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, the 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
equipment notes held in the pass through trust, or distributions for
any pass through certificate of such 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 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 AND RELATED AGREEMENTS
If a pass through trustee, as holder or as beneficial owner through the
subordination agent of any 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 or any equipment note (or the related
participation agreement or indenture), 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;
-- 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; and
-- how to vote, or direct the subordination agent to vote, any equipment
note if a vote has been called for with respect to that note.
(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 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 such 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
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-- as the controlling party, the pass through trustee will vote as
directed 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,
equipment note 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)
POSSIBLE ISSUANCE OF SERIES D EQUIPMENT NOTES
United may elect to issue Series D equipment notes in connection with some
or all of the aircraft, which would be funded from sources other than this
offering. United may elect to fund the sale of the Series D equipment notes
through the sale of additional pass through certificates issued by a pass
through trust. United will not issue any Series D equipment notes at any time
prior to the consummation of this offering. United's ability to issue any Series
D equipment notes is contingent upon its obtaining written confirmation from
Moody's and Standard & Poor's that the issuance of the Series D equipment notes
would not cause either rating agency to withdraw or downgrade the rating of the
Class A-1, Class A-2, Class B or Class C pass through certificates. If Series D
equipment notes are issued to any person or entity other than a Class D pass
through trust, the Series D 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 equipment
notes, the indentures, the intercreditor agreement, the participation
agreements, 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 we will file as an exhibit to a Current Report on Form 8-K with
the SEC after completion of this offering. 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. 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........................................... $
Class A-2...........................................
Class B.............................................
Class C.............................................
</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 on that class of pass
through certificates. The liquidity provider must make its payments under the
liquidity facility regardless of the reason for the shortfall. 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 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 10 days (or, in the
case of the Class A-1, Class A-2 and Class B liquidity facilities, 45 days for a
downgrade from A-1+ to A-1 by Standard & Poor's) of the downgrading, 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 such 10th day or 45th day, as the case may be, 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.
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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;
-- 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
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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))
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 equipment notes and specified payments under the participation
agreements and note purchase agreement. (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 1.5% 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 1.5% 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 1.5% 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 deposit in a cash collateral account any
amount drawn under any liquidity facility by reason of a downgrade drawing or a
non-extension drawing and will apply such amounts 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 amount of the investment
earnings on the amount held in the cash collateral account attributable to such
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
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(or, as described in the first paragraph under "--Interest Drawings and Final
Drawings," the Base Rate) plus 1.5% per year.
LIQUIDITY EVENTS OF DEFAULT
Events of default under each liquidity facility will consist of:
-- the acceleration of all of the 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 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
Westdeutsche Landesbank Girozentrale, a German banking institution organized
under the laws of the State of North Rhine-Westphalia, Germany, acting through
its New York branch. Westdeutsche Landesbank Girozentrale has short-term debt
ratings of P-1 from Moody's and A-1+ from Standard & Poor's.
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 we will file as an exhibit to a Current
Report on Form 8-K with the SEC after completion of this offering.
S-37
<PAGE> 40
INTERCREDITOR RIGHTS
GENERAL
United will issue, and the relevant indenture trustee will register, the
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 a majority of the outstanding principal amount of equipment
notes issued under each 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 equipment notes. For so long
as the subordination agent is the registered holder of the 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 the equipment notes constituting, in total, the required principal
amount of 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 relevant indenture in taking, or refraining from taking, any
action under such indenture or with respect to the indenture. These actions
include acceleration of the equipment notes issued under such indenture or
foreclosing the lien on the related aircraft. (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; and
-- 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
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 equipment 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, 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 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 Equipment Notes or Aircraft" and "Description of the
Equipment Notes--Remedies."
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<PAGE> 41
SALE OF EQUIPMENT NOTES OR AIRCRAFT
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 direct the relevant indenture trustee to accelerate the
equipment notes issued under such indenture and, subject to the provisions of
the immediately following sentence, direct the subordination agent to sell all
of such equipment notes or to direct the relevant indenture trustee to foreclose
on and sell the aircraft related to that indenture to any person. So long as any
pass through certificates are outstanding, during the nine months after the
earliest to occur of: (1) the acceleration of the equipment notes issued under
any indenture and (2) 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 the lesser of (A) 75% of the then appraised value of such
aircraft and (B) the total outstanding principal amount of the equipment notes
for that aircraft, plus accrued and unpaid interest.
PRIORITY OF DISTRIBUTIONS
The subordination terms applicable to the pass through certificates vary
depending upon whether a Triggering Event has occurred.
"Triggering Event" refers to (1) defaults under all 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 equipment notes or (3) certain
bankruptcy or insolvency events involving United. (Intercreditor Agreement,
Section 1.1)
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 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;
-- 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 pass through trustee to the extent required to pay
Expected Distributions on the Class C pass through certificates;
-- 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.
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<PAGE> 42
"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 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 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.
"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 agreement, the participation
agreements and the fee letter.
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 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 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
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);
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<PAGE> 43
-- 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;
-- to the Class B pass through trustee to the extent required to pay
Adjusted Expected Distributions on the Class B pass through
certificates; and
-- to the Class C pass through trustee to the extent required to pay
Adjusted Expected Distributions on the Class C pass through
certificates.
After a Triggering Event occurs and any 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.
"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 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 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
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
S-41
<PAGE> 44
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, and (2) in the case of the Class B pass
through certificates and Class C pass through certificates, 1.0. The Aggregate
LTV Collateral Amount shall not be less than zero.
"Appraised Current Market Value" of any aircraft means the average of the
most recent five appraisals of that aircraft after excluding the appraisals with
the highest and lowest appraised values.
"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 equipment notes secured by 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,
61.0%, and for the Class C pass through certificates, 68.0%.
"Non-Performing Equipment Note" means any equipment note that is not a
Performing Equipment Note.
"Performing Equipment Note" means an 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 or as may apply for the cure of such
payment default under Section 1110(a)(2)(B) of the Bankruptcy Code) shall not be
taken into consideration until the expiration of the applicable period.
(Intercreditor Agreement, Section 1.1)
ADDITION OF TRUSTEE FOR CLASS D PASS THROUGH CERTIFICATES
If the Class D pass through certificates are issued, the Class D pass
through trustee will become a party to the Intercreditor Agreement
(Intercreditor Agreement, Section 9.1(c)).
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
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<PAGE> 45
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 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)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The aircraft consist of ten Airbus A319-131 aircraft, six Airbus A320-232
aircraft, three Boeing 747-422 aircraft, seven Boeing 757-222 aircraft and nine
Boeing 777-200ER 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 A319-131 AIRCRAFT
The Airbus A319-131 aircraft is a medium-range aircraft with a seating
capacity of approximately 120 passengers in United's configuration. The engine
type utilized on United's A319-131 aircraft is the International Aero Engine
V2522-A5.
AIRBUS A320-232 AIRCRAFT
The Airbus A320-232 aircraft is a medium-range aircraft with a seating
capacity of approximately 138 passengers in United's configuration. The engine
type utilized on United's A320-232 aircraft is the International Aero Engine
V2527-A5.
BOEING 747-422 AIRCRAFT
The Boeing 747-422 aircraft is a long-range aircraft with a seating
capacity of approximately 368 passengers in United's configuration. The engine
type utilized on United's 747-422 aircraft is the Pratt & Whitney PW4056.
BOEING 757-222 AIRCRAFT
The Boeing 757-222 aircraft is a medium-range aircraft with a seating
capacity of approximately 182 passengers in United's configuration. The engine
type utilized on United's 757-222 aircraft is the Pratt & Whitney PW2037.
BOEING 777-200ER AIRCRAFT
The Boeing 777-200ER aircraft is a long-range aircraft with a seating
capacity of approximately 276 passengers in United's configuration. The engine
type utilized on United's 777-200ER aircraft is the Pratt & Whitney PW4090.
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<PAGE> 46
THE APPRAISALS
The table below sets forth the appraised base values of the aircraft, as
determined by Aircraft Information Systems, Inc. ("AISI"), AVITAS, Inc.
("AVITAS"), AvSolutions, Inc. ("AvSolutions"), BK Associates, Inc. ("BK") and
Morten, Beyer & Agnew, Inc. ("MBA"), independent aircraft appraisal and
consulting firms, and additional information regarding the aircraft.
<TABLE>
<CAPTION>
APPRAISER'S VALUATIONS
AIRCRAFT AIRCRAFT ---------------------------------------------------------
REGISTRATION DELIVERY
NUMBER AIRCRAFT TYPE DATE AISI AVITAS AVSOLUTIONS BK
------------ ---------------- --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
N809UA............... Airbus A319-131 19-May-98 $ 34,830,000 $ 29,900,000 $ 29,200,000 $ 31,100,000
N810UA............... Airbus A319-131 29-Jun-98 34,830,000 29,900,000 29,200,000 31,200,000
N811UA............... Airbus A319-131 02-Jul-98 34,830,000 29,900,000 29,200,000 31,200,000
N812UA............... Airbus A319-131 09-Jul-98 34,830,000 29,900,000 29,200,000 31,200,000
N813UA............... Airbus A319-131 23-Jul-98 34,830,000 30,400,000 29,200,000 31,200,000
N814UA............... Airbus A319-131 05-Aug-98 34,830,000 30,400,000 29,200,000 31,200,000
N815UA............... Airbus A319-131 11-Aug-98 34,830,000 30,400,000 29,200,000 31,200,000
N816UA............... Airbus A319-131 02-Sep-98 34,830,000 30,400,000 29,200,000 31,300,000
N817UA............... Airbus A319-131 08-Sep-98 34,830,000 30,400,000 29,200,000 31,300,000
N818UA............... Airbus A319-131 01-Oct-98 34,830,000 30,400,000 29,200,000 31,400,000
N437UA............... Airbus A320-232 20-Feb-97 37,350,000 34,600,000 36,220,000 36,100,000
N438UA............... Airbus A320-232 29-May-97 37,350,000 35,100,000 36,220,000 36,450,000
N439UA............... Airbus A320-232 11-Jun-97 37,350,000 35,100,000 36,220,000 36,550,000
N440UA............... Airbus A320-232 07-Jul-97 37,350,000 35,100,000 36,220,000 36,700,000
N447UA............... Airbus A320-232 01-Jul-98 39,350,000 37,100,000 37,710,000 38,000,000
N450UA............... Airbus A320-232 29-Jul-98 39,350,000 37,100,000 37,710,000 38,000,000
N119UA............... Boeing 747-422 29-Mar-99 144,820,000 130,197,947 140,170,000 151,500,000
N120UA............... Boeing 747-422 12-Apr-99 144,790,000 130,197,947 140,170,000 152,000,000
N121UA............... Boeing 747-422 22-Apr-99 144,800,000 130,197,947 140,170,000 152,000,000
N591UA............... Boeing 757-222 28-Jun-96 46,700,000 39,300,000 44,610,000 45,250,000
N592UA............... Boeing 757-222 10-Jul-96 46,700,000 39,300,000 44,610,000 45,450,000
N593UA............... Boeing 757-222 12-Aug-96 46,700,000 40,000,000 44,610,000 45,600,000
N594UA............... Boeing 757-222 11-Sep-96 46,700,000 40,000,000 44,610,000 45,800,000
N589UA............... Boeing 757-222 24-Oct-97 49,450,000 43,500,000 47,700,000 50,900,000
N590UA............... Boeing 757-222 31-Dec-97 49,450,000 44,100,000 47,700,000 51,100,000
N595UA............... Boeing 757-222 04-Feb-98 51,450,000 44,900,000 49,930,000 51,450,000
N784UA............... Boeing 777-200ER 29-Apr-97 116,500,000 109,290,432 110,380,000 116,950,000
N785UA............... Boeing 777-200ER 21-May-97 116,500,000 110,683,349 110,380,000 117,350,000
N787UA............... Boeing 777-200ER 05-Jun-97 111,750,000 106,650,173 106,210,000 117,550,000
N789UA............... Boeing 777-200ER 11-Aug-97 116,500,000 112,060,635 110,380,000 118,600,000
N790UA............... Boeing 777-200ER 28-Aug-97 116,500,000 112,060,635 110,380,000 118,600,000
N791UA............... Boeing 777-200ER 28-Aug-97 116,500,000 112,060,635 110,380,000 118,600,000
N793UA............... Boeing 777-200ER 07-Oct-97 116,500,000 112,060,635 110,380,000 119,000,000
N797UA............... Boeing 777-200ER 20-Feb-98 121,250,000 113,393,112 115,710,000 120,650,000
N798UA............... Boeing 777-200ER 28-Feb-98 121,250,000 114,789,051 115,710,000 120,650,000
<CAPTION>
APPRAISER'S VALUATIONS
AIRCRAFT ---------------------------
REGISTRATION APPRAISED
NUMBER MBA VALUE
------------ ------------ ------------
<S> <C> <C>
N809UA............... $ 35,140,000 $ 31,943,333
N810UA............... 35,260,000 31,976,667
N811UA............... 35,370,000 31,976,667
N812UA............... 35,370,000 31,976,667
N813UA............... 35,370,000 32,143,333
N814UA............... 35,480,000 32,143,333
N815UA............... 35,480,000 32,143,333
N816UA............... 35,600,000 32,176,667
N817UA............... 35,600,000 32,176,667
N818UA............... 35,710,000 32,210,000
N437UA............... 37,720,000 36,556,667
N438UA............... 38,170,000 36,673,333
N439UA............... 38,320,000 36,706,667
N440UA............... 38,470,000 36,756,667
N447UA............... 40,320,000 38,353,333
N450UA............... 40,320,000 38,353,333
N119UA............... 150,240,000 145,076,667
N120UA............... 150,930,000 145,296,667
N121UA............... 150,930,000 145,300,000
N591UA............... 48,730,000 45,520,000
N592UA............... 49,090,000 45,586,667
N593UA............... 49,450,000 45,636,667
N594UA............... 49,810,000 45,703,333
N589UA............... 51,570,000 49,350,000
N590UA............... 51,640,000 49,416,667
N595UA............... 51,880,000 50,943,333
N784UA............... 112,720,000 113,200,000
N785UA............... 113,190,000 113,457,783
N787UA............... 109,520,000 109,306,724
N789UA............... 114,600,000 114,386,878
N790UA............... 114,600,000 114,386,878
N791UA............... 114,600,000 114,386,878
N793UA............... 115,550,000 114,703,545
N797UA............... 117,470,000 117,943,333
N798UA............... 117,470,000 117,943,333
</TABLE>
We have calculated the appraised value of each aircraft by removing the highest
and the lowest appraisal and taking the average of the remaining three.
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 five 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.
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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 or the pass through
certificates.
DESCRIPTION OF THE EQUIPMENT NOTES
The following summary describes some terms of the equipment notes and
supplements and, to the extent inconsistent with the prospectus, replaces the
description of the general terms and provisions relating to the equipment notes,
the indentures and the participation agreements 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 equipment notes, the indentures and
the participation agreements, each of which we will file as an exhibit to a
Current Report on Form 8-K with the SEC after completion of this offering.
Except as otherwise indicated, the following summaries relate to the 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 United, the pass
through trustee, the subordination agent and the indenture trustee with respect
to each aircraft, each pass through trust will purchase from United the
equipment notes to be issued under the related indenture. United will issue the
equipment notes in four series: the Series A-1 equipment notes, the Series A-2
equipment notes, the Series B equipment notes and the Series C equipment notes.
United may elect to issue an additional series with respect to some or all of
the aircraft, which would be the Series D equipment notes and which would be
funded from sources other than this offering. United will issue the equipment
notes for each aircraft under a separate indenture between United and State
Street Bank and Trust Company of Connecticut, National Association, as indenture
trustee. The equipment notes will be direct, full recourse obligations of
United.
SUBORDINATION
Prior to an indenture event of default, each indenture provides for the
following subordination provisions:
(1) Series A-1 and Series A-2 equipment notes will rank equally in
right of payment and will rank senior in right of payment to the Series B,
Series C and Series D equipment notes, if any;
(2) Series B equipment notes will rank junior in right of payment to
the Series A-1 and Series A-2 equipment notes and will rank senior in right
of payment to the Series C and Series D equipment notes, if any;
(3) Series C equipment notes will rank junior in right of payment to
the Series A-1, Series A-2 and Series B equipment notes and will rank
senior in right of payment to the Series D equipment notes, if any; and
(4) Series D equipment notes, if any, will rank junior in right of
payment to the Series A-1, Series A-2, Series B and Series C equipment
notes.
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Following an indenture event of default, the indenture provides for the
following subordination provisions:
(1) The specified expenses will rank senior in right of payment to the
Series A-1, Series A-2, Series B, Series C and Series D equipment notes, if
any;
(2) Series A-1 and Series A-2 equipment notes will rank equally in
right of payment, will rank junior in right of payment to the specified
expenses, and will rank senior in right of payment to the Series B, Series
C and Series D equipment notes, if any, issued for the aircraft;
(3) Series B equipment notes will rank junior in right of payment to
the specified expenses and the Series A-1 and Series A-2 equipment notes
and will rank senior in right of payment to the Series C and Series D
equipment notes, if any;
(4) Series C equipment notes will rank junior in right of payment to
the specified expenses and the Series A-1, Series A-2 and Series B
equipment notes and will rank senior in right of payment to the Series D
equipment notes, if any;
(5) Series D equipment notes, if any, will rank junior in right of
payment to the specified expenses, the Series A-1, Series A-2, Series B and
Series C equipment notes; and
(6) The balance, to United.
"Specified expenses" are specified taxes, expenses or other losses due to
the indenture trustee and all amounts other than those amounts described in
items (2) through (5) due to the subordination agent, each liquidity provider,
each pass through trustee and the indenture trustee due under the indenture and
participation agreement.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the intercreditor agreement, the pass through
trustee will pass through scheduled installments of interest paid on the
equipment notes held in each pass through trust to the certificateholders of the
pass through trust on the dates and at the applicable 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 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 Appendix III to this prospectus supplement until the final expected
regular distribution date for the pass through trust.
Interest will be payable on the unpaid principal amount of each equipment
note at the rate applicable to that equipment note on April 1 and October 1 of
each year, commencing on April 1, 2001. The indenture trustee will compute
interest on the basis of a 360-day year of twelve 30-day months. Overdue amounts
of principal, Make-Whole Amount, if any, and interest on each series of
equipment notes will, to the extent permitted by applicable law, bear interest
at the interest rate applicable to that series of 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 1%.
United will make scheduled principal payments on the Series A-1 equipment
notes on April 1 and October 1 in specified years, commencing on April 1, 2001
and ending on either April 1, 2010 or October 1, 2010, depending on the terms of
the particular equipment note. United is scheduled to pay the entire principal
amounts of the Series A-2, Series B and Series C owned equipment notes on April
1, 2011, October 1, 2009 and October 1, 2005, respectively.
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.
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EVENTS OF LOSS AND REDEMPTION
EVENTS OF LOSS
If an event of loss occurs to an aircraft and such aircraft is not replaced
by United under the related indenture, United must redeem the equipment notes
issued with respect to such 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. (Indentures, Section 6.01(a)) The pass through trustee will
distribute any amount paid by United in connection with any redemption to the
certificateholders on a special distribution date.
OPTIONAL REDEMPTION
United may, at its option, redeem any series of equipment notes with the
approval of the Rating Agencies or all series of equipment notes with respect to
an aircraft at a price equal to the aggregate unpaid principal amount of those
equipment notes, together with Make-Whole Amount, if any, and accrued interest
on those equipment notes to, but not including, the date of redemption. United
must mail notice of redemption of the equipment notes for any aircraft to
holders of the equipment notes related to such aircraft not less than 15 nor
more than 60 days prior to the applicable redemption date. (Indentures, Section
6.02)
SECURITY
United will secure the equipment notes issued with respect to an aircraft
by a security interest in (1) such aircraft, (2) certain limited rights under
the relevant aircraft purchase agreement between United and Boeing or Airbus, as
applicable, (3) certain requisition and insurance proceeds for such aircraft,
and (4) all proceeds of the foregoing. (Indentures, Granting Clause)
The equipment notes will not be cross-collateralized and, consequently, the
equipment notes 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 IV show the aggregate loan to aircraft value ratios
for the equipment notes issued for each aircraft as of the issuance date of the
pass through certificates and each April 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 equipment notes
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 equipment notes.
We based the tables in Appendix IV 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 and by 4%
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.
DEFEASANCE
Under specified circumstances, United may legally release itself from any
payment or other obligations on all, but not less than all, of the equipment
notes issued under one or more indentures if
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United receives the approval of the Rating Agencies and puts in place the
following arrangements for the benefit of the holders of such equipment notes:
-- United must deposit in trust for the benefit of the holders of such
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 such equipment notes; and
-- 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 such equipment
notes itself.
If United were to accomplish a full defeasance, holders of the equipment
notes so defeased would rely solely on the trust deposit for repayment on such
equipment notes. Holders of such equipment notes could not look to United for
repayment if a shortfall in the payment of principal of or interest on such
equipment notes occurred. In addition, the holders of such 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 such equipment notes. (Indentures, Section 10.01(y))
LIMITATION OF LIABILITY
Except as otherwise provided in the indentures, the indenture trustee, in
its individual capacity, will not be answerable or accountable under the
indentures or the equipment notes under any circumstances except, among other
things, for its own willful misconduct or gross negligence (other than for the
handling of funds, for which the standard of accountability shall be willful
misconduct or negligence). (Indentures, Section 9.02) The equipment notes are
direct obligations of United.
EQUIPMENT NOTE INDENTURE EVENTS OF DEFAULT, NOTICE AND WAIVER
Indenture events of default under each indenture will include:
-- the failure by United to pay any interest or principal or Make-Whole
Amount, if any, within 10 business days, after the same has become
due on any equipment note;
-- the failure by United to pay any amount (other than interest,
principal or Make-Whole Amount, if any) when due under the indenture,
any equipment note or under the relevant participation agreement for
more than 20 business days after United receives written notice;
-- 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 United to perform or observe in any material respect
any other covenant, obligation or agreement to be performed or
observed by it under any operative document that continues for a
period of 60 days, after notice to United; however, if the failure is
capable of being remedied, no failure will constitute an indenture
event of default for a period of 360 days after the notice is
received by United so long as United is diligently proceeding to
remedy the failure and such failure is in fact remedied;
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-- any representation or warranty made by United in specified operative
documents shall prove to have been incorrect in any material respect,
and remains unremedied for a period of 60 days after notice to
United; and
-- the occurrence of certain events of bankruptcy, reorganization or
insolvency of United.
(Indentures, Section 8.01)
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 equipment notes issued for one or
more aircraft are in default and the 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, the holders of a majority of the
total unpaid principal amount of the equipment notes outstanding on a given date
for an aircraft, by written instruction to the indenture trustee, may on behalf
of all the noteholders waive any existing default and its consequences under the
indenture with respect to such 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 equipment notes secured by such 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 noteholders. (Indentures,
Section 8.04)
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
equipment notes then outstanding will, declare the principal of all of the
equipment notes issued under that indenture immediately due and payable,
together with all accrued but unpaid interest, but without any Make-Whole
Amount. The holders of a majority of the principal amount of equipment notes
outstanding under that indenture may rescind any declaration of acceleration of
the equipment notes if:
(1) United has paid to the related indenture trustee an amount
sufficient to pay all overdue installments of principal and interest on the
equipment notes and all other amounts owing under the relevant operative
documents, that have become due other than by the declaration of
acceleration or such termination;
(2) the rescission would not conflict with any judgment or decree; and
(3) all other indenture events of default, other than nonpayment of
principal amount or interest on the equipment notes that have become due
solely because of the acceleration or such termination, have been cured or
waived. (Indentures, Section 8.02)
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
under applicable law. The remedies include the right 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 equipment notes. If the
equipment notes issued in respect of one aircraft are in default, the equipment
notes 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
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other loss incurred by it and to pay any other amounts due to the indenture
trustee prior to any payments to holders of the equipment notes issued under
that indenture. (Indentures, Section 3.03)
Section 1110 of the U.S. Bankruptcy Code provides in relevant part that the
right of lessors, conditional vendors and holders of security interests with
respect to aircraft capable of carrying 10 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 and to enforce any of its other
rights or remedies under such lease, conditional sale contract or security
agreement to sell, lease or otherwise retain or dispose of such aircraft, as the
case may be, is not limited or otherwise 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 and to
enforce any of its other rights or remedies to sell, lease or otherwise dispose
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
and to enforce any of its other rights or remedies to sell, lease or otherwise
dispose of an aircraft 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
that each indenture trustee 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 indenture.
This opinion assumes that United was, at the time the relevant equipment
notes were or are purchased, 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 lessee of
the aircraft leased from United.
In specified circumstances following the bankruptcy or insolvency of United
where the obligations of United under any indenture exceed the value of the
aircraft collateral under that indenture, post-petition interest will not accrue
on the related equipment notes. 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
equipment notes had those payments been made, there would be a shortfall between
the claim allowable against United on the equipment notes after the disposition
of the aircraft collateral securing those equipment notes and the remaining
balance of the pass through certificates. The shortfall would first reduce some
or all of the remaining claim against United available to the pass through
trustees for the most junior classes.
MODIFICATION OF INDENTURES
Without the consent of the holders of a majority of the principal amount of
the equipment notes outstanding under any indenture, the provisions of the
indenture may not be amended or modified, except to the extent indicated below.
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The indenture trustee may amend any 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 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 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 issuance of Series D equipment notes and to make
changes relating to the issuance provided that the Series D equipment notes
are issued in accordance with the terms of that indenture, the
participation agreement and the intercreditor agreement; and
(6) provide for compliance with applicable law. (Indentures, Section
11.01)
Without the consent of the holder of each equipment note or the holder
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, if any, or
interest payable on, any equipment notes issued under that indenture, as
the case may be, or change the date on which any principal, Make-Whole
Amount, if any, or interest is due and payable;
(2) 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 an 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 equipment
notes issued under the applicable indenture required to take or approve any
action under that indenture. (Indentures, Section 11.02)
INDEMNIFICATION
United 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.
(Participation Agreement, Section 5)
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 failure to pay overdue
principal, interest or Make-Whole Amount, if any, under any equipment note,
unless it has received indemnification satisfactory to it against any risks
incurred in connection therewith. (Indentures, Section 9.06)
CERTAIN PROVISIONS OF THE INDENTURES
MAINTENANCE AND OPERATION
Under the terms of each indenture, 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. (Indentures, Section 4.01(a))
United may not, and will not permit any lessee, 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
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airworthiness certificate, license or registration relating to the aircraft,
unless (1) United, or any lessee, 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 (2) it is not
possible for United, or any lessee, to comply with the laws of a jurisdiction
other than the United States (or other jurisdiction in which the aircraft is
registered) because of a conflict with the applicable laws of the United States
(or such jurisdiction where the aircraft is registered). (Indentures, Section
4.01(a)(2))
United must make all alterations, modifications and additions to each
airframe and engine necessary to meet the applicable requirements of the Federal
Aviation Administration ("FAA") or any other applicable governmental authority
of another jurisdiction in which the aircraft may then be registered. However,
United 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. United or any lessee may add parts and make
other alterations, modifications and additions to any airframe or any engine as
United 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 diminish the condition or
airworthiness or materially diminish the value, utility or remaining useful life
of the airframe or engine below its condition, airworthiness, value, utility or
remaining useful life immediately prior to the alteration, modification,
addition or removal, assuming the airframe or engine was maintained in
accordance with the indenture. However, the value but not the utility or the
condition or airworthiness of any airframe or engine may be reduced from time to
time by the value of any 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 or any lessee may
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
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 FAA 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 the condition or airworthiness of the aircraft.
(Indentures, Section 4.02)
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. (Indentures, Section 4.02(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, subject to
conditions specified in the related indenture. (Indentures, Section 4.01(a);
Participation Agreements, Section 6(a)) 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 or any lessee
in connection with certain interchange and pooling arrangements, transfers to
the government of the United States or any instrumentality or agency thereof,
"wet leases" and transfers in connection with maintenance or modifications.
(Indentures, Section 4.01(a)) There will be no general geographical restrictions
on United'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
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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 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 60 days 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;
(3) judgment liens so long as the judgment is discharged or vacated
within 60 days or the execution of the judgment is stayed pending appeal or
the judgment is discharged, vacated or reversed within 60 days 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.
(Indentures, Section 5.02)
INSURANCE
Subject to specified exceptions, United must maintain, at its expense or at
the expense of a lessee, all-risk aircraft hull insurance covering each
aircraft, at all times in an amount not less than 100% of the aggregate
outstanding principal amount of the equipment notes for the 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
equipment notes 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. (Indentures, Section 4.03)
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 $5,000,000 (in the case of an
Airbus A319-131, an Airbus A320-232 and a Boeing 757-222), and $10,000,000
(in the case of a Boeing 777-200ER and a Boeing 747-422), the insurance
proceeds up to the loan amount 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 $5,000,000 (in the case
of an Airbus A319-131, an Airbus A320-232 and a
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Boeing 757-222), and $10,000,000 (in the case of a Boeing 777-200ER and a
Boeing 747-422), the insurance proceeds or the amount of any loss proceeds
in excess of the loan amount will be payable to United so long as no
specified indenture event of default has occurred.
The loan amount will be equal to the outstanding principal amount of the
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.
(Indentures, Section 4.03)
In addition, United must maintain aircraft liability insurance, at its
expense (or at the expense of a lessee), 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 A319-131,
the A320-232 aircraft and Boeing 757-222 aircraft, or $400,000,000, in the case
of Boeing 747-422 and Boeing 777-200ER aircraft per occurrence. (Indentures,
Section 4.03)
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), for
other aircraft owned or operated by United (or such lessee), on the same routes
on which the aircraft is operated. (Indentures, Section 4.03)
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) 100% 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. (Indentures, Section 4.03)
United must name the relevant indenture trustee, the subordination agent,
each liquidity provider and each pass through trustee, 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.
(Indentures, Section 4.03)
EVENTS OF LOSS
Aircraft. If an event of loss occurs with respect to the airframe or the
airframe and one or more engines of an aircraft, United must elect within 90
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 120th 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 equipment notes under the applicable indenture by
paying to the indenture trustee the outstanding unpaid principal amount of the
equipment notes, together with accrued interest thereon, but without any
Make-Whole Amount or (2) not later than the first business day after the 120th
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. (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 equipment notes
issued with respect to the aircraft together with the 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 obligation of United thereafter
to make the scheduled
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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
equipment notes issued with respect to the aircraft will be distributed by the
indenture trustee to United. (Indentures, Section 5.01)
If United elects to replace an 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 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) will be
made; and
(4) an officer's certificate of United certifying compliance with the
foregoing requirements will be provided. (Indenture, Section 5.01)
Engines. If an event of loss occurs with respect to an engine alone, United
must replace that engine within 120 days 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. The
replacement engine must have the same value and utility, and be in as good an
operating condition as, the engine to be replaced. (Indentures, Section 5.01)
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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, Class B and Class C 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 AND NOTES
In the opinion of Vedder, Price, Kaufman & Kammholz, 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.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. certificateholder will be treated as owning its pro rata undivided
interest in the 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 equipment notes and any other property held by the corresponding
pass through trust, in accordance with the certificateholder's method of
accounting. The equipment notes will not be issued with original issue discount.
As such, each U.S. certificateholder's share of interest paid on the 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 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
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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
equipment notes held by the pass through trust because of the subordination of
the 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 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 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. 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
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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 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 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 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 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.
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.
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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.
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. United will not
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.
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
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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.
PLAN ASSETS ISSUES
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (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 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 would be subject to the general fiduciary requirements of ERISA and could
result in a prohibited transaction under ERISA and/or 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 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
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 upon the identity of the plan fiduciary making the
decision to acquire or hold pass through certificates on behalf of a plan and
the satisfaction of various other conditions, 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 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 exemptions to the underwriters which
are substantially the same as the administrative exemptions issued to 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
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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 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 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 the 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 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 or Class C pass
through certificates. Therefore, the fiduciary of a plan considering the
purchase of a Class B or Class C 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
Subject to the terms and conditions set forth in the underwriting
agreement, we have agreed to cause the pass through trusts to sell each of the
underwriters, the following respective aggregate amounts of the pass through
certificates:
<TABLE>
<CAPTION>
FACE FACE FACE FACE
AMOUNT AMOUNT AMOUNT AMOUNT
OF CLASS A-1 OF CLASS A-2 OF CLASS B OF CLASS C
UNDERWRITERS CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Morgan Stanley & Co. Incorporated....... $ $ $ $
Chase Securities Inc. ..................
Credit Suisse First Boston
Corporation...........................
Goldman, Sachs & Co. ...................
Banc of America Securities LLC..........
Commerzbank Capital Markets Corp........
Loop Capital Markets LLC................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................
Salomon Smith Barney Inc. ..............
-------- -------- -------- --------
Total......................... $ $ $ $
======== ======== ======== ========
</TABLE>
The underwriters will be obligated to purchase all of the pass through
certificates if any pass through certificates are purchased. If an underwriter
defaults on its purchase commitment, the purchase commitments of the
non-defaulting underwriters may be increased or the offering of the certificates
may be terminated.
We estimate that our out-of-pocket expenses will be approximately
$ .
The underwriters propose initially to offer the pass through certificates
at the public offering price on the cover page of this prospectus supplement,
and to the selling group members at that price less a concession of % of the
principal amount per certificate. The underwriters and the selling group members
may allow a discount of % of the principal amount per certificate on sales to
other broker/dealers. After the initial offering, the public offering price and
concession and discount may be changed.
The pass through certificates are new securities for which there currently
is no market. Neither we nor any pass through trust intends to apply for listing
of the pass through certificates on any securities exchange or otherwise. The
underwriters have advised us that one or more of them currently intend to make a
market in the pass through certificates as permitted by applicable law. The
underwriters are not obligated, however, to make a market in the pass through
certificates, and any such market-making may be discontinued at any time at the
sole discretion of the underwriters. Accordingly, no assurance can be given as
to the development or liquidity of any market for the pass through certificates.
The underwriting agreement provides that we will indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933 and will contribute to payments which the underwriters may be required to
make in respect thereof.
In the ordinary course of their respective businesses, the underwriters and
certain of their respective affiliates engage and may in the future engage in
investment and commercial banking or other transactions of a financial nature
with United, including the provision of certain advisory services and the making
of loans to us and our affiliates.
It is expected that delivery of the pass through certificates will be made
against payment therefor on or about the date specified in the last paragraph of
the cover page of this prospectus supplement, which will be the business
day following the date of pricing of the pass through certificates (such
settlement cycle being referred to herein as "T+ "). Under Rule 15c6-1 under
the Securities
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Exchange Act of 1934, trades in the secondary market generally are required to
settle in three business days, unless the parties to any such trade expressly
agree otherwise. Accordingly, purchasers who wish to trade pass through
certificates on the date of pricing or the next succeeding business days
will be required, by virtue of the fact that the pass through certificates
initially will settle in T+ , to specify an alternate settlement cycle at
the time of any such 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 succeeding business days should consult their own
advisor.
To facilitate the offering of the pass through certificates, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the pass through certificates. Specifically, the
underwriters may overallot in connection with the offering, creating a short
position in the pass through certificates for their own account. In addition, to
cover overallotments or to stabilize the price of the pass through certificates,
the underwriters may bid for, and purchase, pass through certificates in the
open market. Finally, the underwriters may reclaim selling concessions allowed
to an agent or a dealer for distributing pass through certificates in the
offering, if the underwriters repurchase previously distributed pass through
certificates in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the pass through certificates above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the pass through certificates is being passed upon for
United by Vedder, Price, Kaufman & Kammholz, 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, 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 indenture trustees.
EXPERTS
The audited financial statements and schedules, included in United's Annual
Report on Form 10-K for the year ended December 31, 1999 and incorporated by
reference in the prospectus accompanying this prospectus supplement and
elsewhere in the registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are incorporated therein by reference in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The references to AISI, AVITAS, AvSolutions, BK 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> 66
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 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 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
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, and (2) in the case of the Class B pass
through certificates and Class C pass through certificates, 1.0. The Aggregate
LTV Collateral Amount shall not be less than zero.
"Appraised Current Market Value" of any aircraft means the average of the
most recent five appraisals of that aircraft after excluding the appraisals with
the highest and lowest appraised values.
"Average Life Date" for any equipment note will be the date which follows
the time of determination by a period equal to the Remaining Weighted Average
Life of that equipment note. (Indentures, Section 1.01)
"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
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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%).
"event of loss" for any 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
(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 indenture. (Indenture, Section 1.01)
"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 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 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.
For purposes of calculating Expected Distributions for the pass through
certificates of any pass through trust, any Make-Whole Amount paid on the
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.
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For purposes of determining the priority of distributions on account of the
redemption of 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
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 Make-Whole Amount paid on the
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
Make-Whole Amount 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,
April 1, 2012; for the Class A-2 pass through certificates, October 1, 2012; for
the Class B pass through certificates, April 1, 2011; and for the Class C pass
through certificates, April 1, 2007.
"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.
"liquidity event of default" means an event of default under each liquidity
facility, including (1) the acceleration of all the 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 agreement, the participation
agreements and the fee letter.
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"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 equipment notes secured by 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,
61.0%; and for the Class C pass through certificates, 68.0%.
"Make-Whole Amount" means, for any 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 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 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 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 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 Average
Life Date of that equipment note and (2) the other maturing as close as possible
to, but later than, the Average Life Date of that 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 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. (Indenture, Section 1.01)
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"Maximum Available Commitment" means, at any time with respect to a
liquidity facility, 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) $ , in the case of the
liquidity facility for the Class A-1 pass through trust, (2) $ , in the
case of the liquidity facility for the Class A-2 pass through trust, (3) $
, in the case of the liquidity facility for the Class B pass through
trust, and (4) $ , in the case of the liquidity facility for the Class
C pass through trust, in each case as the amount may be reduced in accordance
with the liquidity facilities.
"Non-Performing Equipment Note" means any equipment note that is not a
Performing Equipment Note.
"Performing Equipment Note" means an 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 or as may apply for the cure of such
payment default under Section 1110(a)(2)(B) of the Bankruptcy Code) shall not be
taken into consideration until the expiration of the applicable period.
(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 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 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
equipment notes held by the pass through trust. (Section 1.01)
"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)
"Remaining Weighted Average Life" on a given date for any 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 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
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(2) the then outstanding principal amount of that equipment note.
(Indentures, 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, (A) 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 and (B) with respect to the Class C 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 A3 in the case of Moody's and A- in the
case of Standard & Poor's.
"Triggering Event" refers to (1) defaults under all 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 equipment notes or (3) some
bankruptcy or insolvency events involving United. (Intercreditor Agreement,
Section 1.1)
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[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
21 November 2000
Mr. Steven Spiegel
United Airlines
1200 East Algonquin Road
Elk Grove Township, IL 60007
Subject: AISI Report No.: A0S077BVO
AISI Sight Unseen Half Life Base Value Appraisal
Thirty-Five Various Aircraft
Reference:(a) United Fax Message 13 October 2000
Dear Mr. Spiegel:
Aircraft Information Services, Inc. (AISI) is pleased to offer United Airlines
our opinion of the sight unseen half life base value of thirty five aircraft as
listed and defined in the above reference (a) messages and in Table I of this
report. Three aircraft are adjusted for condition to account for their
relatively young age.
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 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
Headquarters: 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653
Tel: 949-582-8888 FAX: 949-582-8887 E-MAIL: [email protected]
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<PAGE> 73
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
21 November 2000
AISI File No. A0S077BVO
Page - 2 -
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 half life base values for the thirty five
subject aircraft in 2000 US Dollars. Valuations are presented in Table I subject
to the assumptions, definitions and disclaimers herein. Three aircraft are
adjusted for condition to account for their relatively young age.
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<TABLE>
Table I
Half Life
Serial Registration Date of MTOW Base Values
Aircraft Model Number Number Manufacture Engine (Lbs.) Year 2000 US$
<S> <C> <C> <C> <C> <C> <C>
A319-131 825 N809UA May-98 V2522-A5 154,322 $34,830,000
A319-131 843 N810UA Jun-98 V2522-A5 154,322 $34,830,000
A319-131 847 N811UA Jul-98 V2522-A5 154,322 $34,830,000
A319-131 850 N812UA Jul-98 V2522-A5 154,322 $34,830,000
A319-131 858 N813UA Jul-98 V2522-A5 154,322 $34,830,000
A319-131 862 N814UA Aug-98 V2522-A5 154,322 $34,830,000
A319-131 867 N815UA Aug-98 V2522-A5 154,322 $34,830,000
A319-131 871 N816UA Sep-98 V2522-A5 154,322 $34,830,000
A319-131 873 N817UA Sep-98 V2522-A5 154,322 $34,830,000
A319-131 882 N818UA Oct-98 V2522-A5 154,322 $34,830,000
A320-232 655 N437UA Feb-97 V2527-A5 169,754 $37,350,000
A320-232 678 N438UA May-97 V2527-A5 169,754 $37,350,000
A320-232 683 N439UA Jun-97 V2527-A5 169,754 $37,350,000
A320-232 702 N440UA Jul-97 V2527-A5 169,754 $37,350,000
A320-232 836 N447UA Jul-98 V2527-A5 169,754 $39,350,000
A320-232 857 N450UA Jul-98 V2527-A5 169,754 $39,350,000
B757-222 Non Etop 28142 N591UA Jun-96 PW2037 240,000 $46,700,000
B757-222 Non Etop 28143 N592UA Jul-96 PW2037 240,000 $46,700,000
B757-222 Non Etop 28144 N593UA Aug-96 PW2037 240,000 $46,700,000
B757-222 Non Etop 28145 N594UA Sep-96 PW2037 240,000 $46,700,000
B757-222 Etop 28707 N589UA Oct-97 PW2037 240,000 $49,450,000
B757-222 Etop 28708 N590UA Dec-97 PW2037 240,000 $49,450,000
B757-222 Etop 28748 N595UA Feb-98 PW2037 240,000 $51,450,000
B747-422 28812 N119UA Mar-99 PW4056 875,000 $144,820,000**
B747-422 29166 N120UA Apr-99 PW4056 875,000 $144,790,000**
B747-422 29167 N121UA Apr-99 PW4056 875,000 $144,800,000**
B777-200ER 26951 N784UA Apr-97 PW4090 640,000 $116,500,000
B777-200ER 26954 N785UA May-97 PW4090 640,000 $116,500,000
B777-200ER 26939 N787UA Sep-96 PW4090 640,000 $111,750,000
B777-200ER 26935 N789UA Aug-97 PW4090 640,000 $116,500,000
B777-200ER 26943 N790UA Aug-97 PW4090 640,000 $116,500,000
B777-200ER 26933 N791UA Aug-97 PW4090 640,000 $116,500,000
B777-200ER 26946 N793UA Oct-97 PW4090 640,000 $116,500,000
B777-200ER 26924 N797UA Feb-98 PW4090 640,000 $121,250,000
B777-200ER 26928 N798UA Feb-98 PW4090 640,000 $121,250,000
Totals $2,401,210,000
</TABLE>
** Values are not Half Life. These aircraft are adjusted for condition
due to their relative young age.
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21 November 2000
AISI File No. A0S077BVO
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
party's 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
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INTRODUCTION
AVITAS, Inc. has been retained by United Airlines (the "Client") to provide its
opinion as to the Base Value for twelve (12) Airbus A319-100s, six (6)
A320-200s, seven (7) Boeing 757-200s, four (4) 747-400s and thirteen (13)
777-200ER aircraft. The subject aircraft are identified and their values are set
forth in Figure 1 in this report.
In determining the values, AVITAS has not had the opportunity to recently
inspect the subject aircraft nor review their related technical documentation.
Consequently, unless otherwise stated, we use the following assumptions for each
aircraft in our valuation:
- the aircraft is in good physical condition
- it is in half-life, half-time condition with regard to the airframe,
engines, landing gear and other critical components unless new or
nearly new
- it is in passenger configuration
- it is operated under the air transport regulations of a major nation
- the historical maintenance documentation has been properly controlled under
internationally recognized standards
- it is in compliance with all mandatory airworthiness directives
- its specifications and modification status are comparable to other aircraft
of its type and age
- its utilization rate is similar to that of other aircraft of its type
and age
The values presented in this report do not take into consideration fleet sales,
attached leases, tax considerations or other factors that might be considered in
structuring the terms and conditions of a specific transaction. These factors do
not directly affect the value of the aircraft itself but can affect the
economics of the transaction. Therefore, the negotiated striking price in an
aircraft transaction may take into consideration factors such as the present
value of the future lease stream, the terms and conditions of the specific lease
agreement and the impact of tax considerations.
[GLOBE LOGO]
WORLD HEADQUARTERS: 14520 Avion Pkwy, Chantilly, VA 20151 USA - Telephone: (703)
476-2300 Fax: (703) 860-5855 Email: [email protected]
AVITAS EUROPE: Palace House, 3 Cathedral St. London SE1 9DE - Telephone: 0171-
716-6621 Fax: 0717-357-6873 Email: [email protected]
AVITAS ENGINEERING: 5040 N.W. 7th Street, #900 Miami, FL 33126 - Telephone:
(305) 476-9915 Email: [email protected]
A DET NORSKE VERITAS COMPANY
DEFINITIONS
AVITAS's value definitions, set forth in full in the appendix at the end of this
report, conform to those of the International Society of Transport Aircraft
Trading ("ISTAT") adopted in January 1994, and are summarized as follows:
- 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
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use." An aircraft's 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 and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable period of time for
marketing. Base Value typically assumes that an aircraft's physical
condition is average for an aircraft of its type and age, and its
maintenance time status is at mid-life, mid-time (or benefiting from an
above-average maintenance status if it is new or nearly new).
AIRCRAFT VALUE
AVITAS's opinion as to the value of the subject aircraft is presented below in
millions of U.S. dollars.
With regard to new aircraft, AVITAS considers the Base Value and the Current
Market Value to be the same. The Base Value of a new aircraft is the typical
price paid by an average operator in a single unit or small lot sale. Actual
transaction prices may be either above or below that level due to a number of
factors. For example, a launch order or a large fleet order may result in
discounts, whereas a single unit sale to a small operator who needs a
substantial amount of support may be approaching the list price.
Furthermore, implicit in these values is AVITAS's assumption that the new
aircraft will remain with the original operator for at least two years. If a
newly delivered aircraft comes onto the market, the seller is at an immediate
disadvantage as he is likely to be in competition with the manufacturer who can
offer training and support.
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FIGURE 1
UNITED AIRLINES
U.S. DOLLARS IN MILLIONS
<TABLE>
<CAPTION>
AIRCRAFT SERIAL DELIVERY MANUFACTURE MTOW BASE
NO. MODEL ENGINES NUMBER DATE DATE (LBS) VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
1 A319-100 V2522-A5 825 1998-05 1998-05 154,322 $ 29.9
2 A319-100 V2522-A5 843 1998-06 1998-06 154,322 29.9
3 A319-100 V2522-A5 847 1998-07 1998-06 154,322 29.9
4 A319-100 V2522-A5 850 1998-07 1998-06 154,322 29.9
5 A319-100 V2522-A5 858 1998-07 1998-07 154,322 30.4
6 A319-100 V2522-A5 862 1998-08 1998-07 154,322 30.4
7 A319-100 V2522-A5 867 1998-08 1998-07 154,322 30.4
8 A319-100 V2522-A5 871 1998-09 1998-07 154,322 30.4
9 A319-100 V2522-A5 873 1998-09 1998-08 154,322 30.4
10 A319-100 V2522-A5 882 1998-10 1998-08 154,322 30.4
11 A320-200 V2527-A5 655 1997-02 1997-01 169,754 34.6
12 A320-200 V2527-A5 678 1997-05 1997-04 169,754 35.1
13 A320-200 V2527-A5 683 1997-06 1997-04 169,754 35.1
14 A320-200 V2527-A5 702 1997-07 1997-05 169,754 35.1
15 A320-200 V2527-A5 836 1998-07 1998-05 169,754 37.1
16 A320-200 V2527-A5 857 1998-07 1998-06 169,754 37.1
17 757-200 non-ETOPS PW2037 28142 1996-06 1996-06 240,000 39.3
18 757-200 non-ETOPS PW2037 28143 1996-07 1996-06 240,000 39.3
19 757-200 non-ETOPS PW2037 28144 1996-08 1996-07 240,000 40.0
20 757-200 non-ETOPS PW2037 28145 1996-09 1996-08 240,000 40.0
21 757-200 PW2037 28707 1997-10 1997-08 240,000 43.5
22 757-200 PW2037 28708 1997-12 1997-11 240,000 44.1
23 757-200 PW2037 28748 1998-02 1998-01 240,000 44.9
24 747-400 PW4056 28812 1999-03 1999-02 875,000 130.2
25 747-400 PW4056 29166 1999-04 1999-03 875,000 130.2
26 747-400 PW4056 29167 1999-04 1999-03 875,000 130.2
27 777-200ER PW4090 26951 1997-04 1997-03 640,000 109.3
28 777-200ER PW4090 26954 1997-05 1997-04 640,000 110.7
29 777-200ER PW4090 26939 1997-06 1996-09 640,000 106.7
30 777-200ER PW4090 26935 1997-08 1997-07 640,000 112.1
31 777-200ER PW4090 26943 1997-08 1997-07 640,000 112.1
32 777-200ER PW4090 26933 1997-08 1997-08 640,000 112.1
33 777-200ER PW4090 26946 1997-10 1997-09 640,000 112.1
34 777-200ER PW4090 26924 1998-02 1997-12 640,000 113.4
35 777-200ER PW4090 26928 1998-02 1998-01 640,000 114.8
GRAND TOTAL $ 2,201.2
</TABLE>
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CURRENT MARKET - AIRBUS A319-100
CURRENT MARKET
AVITAS believes that A319 current market is firm, representative of the
narrowbody market as a whole. The aircraft type has a solid operator base and
backlog and the benefit of commonality with other Airbus products. Airbus has
during the last year captured some strategically important orders from formerly
loyal Boeing airlines and lessors. The A319 competes with the Boeing 737-300 and
-700 aircraft, of which there are currently a combined 1,330 aircraft in service
and 474 on firm order.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
It is AVITAS's opinion that expansion of the A319's operator base will primarily
come from existing A320 operators. Of minor concern is the trend surfacing in
recent orders whereby the orderholders have the flexibility to convert to A320
or A321 aircraft; however, the strength of the A320 family of aircraft in the
market has overall positive implications for the A319. With a solid backlog from
airline operators and companies and acceptance in the North American market, the
A319 values should remain firm for the foreseeable future.
CURRENT MARKET - AIRBUS A320-200 AIRCRAFT
CURRENT MARKET
AVITAS is of the opinion that the current market for the Airbus A320 series
aircraft is firm. The aircraft benefits from a low level of availability, broad
operator base and high demand for the type. Airbus has enjoyed a great deal of
success in the past year with the A320 aircraft and has received several large
and strategically important orders from traditional Boeing customers. It
competes with the Boeing 737-400, which ceased production in 1999 and its
predecessor the 737-800.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
AVITAS believes that the A320-200 will continue to be a significant competitor
in the 150-seat market well into the future with competition from the Boeing
737-400 and 737-800. The A320 has more range than the 737-400 and slightly
higher seat capacity. The 737-800 has approximately the same range (3,000
nautical miles) but 12 more seats than the A320 (the exact number of seats
depends on interior configuration).
The A320-200 has a well-established population of 832 aircraft currently in
service among a broad operator base. This coupled with the 517 aircraft on firm
order indicates the future market base for the type is due to expand
significantly and residual values will remain firm.
Pratt & Whitney is developing the PW8000 engine for a new generation A320, which
may enter service in 2005. With the introduction of the PW8000, the engine
manufacturer hopes to reduce maintenance costs, and lower fuel consumption. This
will improve an already technologically advanced aircraft.
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CURRENT MARKET - BOEING 757-200
CURRENT MARKET
AVITAS believes that the market for the Boeing 757-200 series is currently
stable with some recent large orders from major carriers. The aircraft has low
availability, a broad operator base of 62 operators and a backlog of 82 firm
orders. However, the type is facing increased competition from the A321, which
presently has 166 aircraft in service among 40 operators and a firm backlog of
170 aircraft.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
In terms of competition, the 757 enjoyed market dominance until the introduction
of the A321 in 1994. With similar capacity (approximately 9-19 fewer seats than
the 757), but less range, the A321 has begun to challenge the 757. However, the
757-200 enjoyed an 11-year head start in market development.
FIGURE 2
BOEING 757-200 COMPETITIVE PROFILE
AS OF JULY 2000
AIRCRAFT TYPE IN SERVICE OPERATORS RANGE (NM) SEAT CAPACITY
B757-200 non-ETOPS 898(*) 62 (*) 2,700 w/194 pax 194-239
B757-200 ETOPS 898(*) 62 (*) 3,900 w/194 pax 194-239
B757-300 15 2 3,450 w/243 pax 243-289
A321-100 88 12 2,350 w/185 pax 185-220
A321-200 78 21 3,000 w/185 pax 185-220
(*) Data include both non-ETOPS and ETOPS aircraft
In terms of freighter operations, operators utilize aircraft types for a much
longer life because of the lower level of utilization and therefore, many
earlier generation jet transport aircraft are still in operation with these
companies. This has affected the market for aircraft types such as the DC-8-70
series aircraft. The cost of acquiring replacement aircraft proves to be much
less cost effective than retaining the older aircraft. This is because the
best-fit replacement aircraft are generally new generation aircraft such as the
757-200PF. However, there have been a significant number of freight airlines
that are beginning to add these new generation aircraft to their fleets.
Airborne Express is converting 23 B767-200Fs acquired from ANA. UPS, which
ordered 30 new A300-600 freighters in 1998, previously purchased the 757-200PF
AND 767-300F.
AVITAS is of the opinion that many 757-passenger aircraft will be converted to
freighters as the type ages. However, due to the 757's success as a passenger
aircraft, until recently market values have not been low enough to absorb the
conversion costs. The DHL transaction has provided the initial indication that
the RB211-535C-powered aircraft values are becoming low enough to justify
freighter conversion. AVITAS believes that over the next several years, the
oldest of the type will drop into a value range that will justify conversion and
the market base is expected to broaden considerably.
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CURRENT MARKET - BOEING 747-400
CURRENT MARKET
AVITAS is of the opinion that the current market for the Boeing 747-400 is soft
due to the economic difficulties in Asia and a diminishing backlog for passenger
aircraft. Asia is recovering from the recession but some negative impacts are
still being felt and values are not expected to firm for another year. However,
the market for the 747-400 Freighter has improved with signs of economic
recovery exhibited in Asia since mid-1999. This is reflected by the orders
placed by GECAS, Cathay Pacific and Korean Airlines, Singapore Airlines and
China Airlines for freighter aircraft.
OUTLOOK AND FUTURE RISK ANALYSIS
AVITAS believes that the economic difficulties in Asia will keep the 747-400
values soft for at least another year. Boeing announced last year that they
would decrease the production rate from 3.5 units per month to two in late 1999
and to one per month in 2000 unless market conditions in Asia improve.
However, as Asia is beginning to recover the values of the 747-400 are expected
to firm due to its operational capabilities, strong development history and
large market presence which will assure it a leading role in the widebody market
for the next decade. Any future orders for the type are expected to come from
existing 747-400 operators. The new A340-600, which is scheduled for service
entry in 2002, and the 777-300 may offer operators an alternative aircraft to
fit certain mission profiles and increase the competition for future orders.
Boeing is currently working on a near term derivative of the 747-400 designated
the 747-400X that features increased MTOW of 910,000 pounds and increased fuel
capacity up to 6,500 U.S. gallons resulting in approximately 450 nautical miles
more range. In addition, the Boeing Company is working on further enhanced
versions of the 747-400, referred to as the 747X, in anticipation of the launch
of the Airbus A3XX. The stretch 747X will feature a new larger wing, new
engines, 20% more passenger capacity and 500 nautical miles more range than the
current 747-400. The long range version of the 747X will incorporate the same
new wing and engine as the stretch version, will seat only a handful more
passengers than the current 747-400 but will have approximately 1,500 nautical
miles more range. Airbus's A3XX very large transport (550 passengers), which is
not expected to enter service until the year 2006 at the earliest, is the only
proposed direct competition to the Boeing 747-400.
CURRENT MARKET - BOEING 777
CURRENT MARKET
The 777 fits the gap between the 767 and the 747 and is replacing aircraft such
as the 747-200 and first generation tri-jets, which are being phased out by many
carriers. Because of its very long range, the 777-200ER has become the most
popular model. Due to a strong backlog and low availability for the 777-200ER
type, we believe the current market is balanced; however, for the 777-300 we
believe that prices may come under pressure as operators have cancelled or
deferred orders for the type. Also, the
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recent launch of the 777-300ER may also negatively affect value performance of
the -300 while the 777-200LR will be more of a complement to the -200ER.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
The Boeing 777 will eventually replace older widebodies such as the Boeing
747-100/-200 and older tri-jets such as the DC-10, of which there are 197 and
201 passenger aircraft in service respectively and which have an average age of
over 20 years. The prospects for replacing three and four engine widebody
aircraft with the 777 is being further enhanced by the FAA decision to extend
ETOPS certification from the current maximum of 180 minutes to 207 minutes
effective March 21, 2000. The FAA later delayed the decision by 45 days due to
opposition from the Allied Pilots Association and Airbus. An extension of ETOPS
certification to 207 minutes allows for more efficient routings of twin engine
aircraft over the Pacific than are currently available, making the 777 more
attractive to trans-Pacific operators.
AVITAS's opinion is that the values for the Boeing 777 series will hold firm in
the foreseeable future due to the large backlog for the type. The aircraft holds
more firm orders than the A330 and A340 aircraft. The Asian recession slowed
down ordering of all widebody aircraft and increased cancellations, however it
appears that the newly launched -200LR and -300ER aircraft have spurred new
orders from both airlines and leasing companies. The long-range versions of the
777, the -200ER/-200LR and -300ER will most likely be the most successful
aircraft among the all the 777s.
COVENANTS
Unless otherwise noted, the values presented in this report assume an
arm's-length, free market transaction for cash between informed, willing and
able parties free of any duress to complete the transaction. If a distress sale
becomes necessary, a substantial discount may be required to quickly dispose of
the equipment.
AVITAS does not have, and does not intend to have, any financial or other
interest in the subject aircraft. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the express consent of the Client.
This report represents the opinion of AVITAS and is intended to be advisory only
in nature. Therefore, AVITAS assumes no responsibility or legal liability for
any action taken, or not taken, by the Client or any other party, with regard to
this equipment. By accepting this report, all parties agree that AVITAS shall
bear no such responsibility or legal liability including liability for special
or consequential damage.
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STATEMENT OF INDEPENDENCE
AVITAS hereby states that this valuation report has been independently prepared
and fairly represents AVITAS's opinion of the subject aircraft's value.
/s/ SUSANNA BLACKMAN
---------------------------------
Susanna Blackman
Manager - Appraisal Operations
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APPENDIX A - AVITAS VALUE DEFINITIONS
-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 value trends and presumes an arm's-length, cash
transaction between willing and knowledgeable parties, acting prudently, with
an absence of duress and with a reasonable period of time for marketing. Base
Value typically assumes that an aircraft's physical condition is average for an
aircraft of its type and age, and its maintenance time status is at mid-life,
mid-time (or benefiting from an above-average maintenance status if it is new
or nearly new).
-MARKET VALUE (or CURRENT MARKET VALUE if the value pertains to the time of the
analysis) is the appraiser's opinion of the most likely trading price that may
be generated for an aircraft under the market conditions that are perceived to
exist at the time in question. Market Value assumes that the aircraft is valued
for its highest, best use, that the parties to the hypothetical 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. Market Value assumes that an aircraft's physical condition
is average for an aircraft of its type and age, and its maintenance time status
is at mid-life, mid-time (or benefiting from an above-average maintenance
status if it is new or nearly new). Market Value is synonymous with Fair Market
Value in that both reflect the state of supply and demand in the market that
exists at the time.
-ADJUSTED (CURRENT) MARKET VALUE indicates the Market Value of the aircraft
adjusted for the actual technical status and maintenance condition of the
aircraft, but still assuming the same market conditions and transaction
circumstances as described above.
-DISTRESS VALUE is the appraiser's opinion of the price at which an aircraft
could be sold under abnormal conditions, such as an artificially limited
marketing time period, the perception of the seller being under duress to sell,
an auction, a liquidation, commercial restrictions, legal complications or
other such factors that significantly reduce the bargaining leverage of the
seller and give the buyer a significant advantage that can translate into
heavily discounted actual trading prices. Apart from the fact that the seller
is uncommonly motivated, the parties to the transaction are otherwise assumed
to be willing, able, prudent and knowledgeable, negotiating under the market
conditions that are perceived to exist at the time, not in an idealized
balanced market. While Distress Value normally implies that the seller is under
some duress, there are occasions when buyers, not sellers, are distressed and,
therefore, willing to pay a premium price.
-FUTURE BASE VALUE is the appraiser's forecast of future aircraft value(s)
setting forth Base Value(s) as defined above.
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APPENDIX A - AVITAS VALUE DEFINITIONS
-SECURITIZED VALUE or LEASE - ENCUMBERED VALUE is the appraiser's opinion of
the value of an aircraft under lease, given a specified lease payment stream
(rents and term), an estimated future residual value at lease termination and
an appropriate discount rate. The Securitized Value or Lease - Encumbered Value
may be more or less than the appraiser's opinion of Market Value. The appraiser
may not be fully aware of the credit risks associated with the parties
involved, nor the time-value of money to those parties, nor with possible tax
consequences pertaining to the parties involved, nor with all of the provisions
of the lease that may pertain to items such as security deposits, purchase
options at various dates, term extensions, sub-lease rights, repossession
rights, reserve payments and return conditions.
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APPENDIX B - AVITAS APPRAISAL METHODOLOGY
At AVITAS, we undertake formal periodic value reviews of the approximately ten
dozen aircraft types that we regularly track as well as value updates as market
events and movements require. The primary value opinions we develop are Market
Value, Base Value and Future Base Value. An aircraft's Market Value is the price
at which you could sell the aircraft under the market conditions prevailing at
the time in question and its Base Value is the theoretical value of the aircraft
assuming a balanced market in terms of supply and demand. In reaching our value
opinions, we use data on actual market transactions, various analytical
techniques, a proprietary forecasting model and our own extensive industry
experience. While Market Value and Base Value embody different value concepts,
we are continually cross checking their relationships to determine if our value
opinions are reasonable given existing market conditions.
Our broad aviation industry backgrounds are critically important; they add a
diversity of viewpoints and a high degree of realism to our value opinions. Our
backgrounds include: aircraft design, performance analysis, traffic and yield
forecasting, fleet forecasting, aircraft finance, the negotiation of aircraft
loans, finance leases and operating leases, problem deal workouts,
repossessions, aircraft sales, jetliner manufacturing, maintenance and overhaul
activities, econometric modeling and forecasting, market research, and database
development.
-MARKET VALUE In determining Current Market Values, we use a blend of
techniques and tools. First, through various services and our extensive
personal contacts, we collect as much actual transaction data as possible on
aircraft sales, leases, financings and scrappings. Our published values assume
airframes, engines and landing gear to be halfway through their various
overhaul and/or life cycles. Because sales of half-life aircraft rarely occur,
and because sales can include spare engines, parts, attached lease streams, tax
considerations and other factors, judgment and experience are important in
adjusting actual transaction data to represent clean, half-life Market Values.
In addition, because over the last several years there have been a large number
of aircraft leases, our experience and knowledge of the market is used to make
value inferences from lease rentals and terms.
As a supplement to transaction data, and in some cases in the absence of actual
market activity, we also use other methods to assist in framing Market Value
opinions. We use several analytical tools because we do not believe that there
is any one technique which always results in the "right" number. Replacement
cost analysis can simply be the cost of a new airplane of the same model or it
can be used where it is possible to reproduce an aircraft. It is often helpful
in framing the upper limit of an aircraft's value, particularly for modified or
upgraded aircraft. Examples would be a passenger aircraft such as the 747-100
which can be converted into freighter configuration or a Stage 2 airplane which
can be hushkitted to Stage 3 compliance. Value in use or income analysis is
another technique in which an aircraft's earning capacity over time is
determined and the present value of those earnings is calculated. Because
different operators have different costs, yields and hurdle rates of return,
this technique can yield a range of values. Therefore, the appraiser must use
his judgment to determine what value in that range represents a Market Value
representative of the overall marketplace. Another powerful tool which we use is
should-cost analysis, which is a blend of replacement cost and value in use
analysis. This technique is used when there is little or no market data on a
particular airplane type but there is on similar or competing types. By
analyzing the economic and operational profiles of competing aircraft, the
appraiser is able to impute what the aircraft in question should cost to
position it competitively.
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[AVITAS(R) LOGO]
APPENDIX B - AVITAS APPRAISAL METHODOLOGY
Once we have formulated our own internal Market Value opinions, we present them
to a small, select group of outside aviation experts - individuals in the fields
of aircraft manufacturing, sales, remarketing, financing and forecasting who we
know well and regard very highly - for their review and frank comments. We
consider this "reality check," which often results in further value refinements,
to be a critical part of our value process in that it helps us combat "ivory
tower syndrome."
-BASE VALUE The determination of Base Value, an aircraft's balanced market,
long term value, is a highly subjective matter, one in which even the most
skilled appraisers may have widely divergent views. We use three main tools in
developing Base Values. First, we use our own research, judgment and
perceptions of each aircraft type's long term competitive strengths and
weaknesses vis-a-vis both competing aircraft types and the marketplace as a
whole. Second, we utilize a transaction-based computer forecasting model
developed by AVITAS and refined over the years. Based on thousands of actual
market transactions, the model sets forth a series of value curves which
describe the value behaviors of aircraft under different circumstances. Third,
we do a final reality check by comparing our opinion of an aircraft's Base
Value to our opinion of its Current Market Value and current marketplace
conditions.
We analyze each aircraft model to determine its historic, current and projected
competitive position with respect to similar aircraft types in terms of mission
capability (i.e., what are the aircraft's capabilities and to what extent does
the market require those capabilities), economic profile and market penetration.
As a result of weighing those factors, we assign a numerical "strength" to each
aircraft for each year of its economic life, where Strength 10 represents the
strongest value performance and Strength 1 the weakest. The model then takes
those strength factors and translates them into the aircraft's Base and Future
Base Values based on its actual replacement cost (or theoretical replacement
cost if it is no longer in production). After Base Values have been calculated,
we compare them to our Current Market Value opinions as a calibration check of
the computer model. In the infrequent case where the marketplace for that
aircraft is in balance, Base Value and Current Market Value should be the same.
In most cases, though, we must subjectively compare Base Value with Current
Market Value to see if we believe the relationship is reasonable. This may
highlight where Base Value inputs require further refinements. Because of the
dynamics of the aircraft marketplace and our continuing recalibration, Base
Value opinions are not static.
II-16
<PAGE> 88
AvSOLUTIONS
--------------------------------------------------------------------------------
November 27, 2000
Mr. Steven Spiegel, Manager
Corporate Finance
United Airlines
1200 E. Algonquin Road
Elk Grove Township, Illinois 60007
Dear Mr. Spiegel:
AvSOLUTIONS is pleased to provide its opinion on the base values as of
November 1, 2000, of ten Airbus Industrie A319-131 aircraft, six Airbus
Industrie A320-232 aircraft, seven Boeing 757-222 aircraft, three Boeing 747-422
aircraft and nine Boeing 777-200ER aircraft (collectively, the "Aircraft"). A
list of the thirty-five (35) aircraft, along with their serial numbers, delivery
dates and engine types, 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 knowledge parties
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
FAIR MARKET VALUE
-----------------
The Fair Market Value (FMV) of an aircraft 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,
according to the International Society of Transport Aircraft Trading (ISTAT), to
which AvSOLUTIONS belongs. The fair market value assumes that the aircraft is
valued for its highest and best use, that the parties to the hypothetical sales
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 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.
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AvSOLUTIONS
--------------------------------------------------------------------------------
Page 2
United Airlines
APPRAISAL METHODOLOGY
---------------------
The method employed by AvSOLUTIONS to appraise the current and base values
of aircraft and 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 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.
LIMITING CONDITIONS AND ASSUMPTIONS
-----------------------------------
In order to conduct this valuation, AvSOLUTIONS is primarily relying on
information supplied by United Airlines and from data within AvSOLUTIONS' own
database. In determining the base value of the subject aircraft, 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 already have been delivered to United Airlines.
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AvSOLUTIONS
--------------------------------------------------------------------------------
Page 3
United Airlines
3. The Aircraft are 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.
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.
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/ Tulinda Larsen
Tulinda Larsen
Vice-President
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AvSOLUTIONS
--------------------------------------------------------------------------------
ATTACHMENT 1
EETC COLLATERAL SUMMARY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
UNITED AIRLINES 2000-2 EETC
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Ship Serial Registration Original Engine MTOW
Number Number Number Delivery Engine Type Serial Numbers Cycles Hours (lbs.) Base $
Nose MSN Tail
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIRBUS 319-131
1 4009 825 N809UA 19-May-98 IAE V2522-A5 V10346/V10350 3230 8970 154,322 29.20
2 4010 843 N810UA 29-Jun-98 IAE V2522-A5 V10367/V10368 3006 8395 154,322 29.20
3 4011 847 N811UA 02-Jul-98 IAE V2522-A5 V10373/V10374 3011 8600 154,322 29.20
4 4012 850 N812UA 09-Jul-98 IAE V2522-A5 V10051/V10435 2846 8317 154,322 29.20
5 4013 858 N813UA 23-Jul-98 IAE V2522-A5 V10389/V10387 2940 8249 154,322 29.20
6 4014 862 N814UA 05-Aug-98 IAE V2522-A5 V10394/V10399 2876 8145 154,322 29.20
7 4015 867 N815UA 11-Aug-98 IAE V2522-A5 V10401/V10402 2858 8152 154,322 29.20
8 4016 871 N816UA 02-Sep-98 IAE V2522-A5 V10406/V10098 2775 7883 154,322 29.20
9 4017 873 N817UA 08-Sep-98 IAE V2522-A5 V10428/V10072 2739 7822 154,322 29.20
10 4018 882 N818UA 01-Oct-98 IAE V2522-A5 V10057/V10411 2564 7402 154,322 29.20
AIRBUS 320-232
11 4637 655 N437UA 20-Feb-97 IAE V2527-A5 V10070/V10170 4361 13615 169,754 36.22
12 4638 678 N438UA 29-May-97 IAE V2527-A5 V10216/V10024 4148 12712 169,754 36.22
13 4639 683 N439UA 11-Jun-97 IAE V2527-A5 V10095/V10087 4169 12999 169,754 36.22
14 4640 702 N440UA 07-Jul-97 IAE V2527-A5 V10230/V10231 4032 12532 169,754 36.22
15 4647 836 N447UA 01-Jul-98 IAE V2527-A5 V10358/V10357 2902 9004 169,754 37.71
16 4650 857 N450UA 29-Jul-98 IAE V2527-A5 V10382/V10383 2734 8496 169,754 37.71
BOEING 757-222
17 5491 28142 N591UA 28-Jun-96 PW2037 726610/726544 5875 15438 240,000 44.61
18 5492 28143 N592UA 10-Jul-96 PW2037 726583/726559 5780 15552 240,000 44.61
19 5493 28144 N593UA 12-Aug-96 PW2037 726650/726622 5620 14768 240,000 44.61
20 5494 28145 N594UA 11-Sep-96 PW2037 726585/726606 5512 14932 240,000 44.61
21 5589 28707 N589UA 24-Oct-97 PW2037 726591/727247 3374 12187 240.000 47.70
22 5590 28708 N590UA 31-Dec-97 PW2037 717991/727249 3230 11490 240,000 47.70
23 5595 28748 N595UA 04-Feb-98 PW2037 727254/727255 3125 11215 240.000 49.93
BOEING 747-422
24 8419 28812 N119UA 29-Mar-99 PW4056 727877/727878/727879/727881 827 7138 875,000 140.17
25 8420 29166 N120UA 12-Apr-99 PW4056 727880/727882/727687/727884 879 6892 875,000 140.17
26 8421 29167 N121UA 22-Apr-99 PW4056 727885/727886/727887/727888 862 6892 875,000 140.17
BOEING 777-200ER
27 2484 26951 N784UA 29-Apr-97 PW4090 222004/222052 2508 16362 640,000 110.38
28 2485 26954 N785UA 21-May-97 PW4090 222011/222061 2523 15974 640,000 110.38
29 2487 26939 N787UA 09-Sep-97 PW4090 222006/222009 2611 15797 640,000 106.21
30 2489 26935 N789UA 11-Aug-97 PW4090 222025/222023 2344 14977 640,000 110.38
31 2490 26943 N790UA 28-Aug-97 PW4090 222034/222039 2341 14800 640,000 110.38
32 2491 26933 N791UA 28-Aug-97 PW4090 222046/222055 2362 14854 640,000 110.38
33 2493 26946 N793UA 07-Oct-97 PW4090 222008/222026 2271 14267 640,000 110.38
34 2497 26924 N797UA 20-Feb-98 PW4090 222003/222010 1837 11756 640,000 115.71
35 2498 26928 N798UA 28-Feb-98 PW4090 222024/222036 1839 11710 640,000 115.71
------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 92
[LETTERHEAD OF BK ASSOCIATES, INC.]
November 22, 2000
Mr. Steven Spiegel
UNITED AIR LINES
1200 E. Algonquin Road
Elk Grove Township, IL 60007
Dear Steve:
In response to your request, BK Associates, Inc. is pleased to provide this
opinion on the current Base Values (BV) of various aircraft in the United
Airlines Fleet, referred to as the "United Airlines 2000-2 EETC" (Aircraft).
The Aircraft are identified by model, registration, serial number, engine type,
maximum takeoff weight, and date of manufacture on the attached Figure 1.
Set forth below is a summary of the methodology, considerations and assumptions
utilized in this appraisal.
BASE VALUE
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of 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.
VALUE METHODOLOGY
As the definition suggests, Base Value is determined from historic and future
value trends and is not influenced by current market conditions. It is often
determined as a function of the original cost of the aircraft, technical
characteristics of competing aircraft, and development of new models. For a new
aircraft, the Base Value is largely determined from the manufacturer's price and
the prices paid for recent deliveries of similar aircraft. For older aircraft,
such as some of the Aircraft, BK Associates has developed from historic sales
data, a relationship between the average sale price as a percentage of the
original price for various categories of aircraft. These data predict what the
base value of
II-21
<PAGE> 93
BK ASSOCIATES, INC.
Mr. Steven Spiegel
November 22, 2000
Page 2
a typical aircraft should be. The data must be adjusted to reflect the expected
market success and performance features of a particular aircraft.
BK Associates has accumulated a database of over 8,000 data points of aircraft
sales that occurred since 1970. From analysis of these data we know, for
example, what the average 10-year old aircraft should sell for as a percentage
of its new price, as well as, the high and low values that have occurred in
strong and weak markets.
Based on these data, we have developed relationships between aircraft age and
sales price for wide-bodies, narrow-bodies, large turboprops and, more recently,
regional jet and freighter aircraft. Within these groups we have developed
further refinements for such things as derivative aircraft, aircraft still in
production versus no longer in production, and aircraft early in the production
run versus later models. Within each group variations are determined by the
performance capabilities of each aircraft relative to the others. We now track
some 150 different variations of aircraft types and models and determine current
and forecast Base Values. These relationships are verified, and changed or
updated if necessary, when actual sales data do become available.
LIMITING CONDITIONS AND ASSUMPTIONS
BK has neither inspected the Aircraft nor their maintenance records but relied
upon information supplied by you and from BK's own database. In determining the
base value of an aircraft, the following assumptions apply to the aircraft:
1. Unless it is new, the aircraft has half-time remaining to its next major
overhauls or scheduled shop visit on its airframe, engines, landing gear
and auxiliary power unit.
2. The aircraft is in compliance under a Federal Aviation Administration
approved airline maintenance program, with all airworthiness directives,
mandatory modifications and applicable service bulletins currently up to
industry standard.
3. The interior of the aircraft is in a standard configuration for its
specific type, with the buyer furnished equipment and options of the types
and models generally accepted and utilized in the industry.
4. The aircraft is in current flight operations.
II-22
<PAGE> 94
BK ASSOCIATES, INC.
Mr. Steven Spiegel
November 22, 2000
Page 3
5. The aircraft is sold for cash without seller financing.
6. The Aircraft is in average or better condition.
7. There is no accident damage.
CONCLUSIONS
Based on the above methodology, considerations and assumptions, it is our
opinion that the current base values of the Aircraft expressed in millions of
U.S. dollars are as shown in Figure 1.
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK Associates, Inc. shall bear no such responsibility or
legal liability. This appraisal is prepared for the use of the addressee and
shall not be provided to other parties without the express consent of the
addressee.
Sincerely yours,
BK ASSOCIATES, INC.
/s/ JOHN F. KEITZ
--------------------------
John F. Keitz
President
ISTAT Senior Certified Appraiser
JFK/kf
Attachment
II-23
<PAGE> 95
FIGURE 1
AIRCRAFT CURRENT BASE VALUES (AS OF NOVEMBER 2000)
<TABLE>
<CAPTION>
Date of CMV
No. Aircraft Regist Sernum Mfgr. Engine MTOW(lbs.) ($Mils.)
--- -------- ------ ------ ----- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1) A319-131 N809UA 825 May-98 V2522-A5 154,322 31.100
2) A319-131 N810UA 843 Jun-98 V2522-A5 154,322 31.200
3) A319-131 N811UA 847 Jul-98 V2522-A5 154,322 31.200
4) A319-131 N812UA 850 Jul-98 V2522-A5 154,322 31.200
5) A319-131 N813UA 858 Jul-98 V2522-A5 154,322 31.200
6) A319-131 N814UA 862 Aug-98 V2522-A5 154,322 31.200
7) A319-131 N815UA 867 Aug-98 V2522-A5 154,322 31.200
8) A319-131 N816UA 871 Sep-98 V2522-A5 154,322 31.300
9) A319-131 N817UA 873 Sep-98 V2522-A5 154,322 31.300
10) A319-131 N818UA 882 Oct-98 V2522-A5 154,322 31.400
11) A320232 N437UA 655 Feb-97 V2527-A5 169,754 36.100
12) A320232 N438UA 678 May-97 V2527-A5 169,754 36.450
13) A320232 N439UA 683 Jun-97 V2527-A5 169,754 36.550
14) A320232 N440UA 702 Jul-97 V2527-A5 169,754 36.700
15) A320232 N447UA 836 Jul-98 V2527-A5 169,754 38.000
16) A320232 N450UA 857 Jul-98 V2527-A5 169,754 38.000
17) B757-222 N591UA 28142 Jun-96 PW2037 240,000 45.250
18) B757-222 N592UA 28143 Jul-96 PW2037 240,000 45.450
19) B757-222 N593UA 28144 Aug-96 PW2037 240,000 45.600
20) B757-222 N594UA 28145 Sep-96 PW2037 240,000 45.800
21) B757-222* N589UA 28707 Oct-97 PW2037 240,000 50.900
22) B757-222* N590UA 28708 Dec-97 PW2037 240,000 51.100
23) B757-222* N595UA 28748 Feb-98 PW2037 240,000 51.450
24) B747-422 N119UA 28812 Mar-99 PW4056 875,000 142.300
25) B747-422 N120UA 29166 Apr-99 PW4056 875,000 142.800
26) B747-422 N121UA 29167 Apr-99 PW4056 875,000 142.300
27) B777-222ER N784UA 26951 Apr-97 PW4090 640,000 113.450
28) B777-222ER N785UA 26954 May-97 PW4090 640,000 118.450
29) B777-222ER N787UA** 26939 Jun-97 PW4090 640,000 114.200
30) B777-222ER N789UA 26935 Aug-97 PW4090 640,000 115.000
31) B777-222ER N790UA 26943 Aug-97 PW4090 640,000 115.000
32) B777-222ER N791UA 26933 Aug-97 PW4090 640,000 115.000
33) B777-222ER N793UA 26946 Oct-97 PW4090 640,000 115.450
34) B777-222ER N797UA 26924 Feb-98 PW4090 640,000 115.200
35) B777-222ER N798UA 26928 Feb-98 PW4090 640,000 115.200
</TABLE>
*Denotes ETOPS Certified
**Manufactured in Sept. 1996
II-24
<PAGE> 96
MORTEN BEYER & AGNEW
----------------------
AVIATION CONSULTING FIRM
Current Base Value Appraisal
of 35 Aircraft
(2000-2 EETC)
PREPARED FOR
United Airlines
NOVEMBER 2, 2000
Washington, D.C. London Pacific Rim
2107 Wilson Blvd. Lahinch 62, Lashmere 3-16-16 Higashiooi
Suite 750 Copthorne Shinagawa-ku
Arlington, Virginia 22201 West Sussex Tokyo 140-0011
United States United Kingdom Japan
Phone + 703 276 3200 Phone +44 1342 716248 Phone +81 3 3763 6845
Fax +703 276 3201 Fax +44 1342 718967
[MBA LOGO]
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<PAGE> 97
I. INTRODUCTION AND EXECUTIVE SUMMARY
MORTEN BEYER & AGNEW, INC. (MBA) has been retained by UNITED AIRLINES to
determine the Current Base Value of 35 aircraft as the valuation pertains to the
United Airlines 2000-2 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, and was not independently confirmed by MBA. Based on the
information set forth further in this report, it is our opinion that the Current
Base Value of this portfolio is $2,421,690,000 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.
II-26
[MBA LOGO]
<PAGE> 98
<TABLE>
<CAPTION>
II. AIRCRAFT
Ship Serial Registration Original
Number Number Number Delivery Engine Type
Nose MSN Tail
<S> <C> <C> <C> <C> <C>
AIRBUS 319-131
1 4009 825 N809UA 19-May-98 IAE V2522-A5
2 4010 843 N810UA 29-Jun-98 IAE V2522-A5
3 4011 847 N811UA 02-Jul-98 IAE V2522-A5
4 4012 850 N812UA 09-Jul-98 IAE V2522-A5
5 4013 858 N813UA 23-Jul-98 IAE V2522-A5
6 4014 862 N814UA 05-Aug-98 IAE V2522-A5
7 4015 867 N815UA 11-Aug-98 IAE V2522-A5
8 4016 871 N816UA 02-Sep-98 IAE V2522-A5
9 4017 873 N817UA 08-Sep-98 IAE V2522-A5
10 4018 882 N818UA 01-Oct-98 IAE V2522-A5
AIRBUS 320-232
11 4637 655 N437UA 20-Feb-97 IAE V2527-A5
12 4638 678 N438UA 29-May-97 IAE V2527-A5
13 4639 683 N439UA 11-Jun-97 IAE V2527-A5
14 4640 702 N440UA 07-Jul-97 IAE V2527-A5
15 4647 836 N447UA 01-Jul-98 IAE V2527-A5
16 4650 857 N450UA 29-Jul-98 IAE V2527-A5
BOEING 757-222
17 5491 28142 N591UA 28-Jun-96 PW2037
18 5492 28143 N592UA 10-Jul-96 PW2037
19 5493 28144 N593UA 12-Aug-96 PW2037
20 5494 28145 N594UA 11-Sep-96 PW2037
21 5589 28707 N589UA 24-Oct-97 PW2037
22 5590 28708 N590UA 31-Dec-97 PW2037
23 5595 28748 N595UA 04-Feb-98 PW2037
BOEING 747-422
24 8419 28812 N119UA 29-Mar-99 PW4056
25 8420 29166 N120UA 12-Apr-99 PW4056
26 8421 29167 N121UA 22-Apr-99 PW4056
BOEING 777-200ER
27 2484 26951 N784UA 29-Apr-97 PW4090
28 2485 26954 N785UA 21-May-97 PW4090
29 2487 26939 N787UA 01-Sep-96 PW4090
30 2489 26935 N789UA 11-Aug-97 PW4090
31 2490 26943 N790UA 28-Aug-97 PW4090
32 2491 26933 N791UA 28-Aug-97 PW4090
33 2493 26946 N793UA 07-Oct-97 PW4090
34 2497 26924 N797UA 20-Feb-98 PW4090
35 2498 26928 N798UA 28-Feb-98 PW4090
<CAPTION>
Engine MTOW
Serial Numbers Cycles Flight Hours (lbs.)
<S> <C> <C> <C> <C>
AIRBUS 319-131
1 V10346/V10350 3230 8970 154,322
2 V10367/V10368 3006 8395 154,322
3 V10373/V10374 3011 8600 154,322
4 V10051/V10435 2846 8317 154,322
5 V10389/V10387 2940 8249 154,322
6 V10394/V10399 2876 8145 154,322
7 V10401/V10402 2858 8152 154,322
8 V10406/V10098 2775 7883 154,322
9 V10428/V10072 2739 7822 154,322
10 V10057/V10411 2564 7402 154,322
AIRBUS 320-232
11 V10070/V10170 4361 13615 169,754
12 V10216/V10024 4148 12712 169,754
13 V10095/V10087 4169 12999 169,754
14 V10230/V10231 4032 12532 169,754
15 V10358/V10357 2902 9004 169,754
16 V10382/V10383 2734 8496 169,754
BOEING 757-222
17 726610/726544 5875 15438 240,000
18 726583/726559 5780 15552 240,000
19 726650/726622 5620 14768 240,000
20 726585/726606 5512 14932 240,000
21 726591/727247 3374 12187 240,000
22 717991/727249 3230 11490 240,000
23 727254/727255 3125 11215 240,000
BOEING 747-422
24 727877/727878/727879/727881 827 7138 875,000
25 727880/727882/727687/727884 879 6892 875,000
26 727885/727886/727887/727888 862 6892 875,000
BOEING 777-200ER
27 222004/222052 2508 16362 640,000
28 222011/222061 2523 15974 640,000
29 222006/222009 2611 15797 640,000
30 222025/222023 2344 14977 640,000
31 222034/222039 2341 14800 640,000
32 222046/222055 2362 14854 640,000
33 222008/222026 2271 14267 640,000
34 222003/222010 1837 11756 640,000
35 222024/222036 1839 11710 640,000
</TABLE>
II-27
[MBA LOGO]
<PAGE> 99
III. CURRENT MARKET CONDITIONS
[AIRPLANE PHOTO] AIRBUS A320 FAMILY
N810UA
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 9/30/00, 835 A320 series aircraft have been delivered and 535 more
are on order. The A320 has achieved a wide market base on all continents, with a
total of 87 current operators.
The A319 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 September 2000, 728 A319s have been
ordered, 268 delivered, and there are 380 outstanding orders.
The Airbus family concept factor, (common type ratings and minimal differences
training for pilots of the A318 through A340 aircraft), 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 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
II-28
[MBA LOGO]
<PAGE> 100
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 currently operates 95 A319/A320 combined with 69 combined 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 continues accumulating new orders at a strong rate.
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.
[MBA LOGO]
II-29
<PAGE> 101
[AIRPLANE PHOTO] BOEING 757-200
N592UA
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 September, 2000, the
Rolls version had the greater market share, with 533 deliveries and 37 on order,
compared with 394 deliveries and 33 orders/options for the P&W version. Both
versions have achieved decent operator bases, with 55 airlines ordering the RR
version and 19 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-757-200PFs
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 will
most likely become the feasible replacement for the current aging DC8 cargo
fleets as the older models start to come down in price and are converted. It has
excellent environmental characteristics and has not experienced technical
difficulties and also should meet Stage 4 noise levels.
II-30
[MBA LOGO]
<PAGE> 102
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.
[AIRPLANE PHOTO] BOEING 747-400
N120UA
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. 529 -400s have been built as of September, 2000, and 68 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 875,000 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 38
operators as of September 2000, including British Airways with 57 in service,
and Singapore Airlines, with 42 in service and 7 on order and one recently
destroyed. 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.
II-31
[MBA LOGO]
<PAGE> 103
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.
[AIRPLANE PHOTO] BOEING 777-200
N791UA
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 Boeings'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, 263
have been delivered with 161 on order, with a current operator base of 26.
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 or ER) 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.
II-32
[MBA LOGO]
<PAGE> 104
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- 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.
II-33
[MBA LOGO]
<PAGE> 105
IV. VALUATION
In developing the Current Base Value of these aircraft, MBA did not inspect the
aircraft or their 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 in
almost new status.
2. The overhaul status of the airframe, engines, landing gear and other
major components are in almost new condition.
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.
II-34
[MBA LOGO]
<PAGE> 106
<TABLE>
<CAPTION>
Ship Serial Registration Original MTOW
Number Number Number Delivery Engine Type (lbs.) Current Base Value(*)
------ ------- ------------ -------- ---------- ------ ---------------------
Nose MSN Tail
<S> <C> <C> <C> <C> <C> <C> <C>
AIRBUS 319-131
1 4009 825 N809UA 19-May-98 IAE V2522-A5 154,322 35.14
2 4010 843 N810UA 29-Jun-98 IAE V2522-A5 154,322 35.26
3 4011 847 N811UA 02-Jul-98 IAE V2522-A5 154,322 35.37
4 4012 850 N812UA 09-Jul-98 IAE V2522-A5 154,322 35.37
5 4013 858 N813UA 23-Jul-98 IAE V2522-A5 154,322 35.37
6 4014 862 N814UA 05-Aug-98 IAE V2522-A5 154,322 35.48
7 4015 867 N815UA 11-Aug-98 IAE V2522-A5 154,322 35.48
8 4016 871 N816UA 02-Sep-98 IAE V2522-A5 154,322 35.60
9 4017 873 N817UA 08-Sep-98 IAE V2522-A5 154,322 35.60
10 4018 882 N818UA 01-Oct-98 IAE V2522-A5 154,322 35.71
AIRBUS 320-232
11 4637 655 N437UA 20-Feb-97 IAE V2527-A5 169,754 37.72
12 4638 678 N438UA 29-May-97 IAE V2527-A5 169,754 38.17
13 4639 683 N439UA 11-Jun-97 IAE V2527-A5 169,754 38.32
14 4640 702 N440UA 07-Jul-97 IAE V2527-A5 169,754 38.47
15 4647 836 N447UA 01-Jul-98 IAE V2527-A5 169,754 40.32
16 4650 857 N450UA 29-Jul-98 IAE V2527-A5 169,754 40.32
BOEING 757-222
17 5491 28142 N591UA 28-Jun-96 PW2037 240,000 48.73
18 5492 28143 N592UA 10-Jul-96 PW2037 240,000 49.09
19 5493 28144 N593UA 12-Aug-96 PW2037 240,000 49.45
20 5494 28145 N594UA 11-Sep-96 PW2037 240,000 49.81
21 5589 28707 N589UA 24-Oct-97 PW2037 240,000 51.57
22 5590 28708 N590UA 31-Dec-97 PW2037 240,000 51.64
23 5595 28748 N595UA 04-Feb-98 PW2037 240,000 51.88
BOEING 747-422
24 8419 28812 N119UA 29-Mar-99 PW4056 875,000 150.24
25 8420 29166 N120UA 12-Apr-99 PW4056 875,000 150.93
26 8421 29167 N121UA 22-Apr-99 PW4056 875,000 150.93
BOEING 777-200ER
27 2484 26951 N784UA 29-Apr-97 PW4090 640,000 112.72
28 2485 26954 N785UA 21-May-97 PW4090 640,000 113.19
29 2487 26939 N787UA 01-Sep-96 PW4090 640,000 109.52
30 2489 26935 N789UA 11-Aug-97 PW4090 640,000 114.60
31 2490 26943 N790UA 28-Aug-97 PW4090 640,000 114.60
32 2491 26933 N791UA 28-Aug-97 PW4090 640,000 114.60
33 2493 26946 N793UA 07-Oct-97 PW4090 640,000 115.55
34 2497 26924 N797UA 20-Feb-98 PW4090 640,000 117.47
35 2498 26928 N798UA 28-Feb-98 PW4090 640,000 117.47
Total 2,421,690,000
</TABLE>
II-35
[MBA LOGO]
<PAGE> 107
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
-----------------------------------
November 2, 2000 Morten S. Beyer, Appraiser Fellow
Job #00318(BV) Chairman & CEO
ISTAT Certified Senior Appraiser
II-36
[MBA LOGO]
<PAGE> 108
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES A-1
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N809UA N810UA N811UA N812UA N813UA N814UA N815UA N816UA N817UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N818UA N437UA N438UA N439UA N440UA N447UA N450UA N591UA N592UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
III-1
<PAGE> 109
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES A-1 -- (CONTINUED)
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N593UA N594UA N589UA N590UA N595UA N119UA N120UA N121UA N784UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
-------------------------------------------------------------------------------------
DATE N785UA N787UA N789UA N790UA N791UA N793UA N797UA N798UA
---- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..................
October 1, 2001................
April 1, 2002..................
October 1, 2002................
April 1, 2003..................
October 1, 2003................
April 1, 2004..................
October 1, 2004................
April 1, 2005..................
October 1, 2005................
April 1, 2006..................
October 1, 2006................
April 1, 2007..................
October 1, 2007................
April 1, 2008..................
October 1, 2008................
April 1, 2009..................
October 1, 2009................
April 1, 2010..................
October 1, 2010................
April 1, 2011..................
</TABLE>
III-2
<PAGE> 110
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES A-2
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N809UA N810UA N811UA N812UA N813UA N814UA N815UA N816UA N817UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N818UA N437UA N438UA N439UA N440UA N447UA N450UA N591UA N592UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
III-3
<PAGE> 111
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES A-2 -- (CONTINUED)
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N593UA N594UA N589UA N590UA N595UA N119UA N120UA N121UA N784UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
-------------------------------------------------------------------------------------
DATE N785UA N787UA N789UA N790UA N791UA N793UA N797UA N798UA
---- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..................
October 1, 2001................
April 1, 2002..................
October 1, 2002................
April 1, 2003..................
October 1, 2003................
April 1, 2004..................
October 1, 2004................
April 1, 2005..................
October 1, 2005................
April 1, 2006..................
October 1, 2006................
April 1, 2007..................
October 1, 2007................
April 1, 2008..................
October 1, 2008................
April 1, 2009..................
October 1, 2009................
April 1, 2010..................
October 1, 2010................
April 1, 2011..................
</TABLE>
III-4
<PAGE> 112
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES B
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N809UA N810UA N811UA N812UA N813UA N814UA N815UA N816UA N817UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N818UA N437UA N438UA N439UA N440UA N447UA N450UA N591UA N592UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
III-5
<PAGE> 113
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES B -- (CONTINUED)
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N593UA N594UA N589UA N590UA N595UA N119UA N120UA N121UA N784UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
-------------------------------------------------------------------------------------
DATE N785UA N787UA N789UA N790UA N791UA N793UA N797UA N798UA
---- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..................
October 1, 2001................
April 1, 2002..................
October 1, 2002................
April 1, 2003..................
October 1, 2003................
April 1, 2004..................
October 1, 2004................
April 1, 2005..................
October 1, 2005................
April 1, 2006..................
October 1, 2006................
April 1, 2007..................
October 1, 2007................
April 1, 2008..................
October 1, 2008................
April 1, 2009..................
October 1, 2009................
April 1, 2010..................
October 1, 2010................
April 1, 2011..................
</TABLE>
III-6
<PAGE> 114
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES C
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N809UA N810UA N811UA N812UA N813UA N814UA N815UA N816UA N817UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N818UA N437UA N438UA N439UA N440UA N447UA N450UA N591UA N592UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
III-7
<PAGE> 115
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES C -- (CONTINUED)
<TABLE>
<CAPTION>
EQUIPMENT NOTES
------------------------------------------------------------------------------------------------
DATE N593UA N594UA N589UA N590UA N595UA N119UA N120UA N121UA N784UA
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001........
October 1, 2001......
April 1, 2002........
October 1, 2002......
April 1, 2003........
October 1, 2003......
April 1, 2004........
October 1, 2004......
April 1, 2005........
October 1, 2005......
April 1, 2006........
October 1, 2006......
April 1, 2007........
October 1, 2007......
April 1, 2008........
October 1, 2008......
April 1, 2009........
October 1, 2009......
April 1, 2010........
October 1, 2010......
April 1, 2011........
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT NOTES
-------------------------------------------------------------------------------------
DATE N785UA N787UA N789UA N790UA N791UA N793UA N797UA N798UA
---- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..................
October 1, 2001................
April 1, 2002..................
October 1, 2002................
April 1, 2003..................
October 1, 2003................
April 1, 2004..................
October 1, 2004................
April 1, 2005..................
October 1, 2005................
April 1, 2006..................
October 1, 2006................
April 1, 2007..................
October 1, 2007................
April 1, 2008..................
October 1, 2008................
April 1, 2009..................
October 1, 2009................
April 1, 2010..................
October 1, 2010................
April 1, 2011..................
</TABLE>
III-8
<PAGE> 116
APPENDIX IV
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
<TABLE>
<CAPTION>
N809UA N810UA N811UA N812UA N813UA
------------------- ------------------- ------------------- ------------------- --------
ASSUMED ASSUMED ASSUMED ASSUMED ASSUMED
AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT
DATE VALUE RATIO VALUE RATIO VALUE RATIO VALUE RATIO VALUE
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
<CAPTION>
N813UA N814UA
-------- -------------------
ASSUMED
LTV AIRCRAFT LTV
DATE RATIO VALUE RATIO
---- -------- -------- --------
<S> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
</TABLE>
<TABLE>
<CAPTION>
N815UA N816UA N817UA N818UA N437UA
------------------- ------------------- ------------------- ------------------- --------
ASSUMED ASSUMED ASSUMED ASSUMED ASSUMED
AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT
DATE VALUE RATIO VALUE RATIO VALUE RATIO VALUE RATIO VALUE
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
<CAPTION>
N437UA N438UA
-------- -------------------
ASSUMED
LTV AIRCRAFT LTV
DATE RATIO VALUE RATIO
---- -------- -------- --------
<S> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
</TABLE>
IV-1
<PAGE> 117
APPENDIX IV
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES -- (CONTINUED)
<TABLE>
<CAPTION>
N439UA N440UA N447UA N450UA N591UA
------------------- ------------------- ------------------- ------------------- --------
ASSUMED ASSUMED ASSUMED ASSUMED ASSUMED
AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT
DATE VALUE RATIO VALUE RATIO VALUE RATIO VALUE RATIO VALUE
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
<CAPTION>
N591UA N592UA
-------- -------------------
ASSUMED
LTV AIRCRAFT LTV
DATE RATIO VALUE RATIO
---- -------- -------- --------
<S> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
</TABLE>
<TABLE>
<CAPTION>
N593UA N594UA N589UA N590UA N595UA
------------------- ------------------- ------------------- ------------------- --------
ASSUMED ASSUMED ASSUMED ASSUMED ASSUMED
AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT
DATE VALUE RATIO VALUE RATIO VALUE RATIO VALUE RATIO VALUE
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
<CAPTION>
N595UA N119UA
-------- -------------------
ASSUMED
LTV AIRCRAFT LTV
DATE RATIO VALUE RATIO
---- -------- -------- --------
<S> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
</TABLE>
IV-2
<PAGE> 118
APPENDIX IV
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES -- (CONTINUED)
<TABLE>
<CAPTION>
N120UA N121UA N784UA N785UA N787UA
------------------- ------------------- ------------------- ------------------- --------
ASSUMED ASSUMED ASSUMED ASSUMED ASSUMED
AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT
DATE VALUE RATIO VALUE RATIO VALUE RATIO VALUE RATIO VALUE
---- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
<CAPTION>
N787UA N789UA
-------- -------------------
ASSUMED
LTV AIRCRAFT LTV
DATE RATIO VALUE RATIO
---- -------- -------- --------
<S> <C> <C> <C>
April 1, 2001..........
October 1, 2001........
April 1, 2002..........
October 1, 2002........
April 1, 2003..........
October 1, 2003........
April 1, 2004..........
October 1, 2004........
April 1, 2005..........
October 1, 2005........
April 1, 2006..........
October 1, 2006........
April 1, 2007..........
October 1, 2007........
April 1, 2008..........
October 1, 2008........
April 1, 2009..........
October 1, 2009........
April 1, 2010..........
October 1, 2010........
April 1, 2011..........
</TABLE>
<TABLE>
<CAPTION>
N790UA N791UA N793UA N797UA
------------------- ------------------- ------------------- -------------------
ASSUMED ASSUMED ASSUMED ASSUMED
AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV AIRCRAFT LTV
DATE VALUE RATIO VALUE RATIO VALUE RATIO VALUE RATIO
---- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 2001...........................
October 1, 2001.........................
April 1, 2002...........................
October 1, 2002.........................
April 1, 2003...........................
October 1, 2003.........................
April 1, 2004...........................
October 1, 2004.........................
April 1, 2005...........................
October 1, 2005.........................
April 1, 2006...........................
October 1, 2006.........................
April 1, 2007...........................
October 1, 2007.........................
April 1, 2008...........................
October 1, 2008.........................
April 1, 2009...........................
October 1, 2009.........................
April 1, 2010...........................
October 1, 2010.........................
April 1, 2011...........................
<CAPTION>
N798UA
-------------------
ASSUMED
AIRCRAFT LTV
DATE VALUE RATIO
---- -------- --------
<S> <C> <C>
April 1, 2001...........................
October 1, 2001.........................
April 1, 2002...........................
October 1, 2002.........................
April 1, 2003...........................
October 1, 2003.........................
April 1, 2004...........................
October 1, 2004.........................
April 1, 2005...........................
October 1, 2005.........................
April 1, 2006...........................
October 1, 2006.........................
April 1, 2007...........................
October 1, 2007.........................
April 1, 2008...........................
October 1, 2008.........................
April 1, 2009...........................
October 1, 2009.........................
April 1, 2010...........................
October 1, 2010.........................
April 1, 2011...........................
</TABLE>
IV-3
<PAGE> 119
PROSPECTUS
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Village, IL 60007
Mailing Address: P.O. Box 66100
Chicago, Illinois 60666
(847) 700-4000
[UNITED AIR LINES, INC. LOGO]UNITED AIR LINES, INC.
PASS THROUGH CERTIFICATES
Pass through trusts formed by United may offer for sale up to
$4,000,000,000 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 November 16, 2000.
<PAGE> 120
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using the SEC's shelf registration rules.
Under the shelf registration rules, using this prospectus, together with a
prospectus supplement, we may sell from time to time, in one or more offerings,
up to $4,000,000,000 of pass through certificates. This prospectus provides you
with a general description of the pass through certificates we may sell. Each
time we sell pass through certificates under this prospectus, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read this prospectus, the
applicable prospectus supplement and the additional information described below
under "Where You Can Find More Information" before making an investment in the
pass through certificates.
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 SEC 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, 1999, its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 2000, June 30, 2000 and September 30, 2000, its
Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 2000,
and its Current Reports on Form 8-K dated May 26, 2000, July 19, 2000 and August
17, 2000, which United filed with the SEC under the Securities Exchange Act of
1934. United also incorporates by reference the Current Reports of UAL Corp. on
Form 8-K filed on May 24, 2000, August 17, 2000 and September 29, 2000
2
<PAGE> 121
and on Form 8-K/A filed on June 21, 2000, which UAL Corp. 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:
- 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
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as critical feed traffic. United Shuttle(R) 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.
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>
YEAR ENDED DECEMBER 31
NINE-MONTHS ENDED --------------------------------------------------------
SEPTEMBER 30, 2000 1999 1998 1997 1996 1995
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.65 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, extraordinary items and
cumulative effect of accounting changes, interest expense, undistributed
earnings of affiliates, the portion of rental expense representative of an
interest factor and capitalized interest. Fixed charges consist of interest
expense and the portion of rental expense representative of an interest factor.
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 or notes
issued by a trust secured by 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
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- 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 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
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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 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 and any other property described in the
applicable prospectus supplement held in that pass through trust, (2) all monies
at any time paid on the equipment notes and the other property held in that pass
through trust, (3) all monies due and to become due on the equipment notes and
the other property held in the pass through trust 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.
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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;
(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;
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(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.
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 registerable, 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
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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.
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
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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 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, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Clearstream participant, either directly or indirectly.
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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 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
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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 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
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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;
(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
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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 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
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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 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
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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 event 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 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
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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;
(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
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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;
(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.
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
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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;
(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.
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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 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
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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 identify the 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.
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
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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,
in whole or in part, prior to the stated maturity date of the equipment notes,
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
(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.
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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 any other provision of Chapter 11 of the 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). 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.
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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.
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
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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.
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 on 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
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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.
MATERIAL 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 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,
life insurance companies, regulated investment companies, dealers in securities,
holders that will hold the pass through 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
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only to the extent they exceed, together with the certificateholder's other
miscellaneous itemized deductions, 2% of the certificateholder's adjusted gross
income. In addition, in the case of individuals, certain otherwise allowable
itemized deductions will be subject generally to additional limitations on
itemized deductions under applicable provisions of the Code.
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.
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
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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 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
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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.
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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