What changed in this filing

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Item 1. Financial Statements

2020-10-15 compared with 2020-07-22 · 367 added, 345 removed, 591 unchanged (55% of the section changed)

3 unchanged sentences

(In millions, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Operating revenue:

Passenger revenue $ 1,649 $ 10,481 $ 9,395 $ 29,692

Cargo 422 282 1,088 863

Other operating revenue 418 617 1,460 1,816

29 unchanged sentences

(In millions)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net income (loss) $ ( 1,841 ) $ 1,024 $ ( 5,172 ) $ 2,368

8 unchanged sentences

(In millions, except shares)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

1 unchanged sentence

Short-term investments 552 2,182

Restricted cash 76 —

Receivables, less allowance for credit losses (2020 — $ 9 ;

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2020 — $ 483 ;

2019 — $ 425 )

Prepaid expenses and other 566 814

9 unchanged sentences

Other assets:

Goodwill 4,527 4,523

Intangibles, less accumulated amortization (2020 — $ 1,481 ;

4 unchanged sentences

Total other assets 8,519 9,489

Total assets $ 61,189 $ 52,611

(continued on next page)

2 unchanged sentences

(In millions, except shares)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

LIABILITIES AND STOCKHOLDERS' EQUITY

7 unchanged sentences

Current maturities of operating leases 623 686

Payroll Support Program deferred credit

Other 944 566

Total current liabilities 15,791 14,938

7 unchanged sentences

Deferred income taxes 389 1,736

Other financial liabilities from sale-leasebacks 957 —

Other 1,174 1,024

Total other liabilities and deferred credits 10,877 7,831

4 unchanged sentences

authorized 1,000,000,000 shares;

outstanding 290,982,216 and 251,216,381 shares at June 30, 2020 and December 31, 2019, respectively

outstanding 290,990,454 and 251,216,381 shares at September 30, 2020 and December 31, 2019, respectively

Additional capital invested 7,383 6,129

8 unchanged sentences

(In millions)

Six Months Ended June 30,

Nine Months Ended

September 30,

Cash Flows from Operating Activities:

Net cash provided (used) by operating activities

Net cash provided by (used in) operating activities $ ( 1,956 ) $ 5,728

Cash Flows from Investing Activities:

2 unchanged sentences

Proceeds from sale of short-term and other investments 2,182 2,282

Net cash used in investing activities

Other, net 10 ( 9 )

Net cash provided by (used in) investing activities 10 ( 3,231 )

Cash Flows from Financing Activities:

Proceeds from issuance of short-term debt

Proceeds from issuance of long-term debt

Proceeds from issuance of debt 13,024 1,109

Proceeds from equity issuance 1,135 —

3 unchanged sentences

Capitalized financing costs ( 294 ) ( 51 )

Net cash provided (used) in financing activities

Other, net ( 19 ) ( 29 )

Net cash provided by (used in) financing activities 12,476 ( 1,233 )

Net increase in cash, cash equivalents and restricted cash 10,530 1,264

2 unchanged sentences

Investing and Financing Activities Not Affecting Cash:

Property and equipment acquired through the issuance of debt

Property and equipment acquired through other financial liabilities

Lease modifications and lease conversions

Property and equipment acquired through the issuance of debt, finance leases and other $ 1,513 $ 314

Right-of-use assets acquired through operating leases 64 344

Property and equipment acquired through finance leases

Lease modifications and lease conversions 503 36

(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:

Cash and cash equivalents $ 13,150 $ 2,959

Restricted cash (included in Prepaid expenses and other)

Restricted cash

Restricted cash — Current 76 4

Restricted cash — Non-current 172 100

Total cash, cash equivalents and restricted cash $ 13,398 $ 3,063

3 unchanged sentences

(In millions)

Capital Invested

Treasury Stock

Retained Earnings

Other Comprehensive Loss

Balance at March 31, 2020

Other comprehensive loss

Stock Additional

Capital Invested Treasury Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total

Shares Amount

Balance at June 30, 2020 291.0 $ 3 $ 7,307 $ ( 3,899 ) $ 6,365 $ ( 1,259 ) $ 8,517

Net loss — — — — ( 1,841 ) — ( 1,841 )

Other comprehensive income — — — — — 250 250

Stock settled share-based compensation — — 38 — — — 38

Sale of common stock

Warrants issued — — 40 — — — 40

Net treasury stock issued for share-based awards — — ( 2 ) 1 — — ( 1 )

Balance at June 30, 2020

Balance at September 30, 2020 291.0 $ 3 $ 7,383 $ ( 3,898 ) $ 4,524 $ ( 1,009 ) $ 7,003

Balance at December 31, 2019 251.2 $ 3 $ 6,129 $ ( 3,599 ) $ 9,716 $ ( 718 ) $ 11,531

Net loss — — — — ( 5,172 ) — ( 5,172 )

Other comprehensive loss — — — — — ( 291 ) ( 291 )

5 unchanged sentences

Adoption of new accounting standard (a) — — — — ( 17 ) — ( 17 )

Balance at September 30, 2020 291.0 $ 3 $ 7,383 $ ( 3,898 ) $ 4,524 $ ( 1,009 ) $ 7,003

Balance at June 30, 2019 257.7 $ 3 $ 6,096 $ ( 3,022 ) $ 8,050 $ ( 807 ) $ 10,320

Balance at March 31, 2019

Net income — — — — 1,024 — 1,024

Other comprehensive income — — — — — 303 303

2 unchanged sentences

Net treasury stock issued for share-based awards — — ( 3 ) 1 1 — ( 1 )

Balance at June 30, 2019

Balance at September 30, 2019 253.6 $ 3 $ 6,111 $ ( 3,384 ) $ 9,075 $ ( 504 ) $ 11,301

Balance at December 31, 2018 269.9 $ 3 $ 6,120 $ ( 1,993 ) $ 6,715 $ ( 803 ) $ 10,042

Net income — — — — 2,368 — 2,368

Other comprehensive income — — — — — 299 299

2 unchanged sentences

Net treasury stock issued for share-based awards 0.5 — ( 58 ) 35 ( 8 ) — ( 31 )

Balance at June 30, 2019

Balance at September 30, 2019 253.6 $ 3 $ 6,111 $ ( 3,384 ) $ 9,075 $ ( 504 ) $ 11,301

(a) Transition adjustment due to the adoption of Accounting Standards Update No.

5 unchanged sentences

(In millions)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Operating revenue:

Passenger revenue $ 1,649 $ 10,481 $ 9,395 $ 29,692

Cargo 422 282 1,088 863

Other operating revenue 418 617 1,460 1,816

27 unchanged sentences

(In millions)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net income (loss) $ ( 1,841 ) $ 1,024 $ ( 5,171 ) $ 2,369

8 unchanged sentences

(In millions, except shares)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

1 unchanged sentence

Short-term investments 552 2,182

Restricted cash 76 —

Receivables, less allowance for credit losses (2020 — $ 9 ;

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2020 —$ 483 ;

2019 — $ 425 )

Prepaid expenses and other 566 814

9 unchanged sentences

Other assets:

Goodwill 4,527 4,523

Intangibles, less accumulated amortization (2020 — $ 1,481 ;

4 unchanged sentences

Total other assets 8,519 9,489

Total assets $ 61,189 $ 52,605

(continued on next page)

2 unchanged sentences

(In millions, except shares)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

LIABILITIES AND STOCKHOLDER'S EQUITY

7 unchanged sentences

Current maturities of operating leases 623 686

Payroll Support Program deferred credit

Other 948 571

Total current liabilities 15,795 14,943

7 unchanged sentences

Deferred income taxes 416 1,763

Other financial liabilities from sale-leasebacks 957 —

Other 1,174 1,025

Total other liabilities and deferred credits 10,904 7,859

3 unchanged sentences

authorized 1,000 shares;

issued and outstanding 1,000 shares at both June 30, 2020 and December 31, 2019

issued and outstanding 1,000 shares at both September 30, 2020 and December 31, 2019

Additional capital invested 68 —

8 unchanged sentences

(In millions)

Six Months Ended June 30,

Nine Months Ended

September 30,

Cash Flows from Operating Activities:

Net cash provided (used) by operating activities

Net cash provided by (used in) operating activities $ ( 1,968 ) $ 5,698

Cash Flows from Investing Activities:

2 unchanged sentences

Proceeds from sale of short-term and other investments 2,182 2,282

Net cash used in investing activities

Other, net 10 ( 9 )

Net cash provided by (used in) investing activities 10 ( 3,231 )

Cash Flows from Financing Activities:

Proceeds from issuance of short-term debt

Proceeds from issuance of long-term debt

Proceeds from issuance of debt 13,024 1,109

Proceeds from issuance of parent's stock 1,135 —

3 unchanged sentences

Capitalized financing costs ( 294 ) ( 51 )

Net cash provided (used) in financing activities

Other, net ( 1 ) 1

Net cash provided by (used in) financing activities 12,494 ( 1,203 )

Net increase in cash, cash equivalents and restricted cash 10,536 1,264

2 unchanged sentences

Investing and Financing Activities Not Affecting Cash:

Property and equipment acquired through the issuance of debt

Property and equipment acquired through other financial liabilities

Lease modifications and lease conversions

Property and equipment acquired through the issuance of debt, finance leases and other $ 1,513 $ 314

Right-of-use assets acquired through operating leases 64 344

Property and equipment acquired through finance leases

Lease modifications and lease conversions 503 36

(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:

Cash and cash equivalents $ 13,150 $ 2,953

Restricted cash (included in Prepaid expenses and other)

Restricted cash

Restricted cash — Current 76 4

Restricted cash — Non-current 172 100

Total cash, cash equivalents and restricted cash $ 13,398 $ 3,057

3 unchanged sentences

(In millions)

Capital Invested

Retained Earnings

Other Comprehensive Loss

Receivable from Related Parties, Net

Balance at March 31, 2020

Other comprehensive loss

Stock settled share-based compensation

Capital Invested Retained Earnings Accumulated Other Comprehensive Income (Loss) (Receivable from) Payable to Related Parties, Net Total

Balance at June 30, 2020 $ 30 $ 8,676 $ ( 1,259 ) $ 1,038 $ 8,485

Net loss — ( 1,841 ) — — ( 1,841 )

Other comprehensive income — — 250 — 250

Stock settled share-based compensation 38 — — — 38

Other — — — 40 40

Balance at September 30, 2020 $ 68 $ 6,835 $ ( 1,009 ) $ 1,078 $ 6,972

Balance at December 31, 2019 $ — $ 12,353 $ ( 718 ) $ ( 143 ) $ 11,492

Net loss — ( 5,171 ) — — ( 5,171 )

Other comprehensive loss — — ( 291 ) — ( 291 )

2 unchanged sentences

Adoption of new accounting standard (a) — ( 17 ) — — ( 17 )

Other — — — 1,221 1,221

Balance at September 30, 2020 $ 68 $ 6,835 $ ( 1,009 ) $ 1,078 $ 6,972

Balance at June 30, 2019 $ — $ 11,230 $ ( 807 ) $ ( 141 ) $ 10,282

Balance at March 31, 2019

Net income — 1,024 — — 1,024

Other comprehensive income — — 303 — 303

1 unchanged sentence

Stock settled share-based compensation 18 — — — 18

Balance at June 30, 2019

Other — — — ( 1 ) ( 1 )

Balance at September 30, 2019 $ — $ 11,909 $ ( 504 ) $ ( 142 ) $ 11,263

Balance at December 31, 2018 $ 598 $ 10,319 $ ( 803 ) $ ( 110 ) $ 10,004

Net income (a)

Net income — 2,369 — — 2,369

Other comprehensive income — — 299 — 299

1 unchanged sentence

Stock settled share-based compensation 49 — — — 49

Balance at June 30, 2019

Other — — — ( 32 ) ( 32 )

Balance at September 30, 2019 $ — $ 11,909 $ ( 504 ) $ ( 142 ) $ 11,263

(a) Transition adjustment due to the adoption of Accounting Standards Update No.

23 unchanged sentences

Recent Developments

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China, and the World Health Organization subsequently declared COVID-19 a "pandemic." As a result of COVID-19, the U.S.

government declared a national emergency, the U.S.

Department of State issued numerous travel advisories, including a global Level 4 "do not travel" advisory advising U.S.

citizens to avoid all international travel, and the U.S.

government has implemented a number of travel-related protocols, including enhanced screenings and mandatory 14-day quarantines.

Many foreign and U.S.

state and local governments have instituted similar measures and declared states of emergency.

In the United States and other locations around the world, throughout the first half of 2020, people were instructed to stay home or "shelter in place" and public events, such as conferences, sporting events and concerts, have been canceled, attractions, including theme parks and museums, have been closed, cruise lines have suspended operations and schools and businesses are operating with remote attendance, among other actions.

In addition, governments, non-governmental organizations and entities in the private sector have issued non-binding advisories or recommendations regarding air travel or other social distancing measures, including limitations on the number of persons that should be present at public gatherings.

While "shelter in place" restrictions and similar advisories and recommendations have been reduced or otherwise eased in certain circumstances, this varies by jurisdiction and organization.

In addition, numerous jurisdictions have imposed or reinstated more severe restrictions as a result of the continued spread of COVID-19 or resurgences in the severity of COVID-19 in certain locations, including travel restrictions, mandatory self-quarantine requirements and other enhanced COVID-19-related screening measures that may apply to our personnel and/or the traveling public.

The novel coronavirus (COVID-19) pandemic, together with the measures implemented by governmental authorities and private organizations in response to the pandemic, has had an adverse impact that has been material to the Company's business, operating results, financial condition and liquidity.

Measures such as "shelter in place" or quarantine requirements, international and domestic travel restrictions or advisories, limitations on public gatherings, social distancing recommendations, remote work arrangements and closures of tourist destinations and attractions, as well as consumer perceptions of the safety, ease and predictability of air travel, have contributed to a precipitous decline in passenger demand and bookings for both business and leisure travel.

The Company began experiencing a significant decline in international and domestic demand related to COVID-19 during the first quarter of 2020.

The decline in demand caused a material deterioration in our revenues in the first half of 2020 , resulting in a net loss of $ 3.3 billion for that period.

Although during the second quarter of 2020 the Company experienced modest, but steady improvement in demand, the Company has since experienced reduced demand and increased cancellations to destinations experiencing increases in COVID-19 cases and/or new quarantine requirements imposed in certain jurisdictions or other restrictions on travel.

As a result, the full extent of the ongoing impact of COVID-19 on the Company's longer-term operational and financial performance will depend on future developments, many of which are outside of our control, and all of which are highly uncertain and cannot be predicted;

however, the Company currently expects our results of operations for full-year 2020 to be materially impacted and that we will incur a net loss for the full-year 2020 .

In response to decreased demand, the Company cut, relative to 2019 capacity, approximately 88 % of its scheduled capacity for the second quarter of 2020 .

The Company expects scheduled capacity to be down approximately 65 % year-over-year in the third quarter of 2020 .

The Company also expects its scheduled capacity in the fourth quarter of 2020 to be generally consistent with the third quarter of 2020 .

The Company plans to continue to proactively evaluate and cancel flights on a rolling 60 -day

basis until it sees signs of a recovery in demand.

The Company expects demand to remain suppressed until a widely accepted treatment and/or vaccine for COVID-19 is available.

The decline in demand caused a material deterioration in our revenues in the first nine months of 2020, resulting in a net loss of $ 5.2 billion for that period.

Although during the third quarter of 2020 the Company experienced modest improvement in demand, the full extent of the ongoing impact of COVID-19 on the Company's longer-term operational and financial performance will depend on future developments, including those outside our control related to possible increases in COVID-19 cases and/or new quarantine requirements being imposed in certain jurisdictions or other restrictions on travel, all of which are highly uncertain and cannot be predicted with certainty.

In response to decreased demand, the Company cut, relative to 2019 capacity, approximately 70 % of its scheduled capacity for the third quarter of 2020.

The Company expects scheduled capacity to be down approximately 55 % year-over-year in the fourth quarter of 2020.

The Company plans to continue to proactively evaluate and cancel flights on a rolling 60 -day basis until it sees signs of a recovery in demand and expects demand to remain suppressed and plateau at levels around 50%, relative to 2019 levels, until an accepted treatment and/or vaccine for COVID-19 is widely available.

In addition, the Company does not currently expect the recovery from COVID-19 to follow a linear path.

As such, the Company's actual flown capacity may differ materially from its currently scheduled capacity.

The Company has taken a number of actions in response to the decreased demand for air travel.

2 unchanged sentences

• terminated its share repurchase program;

as of July 2, 2020 , issued or entered into approximately $ 10.0 billion ( $ 3.0 billion through June 30, 2020 ) in secured notes, secured term loan facilities and new aircraft financings, including $ 6.8 billion of senior secured notes and a secured term loan facility (the "MileagePlus Financing") secured by substantially all of the assets of Mileage Plus Holdings, LLC, a direct wholly-owned subsidiary of United ("MPH"), and Mileage Plus Intellectual Property Assets, Ltd., an indirect wholly-owned subsidiary of MPH ("MIPA");

• issued approximately $ 10.2 billion in secured notes, secured term loan facilities and new aircraft financings;

• borrowed $ 1.0 billion under the $ 2.0 billion revolving credit facility of the Amended and Restated Credit and Guaranty Agreement (the "Revolving Credit Agreement");

• raised approximately $ 1.1 billion in cash proceeds in an underwritten public offering of UAL common stock;

• entered into an equity distribution agreement relating to the issuance and sale, from time to time, of up to 28 million shares of UAL common stock;

borrowed, on July 2, 2020 , $ 1.0 billion under the $ 2.0 billion revolving credit facility of the Amended and Restated Credit and Guaranty Agreement (the "Revolving Credit Agreement");

entered into an agreement to finance certain aircraft currently subject to purchase agreements through a sale and leaseback transaction;

elected to defer the payment of $ 78 million in payroll taxes incurred through June 30, 2020 , as provided by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), until 2021 and 2022 ;

• entered into agreements to finance certain aircraft currently subject to purchase agreements through sale and leaseback transactions;

• elected to defer the payment of $ 140 million in payroll taxes incurred through September 30, 2020, as provided by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), until 2021 and 2022;

• temporarily grounded certain of its mainline fleet;

taken a number of actions to reduce employee-related costs, including, among other items, the Company's Chief Executive Officer and President waived 100 % of their respective base salaries through 2020 , other officers temporarily waived a portion of their base salaries, the Company's non-employee directors waived 100 % of their cash compensation for the second and third quarters of 2020 , the Company suspended merit salary increases and implemented a temporary four-day work week for management and administrative employees and the Company offered voluntary unpaid leaves of absence.

On July 8, 2020 , in order to comply with various labor regulations in certain jurisdictions, including pursuant to the Worker Adjustment and Retraining Notification Act, United informed approximately 36,000 U.S.-based employees, either directly or through a union representative, of plans to implement a workforce reduction at their work locations.

These notices are part of the Company's strategic realignment of its business and new organizational structure as a result of the impacts of the COVID-19 pandemic on the Company's operations and cost structure.

The Company expects that these actions will take effect on or after October 1, 2020 and may continue through the end of 2020 .

• taken a number of actions to reduce employee-related costs, including, among other items, the Company's Chief Executive Officer and President waived 100 % of their respective base salaries through 2020, other officers temporarily waived a portion of their base salaries, the Company's non-employee directors waived 100 % of their cash compensation for the second and third quarters of 2020, the Company suspended merit salary increases for 2020 and implemented a temporary four-day work week for management and administrative employees and the Company offered voluntary unpaid leaves of absence.

In addition, and as announced in July 2020, the Company started the involuntary furlough process earlier this summer when issuing Worker Adjustment and Retraining Notification ("WARN") Act notices to 36,000 of its employees.

Since then, the Company worked to reduce the total number of furloughs to approximately 13,000 employees by working closely with its union partners, introducing new voluntary options selected by approximately 9,000 employees and proposing creative solutions that would save jobs.

This workforce reduction is part of the Company's strategic realignment of its business and new organizational structure as a result of the impacts of the COVID-19 pandemic on the Company's operations and cost structure.

The Company continues to focus on reducing expenses and managing its liquidity.

We expect to continue to modify our cost management structure, liquidity-raising efforts and capacity as the timing of demand recovery becomes more certain.

We expect to continue to modify our cost management structure and capacity as the timing of demand recovery becomes more certain.

On March 27, 2020, the President of the United States signed the CARES Act into law.

2 unchanged sentences

On April 20, 2020, United entered into a Payroll Support Program Agreement (the "PSP Agreement") with the U.S.

Treasury Department providing the Company with total funding of approximately $ 5.0 billion pursuant to the Payroll Support Program under the CARES Act.

Treasury Department ("Treasury") providing the Company with total funding of approximately $ 5.1 billion pursuant to the Payroll Support Program under the CARES Act.

These funds will be used to pay for the salaries and benefits of United employees.

Approximately $ 3.5 billion of the $ 5.0 billion will be a direct grant and approximately $ 1.5 billion will be in the form of a 10 -year senior unsecured promissory note (the "PSP Note").

As of June 30, 2020 , the Company has received approximately $ 4.5 billion of the expected $ 5.0 billion through the Payroll Support Program under the CARES Act.

The approximately $ 500 million remaining balance is expected to be received by the end of July 2020 .

As of June 30, 2020 , the Company recorded $ 1.6 billion in grant income as Special charges (credit) and recorded $ 1.5 billion as Payroll Support Program deferred credit.

The Company also recorded $ 57 million in warrants issued to the U.S.

Treasury Department, within stockholder's equity, in connection with the PSP Note.

See Note 3 to the financial statements included in Part I, Item 1 for additional information related to these warrants.

In connection with entering into the PSP Agreement, during the second quarter, UAL issued the PSP Note to the U.S.

Treasury Department evidencing senior unsecured indebtedness of UAL of approximately $ 1.3 billion .

The principal amount of the PSP Note will increase in an amount equal to 30 % of any disbursement made by the U.S.

Treasury Department to United under the PSP Agreement after June 30, 2020 .

The PSP Note is guaranteed by United and will mature ten years after the initial issuance on April 20, 2030 .

If any subsidiary of UAL (other than United) guarantees other unsecured indebtedness of UAL with a principal balance in excess of a specified amount, or if certain subsidiaries are formed or acquired , then such subsidiary shall be required to guarantee the obligations of UAL under the PSP Note.

UAL may, at its option, prepay the PSP Note, at any time, and from time to time, at par.

UAL is required to prepay the PSP Note upon the occurrence of certain change of control triggering events.

The PSP Note does not require any amortization and is to be repaid in full on the maturity date.

Under the PSP Agreement, the Company and its business are subject to certain restrictions, including, but not limited to, restrictions on the payment of dividends and the ability to repurchase UAL's equity securities, requirements to maintain certain levels of scheduled service, requirements to maintain U.S.

Approximately $ 3.6 billion of the $ 5.1 billion was a direct grant and approximately $ 1.5 billion is in the form of a 10 -year senior unsecured promissory note (the "PSP Note").

As of September 30, 2020, the Company has received the full amount of the $ 5.1 billion through the Payroll Support Program under the CARES Act.

As of September 30, 2020, the Company recorded $ 3.1 billion in grant income as Special charges (credit) on the Company's statement of consolidated operations and recorded $ 453 million as Payroll Support Program deferred credit on the Company's consolidated balance sheet.

The Company also recorded $ 66 million in warrants issued to Treasury, within stockholders' equity, in connection with the PSP Note.

See Note 3 and Note 10 to the financial statements included in Part I, Item 1 for additional information related to these warrants and the PSP Note, respectively.

On September 28, 2020, UAL and United entered into a loan agreement with Treasury.

The agreement provides for a term loan facility of up to approximately $ 5.2 billion (the "Term Loan Facility") pursuant to the loan program established under Section 4003(b) of the CARES Act (the "Loan Program").

The loans (the "Term Loans") may be disbursed in up to three disbursements on or before March 26, 2021.

Treasury has advised United that it intends to allocate additional loan commitments under the CARES Act in October 2020, and that it expects that such additional allocations will increase the amount available under the Term Loan Facility to up to $ 7.5 billion in the aggregate.

Such increase, and the amount thereof, are subject to final approval by Treasury and both the availability of, and agreement on, collateral.

On September 28, 2020, United borrowed, and recorded as Long-term debt on the Company's consolidated balance sheet, $ 520 million under the Term Loan Facility, the proceeds of which were used to pay certain transaction fees and expenses, and for working capital and other general corporate purposes of the Company.

See Note 3 to the financial statements included in Part I, Item 1 for a discussion on the warrants issued in connection with the Term Loans and Note 10 to the financial statements included in Part I, Item 1 for a discussion on the Term Loans.

Under the PSP Agreement and Loan Program, the Company and its business are subject to certain restrictions, including, but not limited to, restrictions on the payment of dividends and the ability to repurchase UAL's equity securities, requirements to maintain certain levels of scheduled service, requirements to maintain U.S.

employment levels through September 30, 2020 and certain limitations on executive compensation.

On April 17, 2020 , the Company submitted an application to the Loan Program under the CARES Act.

Under the Loan Program, the Company expects to have the ability, through March 26, 2021 , to borrow up to approximately $ 4.5 billion from the U.S.

Treasury Department for a term of up to five years .

The Company continues to work with the U.S.

Treasury Department on the CARES Act Loan Program loan, and it is the Company's expectation that, if the Company takes the loan, it will use available slots, gates and routes collateral.

The Company believes it has sufficient slots, gates and routes collateral available to meet the collateral coverage that may be required for the full $ 4.5 billion available to the Company under the Loan Program.

In connection with any borrowings under the Loan Program, the Company and its business will be subject to certain restrictions, including, but not limited to, certain of the restrictions described above with respect to the PSP Agreement.

NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS

5 unchanged sentences

The Company recorded a $ 17 million cumulative-effect adjustment, net of related income taxes, to its retained earnings balance on January 1, 2020 as a result of this adoption.

See Notes 7, 8, 9 and 11 to the financial statements included in Part I, Item 1 for additional disclosures about the impact of ASU 2016-13 on the six months ended June 30, 2020 results.

See Notes 7, 8, 9 and 11 to the financial statements included in Part I, Item 1 for additional disclosures about the impact of ASU 2016-13 on the nine months ended September 30, 2020 results.

NOTE 2 - REVENUE

2 unchanged sentences

Department of Transportation) (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Domestic (U.S.

and Canada) $ 1,672 $ 7,094 $ 7,675 $ 20,056

Atlantic 365 2,103 1,799 5,627

Pacific 282 1,280 1,346 3,867

Latin America 170 903 1,123 2,821

Total $ 2,489 $ 11,380 $ 11,943 $ 32,371

Advance Ticket Sales.

3 unchanged sentences

In April 2020, due to the COVID-19 pandemic, the Company extended the expiration dates of ETCs from 12 months from the date of issuance to 24 months from the date of issuance and extended the expiration of FFCs, for tickets issued between May 1, 2019 and March 31, 2020, to 24 months from the original issue date.

As of June 30, 2020 , the Company's Advance ticket sales liability included $ 3.0 billion related to these credits and approximately 93 % of these credits have expiration dates extending beyond 12 months .

given the uncertainty of travel demand caused by COVID-19, the Company is unable to estimate the amount of the ETCs and FFCs that will be used within the next 12 months and has classified the entire amount of the Advanced ticket liability in current liabilities even though some of the ETCs and FFCs could be used after the next 12 months.

As of September 30, 2020, the Company's Advance ticket sales liability included $ 3.0 billion related to these credits and approximately 90 % of these credits have expiration dates extending beyond 12 months.

However, given the uncertainty of travel demand caused by COVID-19, the Company is unable to estimate the amount of the ETCs and FFCs that will be used within the next 12 months and has classified the entire amount of the Advanced ticket liability in current liabilities even though some of the ETCs and FFCs could be used after the next 12 months.

Also, the Company is unable to estimate the December 31, 2019 Advance ticket sales that will be recognized in revenue in 2020 due to the higher than historical refunds and exchanges into ETCs or FFCs.

1 unchanged sentence

The Company will continue to update its breakage estimates as future information is received.

In the three and six months ended June 30, 2020 , the Company recognized approximately $ 0.5 billion and $ 2.8 billion , respectively, and in the three and six months ended June 30, 2019 , the Company recognized approximately $ 3.9 billion and $ 3.2 billion , respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods.

In the three and nine months ended September 30, 2020, the Company recognized approximately $ 0.5 billion and $ 2.9 billion, respectively, and in the three and nine months ended September 30, 2019, the Company recognized approximately $ 4.1 billion and $ 3.4 billion, respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods.

Ancillary Fees.

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These ancillary fees are part of the travel performance obligation and, as such, are recognized as passenger revenue when the travel occurs.

The Company recorded $ 66 million and $ 542 million of ancillary fees within passenger revenue in the three and six months ended June 30, 2020 , respectively.

The Company recorded $ 636 million and $ 1.2 billion of ancillary fees within passenger revenue in the three and six months ended June 30, 2019 , respectively.

The Company recorded $ 157 million and $ 699 million of ancillary fees within passenger revenue in the three and nine months ended September 30, 2020, respectively.

The Company recorded $ 645 million and $ 1.9 billion of ancillary fees within passenger revenue in the three and nine months ended September 30, 2019, respectively.

Effective August 30, 2020, the

Company eliminated change fees on all standard Economy and Premium cabin tickets for travel within the U.S.

50 states, Puerto Rico and the U.S.

Virgin Islands.

Frequent Flyer Accounting.

The table below presents a roll forward of Frequent flyer deferred revenue (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Total Frequent flyer deferred revenue - beginning balance $ 5,670 $ 5,198 $ 5,276 $ 5,005

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Total Frequent flyer deferred revenue - ending balance $ 5,835 $ 5,219 $ 5,835 $ 5,219

In the three and six months ended June 30, 2020 , the Company recognized, in Other operating revenue, $ 339 million and $ 869 million , respectively, related to the marketing, advertising, non-travel miles redeemed (net of related costs) and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our JPMorgan Chase Bank, N.A.

In the three and nine months ended September 30, 2020, the Company recognized, in Other operating revenue, $ 378 million and $ 1.2 billion, respectively, related to the marketing, advertising, non-travel miles redeemed (net of related costs) and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our JPMorgan Chase Bank, N.A.

("Chase") co-brand agreement.

The Company recognized $ 499 million and $ 972 million , respectively, in the three and six months ended June 30, 2019, related to those revenues.

The Company recognized $ 489 million and $ 1.5 billion, respectively, in the three and nine months ended September 30, 2019, related to those revenues.

In the first quarter of 2020, the Company entered into a Third Amended and Restated Co-Branded Card Marketing Services Agreement (as amended from time to time, the "Co-Brand Agreement") with Chase.

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The computations of UAL's basic and diluted earnings (loss) per share are set forth below (in millions, except per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Earnings (loss) available to common stockholders $ ( 1,841 ) $ 1,024 $ ( 5,172 ) $ 2,368

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(a) Antidilutive common stock equivalents excluded from the diluted per share calculation are not material.

On April 20, 2020, UAL entered into a warrant agreement with the U.S.

Treasury Department, pursuant to which UAL agreed to issue to the U.S.

Treasury Department warrants to purchase up to approximately 4.6 million shares of common stock, pro rata in conjunction with the initial issuance of, and increases to, the principal amount outstanding under the PSP Note (the "PSP Warrants").

Through June 30, 2020, UAL issued PSP Warrants to purchase up to approximately 4.2 million shares of common stock, with such warrants accounted for as equity instruments.

On April 20, 2020, UAL entered into a warrant agreement with Treasury, pursuant to which UAL agreed to issue to Treasury warrants to purchase shares of common stock, pro rata in conjunction with the initial issuance of, and increases to, the principal amount outstanding under the PSP Note (the "PSP Warrants").

Through September 30, 2020, UAL issued PSP Warrants to purchase up to approximately 4.8 million shares of common stock, with such warrants accounted for as equity instruments.

The PSP Warrants have a strike price of $ 31.50 per share (which was the closing price of UAL's common stock on The Nasdaq Stock Market on April 9, 2020).

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Pursuant to the terms of the PSP Warrants, PSP Warrant holders do not have any voting rights.

The relative fair value of the PSP Warrants is recorded within stockholder's equity and as a discount reducing the CARES Act grant credit.

If the Company borrows any amounts under the CARES Act Loan Program, UAL expects to issue to the U.S.

Treasury Department additional warrants to purchase shares of UAL common stock.

For example, if the Company borrows the full amount currently available of $ 4.5 billion, the Company would issue warrants to purchase approximately 14.2 million shares of UAL common stock at a strike price of $ 31.50 per share (which was the closing price of UAL's common stock on The Nasdaq Stock Market on April 9, 2020), on the same terms as the PSP Warrants.

If the Company borrows less than the full amount, the amount of warrants issued is expected to be reduced by a proportional amount.

The relative fair value of the PSP Warrants is recorded within stockholders' equity with an offset to the CARES Act grant credit.

In connection with the entry into the Term Loan Facility, UAL entered into a warrant agreement with Treasury on September 28, 2020, pursuant to which UAL will issue to Treasury warrants (the "Credit Agreement Warrants") to purchase up to approximately 16.4 million shares of UAL common stock, assuming United borrows the initial commitments under the Term Loan Facility in full.

The Credit Agreement Warrants will be issued on the date of disbursement of each Term Loan in an amount corresponding to 10 % of the principal amount of each such disbursement.

In connection with United's borrowing of the initial $ 520 million loan, on September 28, 2020, UAL issued Credit Agreement Warrants to purchase up to approximately 1.7 million shares of UAL common stock.

The Credit Agreement Warrants will have a strike price of $ 31.50 per share.

The Credit Agreement Warrants will expire five years after issuance, and are exercisabl e either through net share settlement in cash or in shares of UAL common stock, at UAL's option.

If Treasury increases its loan commitments, then the maximum amount of common stock for which warrants could be issued would increase proportionally with such increase to the commitments.

On April 21, 2020, UAL entered into an underwriting agreement (the "Underwriting Agreement") with Morgan Stanley & Co.

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On June 15, 2020, UAL entered into an equity distribution agreement (the "Distribution Agreement") with Citigroup Global Markets Inc., BofA Securities, Inc.

Morgan Securities LLC (collectively, the "Managers"), relating to the issuance and sale from time to time by UAL (the "ATM Offering"), through the Managers, of up to 28,000,000 shares of UAL's common stock, par value $ 0.01 per share (the "Shares").

Sales of the shares, if any, under the Distribution Agreement may be made in any transactions that are deemed to be "at the market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended.

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If UAL sells shares to a Manager as principal, UAL will enter into a separate agreement with such Manager.

As of June 30, 2020 , 0.5 million shares were sold in the ATM Offering at an average price of $ 41.05 per share, with proceeds totaling approximately $ 22 million .

During the nine months ended September 30, 2020, 0.5 million shares were sold in the ATM Offering at an average price of $ 41.05 per share, with net proceeds to the Company totaling approximately $ 22 million.

No shares were sold in the ATM Offering during the three months ended September 30, 2020.

NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The tables below present the components of the Company's accumulated other comprehensive income (loss), net of tax ("AOCI") (in millions):

Pension and Other Postretirement Liabilities

Investments and Other

Deferred Taxes

Balance at March 31, 2020

Changes in value

Amounts reclassified to earnings

Pension and Other Postretirement Liabilities Investments and Other Deferred Taxes Total

Balance at June 30, 2020 $ ( 1,257 ) $ 3 $ ( 5 ) $ ( 1,259 )

Changes in value ( 11 ) — 2 ( 9 )

Amounts reclassified to earnings 333 (a) — ( 74 ) 259

Balance at September 30, 2020 $ ( 935 ) $ 3 $ ( 77 ) $ ( 1,009 )

Balance at December 31, 2019 $ ( 560 ) $ 2 $ ( 160 ) $ ( 718 )

Changes in value ( 781 ) 1 173 ( 607 )

Amounts reclassified to earnings

Amounts reclassified to earnings 406 (a) — ( 90 ) 316

Balance at September 30, 2020 $ ( 935 ) $ 3 $ ( 77 ) $ ( 1,009 )

Balance at June 30, 2019 $ ( 675 ) $ 3 $ ( 135 ) $ ( 807 )

Balance at March 31, 2019

Changes in value 394 — ( 87 ) 307

Amounts reclassified to earnings

Balance at June 30, 2019

Amounts reclassified to earnings ( 4 ) (a) ( 1 ) 1 ( 4 )

Balance at September 30, 2019 $ ( 285 ) $ 2 $ ( 221 ) $ ( 504 )

Balance at December 31, 2018 $ ( 663 ) $ ( 4 ) $ ( 136 ) $ ( 803 )

Changes in value 370 7 ( 83 ) 294

Amounts reclassified to earnings

Balance at June 30, 2019

Amounts reclassified to earnings 8 (a) ( 1 ) ( 2 ) 5

Balance at September 30, 2019 $ ( 285 ) $ 2 $ ( 221 ) $ ( 504 )

(a) This AOCI component is included in the computation of net periodic pension and other postretirement costs (See Note 6 to the financial statements included in Part I, Item 1 for additional information).

NOTE 5 - INCOME TAXES

The Company's effective tax rates for the three and six months ended June 30, 2020 were 18.8 % and 19.1 % , respectively.

The effective tax rates for the three and six months ended June 30, 2019 were 22.3 % and 21.9 % , respectively.

The Company's effective tax rates for the three and nine months ended September 30, 2020 were 21.1 % and 19.8 %, respectively.

The effective tax rates for the three and nine months ended September 30, 2019 were 24.1 % and 22.9 %, respectively.

The provision for income taxes is based on the estimated annual effective tax rate which represents a blend of federal, state and foreign taxes and includes the impact of certain nondeductible items and the impact of a change in the Company's mix of domestic and foreign earnings (losses).

The effective tax rates for the three and six months ended June 30, 2020 were impacted by $ 64 million and $ 130 million , respectively, of valuation allowance related to unrealized capital losses.

The effective tax rates for the three and nine months ended September 30, 2020 were impacted by $ 27 million and $ 157 million, respectively, of valuation allowance related to unrealized capital losses.

The Company will continue to evaluate the realizability of its deferred tax assets and may be required to establish a valuation allowance against a portion of its deferred tax assets in future periods depending on the extent and duration of losses we incur.

NOTE 6 - EMPLOYEE BENEFIT PLANS

Defined Benefit Pension and Other Postretirement Benefit Plans.

The Company's net periodic benefit cost includes the following components for the three months ended June 30 (in millions):

Pension Benefits

Other Postretirement Benefits

Affected Line Item

2020 2019 2020 2019

Service cost $ 58 $ 46 $ 3 $ 2 Salaries and related costs

Interest cost 52 56 7 10 Miscellaneous, net

Expected return on plan assets ( 77 ) ( 73 ) — — Miscellaneous, net

Amortization of unrecognized (gain) loss 48 29 ( 9 ) ( 12 ) Miscellaneous, net

Amortization of prior service credit — — ( 31 ) ( 23 ) Miscellaneous, net

Settlement loss 5 2 — — Miscellaneous, net

Settlement loss - VSPs (defined below) 319 — — — Miscellaneous, net

Special termination benefit - VSPs 19 — 76 — Miscellaneous, net

Curtailment 1 — — — Miscellaneous, net

Total $ 425 $ 60 $ 46 $ ( 23 )

The Company's net periodic benefit cost includes the following components for the nine months ended September 30 (in millions):

Pension Benefits Other Postretirement Benefits Affected Line Item

in the Statements of

Consolidated Operations

Salaries and related costs

Interest cost

Miscellaneous, net

Expected return on plan assets

Miscellaneous, net

Amortization of unrecognized (gain) loss

Miscellaneous, net

Amortization of prior service credit

Miscellaneous, net

Settlement loss

Miscellaneous, net

Settlement loss - VSPs (defined below)

Miscellaneous, net

Special termination benefit - VSPs

Miscellaneous, net

2020 2019 2020 2019

Service cost $ 165 $ 138 $ 8 $ 7 Salaries and related costs

Interest cost 164 170 21 39 Miscellaneous, net

Expected return on plan assets ( 259 ) ( 218 ) ( 1 ) ( 1 ) Miscellaneous, net

Amortization of unrecognized (gain) loss 120 87 ( 31 ) ( 42 ) Miscellaneous, net

Amortization of prior service credit — — ( 93 ) ( 42 ) Miscellaneous, net

Settlement loss 19 5 — — Miscellaneous, net

Settlement loss - VSPs (defined below) 390 — — — Miscellaneous, net

Special termination benefit - VSPs 54 — 201 — Miscellaneous, net

Curtailment 1 — — — Miscellaneous, net

Total $ 654 $ 182 $ 105 $ ( 39 )

Given the impacts of the COVID-19 pandemic, the Company does not plan to make any contributions in 2020 to its two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S.

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The Company does not have any minimum required contributions for 2020.

During the second quarter of 2020 , the Company offered voluntary separation programs ("VSPs") to its U.S.

based front line employees, excluding pilots, and management and administrative employees.

The Company offered its eligible front-line employees, based on employee group, age and completed years of service, special termination benefits in the form of additional years of pension service and additional subsidies for retiree medical costs.

As a result, the Company recorded, in the second quarter of 2020 , $ 35 million and $ 125 million , respectively, for those additional benefits.

Also, the Company recognized a $ 71 million settlement loss related to the defined benefit pension plan covering certain U.S.

During the second and third quarters of 2020, the Company offered voluntary separation programs ("VSPs") to its U.S.

based front line employees and management and administrative employees.

The Company offered certain of its eligible front-line employees, based on employee group, age and completed years of service, special termination benefits in the form of additional years of pension service and additional subsidies for retiree medical costs.

As a result, the Company recorded, in the three and

nine months ended September 30, 2020, $ 19 million and $ 54 million, respectively, for those additional pension benefits.

In the three and nine months ended September 30, 2020, the Company recorded $ 76 million and $ 201 million, respectively, for those additional retiree medical benefits.

Also, the Company recognized, in the three and nine months ended September 30, 2020, $ 319 million and $ 390 million , respectively, in settlement losses related to the defined benefit pension plan covering certain U.S.

non-pilot employees.

As a result of the VSPs, the Company remeasured both its defined pension plan and its retiree medical benefit program liabilities using discount rates of 3.24 % and 2.73 % , respectively.

As a result of the remeasurements, the projected benefit obligation of the defined pension plan increased by $ 655 million and the retiree medical benefit program obligation increased by $ 65 million , with an offset to Accumulated other comprehensive loss for both plans.

The Company expects additional employee reductions in the second half of the year and, as a result, expects to record additional settlement and special termination benefits.

As a result of the VSPs and other furlough programs, the Company remeasured both its defined pension plan and its retiree medical benefit program liabilities using discount rates of 3.01 % and 2.61 %, respectively.

During the nine months ended September 30, 2020, as a result of the remeasurements, settlements, curtailments and special termination benefits, the projected benefit obligation of the defined benefit pension plan decreased by $ 380 million and accumulated other comprehensive losses increased by approximately $ 286 million.

Also, during the nine months ended September 30, 2020, the retiree medical benefit program projected benefit obligation increased by $ 270 million and accumulated other comprehensive gains decreased by $ 69 million.

Share-Based Compensation.

In the six months ended June 30, 2020 , UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc.

In the nine months ended September 30, 2020, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc.

2017 Incentive Compensation Plan.

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The table below presents information related to share-based compensation (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Share-based compensation expense $ 41 $ 33 $ 83 $ 70

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Unrecognized share-based compensation $ 120 $ 77

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BRW Aviation Holding LLC and BRW are affiliates of Synergy Aerospace Corporation ("Synergy"), and BRW is the majority shareholder of Avianca Holdings S.A.

Pursuant to the BRW Term Loan Agreement, United provided to

BRW a $ 456 million term loan (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH (which are eligible to be converted into the same number of preferred shares, which may be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE"), in exchange for 64.5 million ADRs) (such shares and equity, collectively, the "BRW Loan Collateral").

Pursuant to the BRW Term Loan Agreement, United provided to BRW a $ 456 million term loan (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH (which are eligible to be converted into the same number of preferred shares, which may be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE"), in exchange for 64.5 million ADRs) (such shares and equity, collectively, the "BRW Loan Collateral").

BRW is currently in default under the BRW Term Loan Agreement.

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The credit loss allowance was recorded as part of Nonoperating income (expense):

Miscellaneous, net on the Company's statements of consolidated operations.

Miscellaneous, net on the Company's statements of

consolidated operations.

During the second quarter of 2020, AVH filed the AVH Reorganization Proceedings and, accordingly, United maintains a full loss reserve against the BRW Term Loan and related receivables.

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The table below presents disclosures about the financial assets and liabilities measured at fair value on a recurring basis in UAL's financial statements (in millions):

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 13,150 $ 13,150 $ — $ — $ 2,762 $ 2,762 $ — $ —

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Other investments measured at net asset value ("NAV") — — — — 193 — — —

Restricted cash

Restricted cash — current 76 76 — — — — — —

Restricted cash — non-current 172 172 — — 106 106 — —

Long-term investments:

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AVH Derivative Assets — — — — 24 — — 24

Other assets 14 — — 14 — — — —

Available-for-sale investment maturities - The short-term investments shown in the table above are classified as available-for-sale, with the exception of investments measured at NAV.

As of June 30, 2020 , asset-backed securities have remaining maturities of less than one year to approximately 14 years and corporate debt securities have remaining maturities of three years or less.

As of September 30, 2020, asset-backed securities have remaining maturities of less than one year to approximately 14 years and corporate debt securities have remaining maturities of less than three years .

government and agency notes have maturities of approximately two years or less and other fixed-income securities have maturities of less than one year .

Restricted cash - Restricted cash primarily includes collateral for letters of credit and collateral associated with facility leases and other insurance-related obligations.

Restricted cash — current - Restricted cash primarily includes amounts to be used for the payment of fees, principal and interest on the $ 6.8 billion of senior secured notes and a secured term loan facility (the "MileagePlus Financing") secured by substantially all of the assets of Mileage Plus Holdings, LLC, a direct wholly-owned subsidiary of United ("MPH").

Restricted cash — non-current - Restricted cash primarily includes collateral for letters of credit and collateral associated with facility leases, other insurance-related obligations, and collateral associated with the MileagePlus Financing.

Equity securities - Equity securities represent United's investment in Azul Linhas Aéreas Brasileiras S.A.

("Azul"), consisting of a preferred equity stake of approximately 8 % (approximately 2 % of the total capital stock of Azul).

The Company recorded $ 9 million of gains and $ 284 million of losses, respectively, during the three and six months ended June 30, 2020 .

The Company recorded $ 38 million and $ 52 million in gains, respectively, during the three and six months ended June 30, 2019 for changes to the fair market value of its equity investment in Azul in Unrealized gains (losses) on investments, net in the Company's statements of consolidated operations.

The carrying value of our investment in Azul was $ 101 million at June 30, 2020 .

AVH Derivative Assets - As part of the BRW Loan Agreement and related agreements with Kingsland, United obtained AVH share call options, AVH share appreciation rights and an AVH share-based upside sharing agreement (collectively, the "AVH Derivative Assets").

The Company recorded $ 17 million of gains and $ 267 million of losses, respectively, during the three and nine months ended September 30, 2020 for changes to the fair market value of its equity investment in Azul in Unrealized gains (losses) on investments, net in the Company's statements of consolidated operations.

The Company recorded $ 21 million and $ 73 million in gains, respectively, during the three and nine months ended September 30, 2019.

The carrying value of our investment in Azul was $ 118 million at September 30, 2020.

AVH Derivative Assets - As part of the BRW Loan Agreement and related agreements with Kingsland, United obtained AVH share call options and AVH share appreciation rights and entered into an AVH share-based upside sharing agreement (collectively, the "AVH Derivative Assets").

The AVH Derivative Assets are recorded at fair value as Other assets on the Company's balance sheet and are included in the table above.

The Company recorded $ 24 million in losses during the six months ended June 30, 2020 and recorded $ 4 million and $ 1 million in losses, respectively, during the three and six months ended June 30, 2019 , in the fair value of the AVH Derivative Assets in Unrealized gains (losses) on investments, net in the Company's statements of consolidated operations.

The Company recorded $ 24 million in losses during the nine months ended September 30, 2020 and recorded $ 4 million and $ 5 million in losses, respectively, during the three and nine months ended September 30, 2019, in the fair value of the AVH Derivative Assets in Unrealized gains (losses) on investments, net in the Company's statements of consolidated operations.

Investments presented in the table above have the same fair value as their carrying value.

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Carrying amounts include any related discounts, premiums and issuance costs:

June 30, 2020

December 31, 2019

Carrying Amount

September 30, 2020 December 31, 2019

Carrying Amount Fair Value Carrying Amount Fair Value

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

Long-term debt $ 26,881 $ 25,892 $ — $ 20,247 $ 5,645 $ 14,552 $ 15,203 $ — $ 11,398 $ 3,805

Fair value of the financial instruments included in the tables above was determined as follows:

Fair Value Methodology

Cash and cash equivalents

The carrying amounts approximate fair value because of the short-term maturity of these assets.

Description Fair Value Methodology

Cash and cash equivalents The carrying amounts approximate fair value because of the short-term maturity of these assets.

Short-term investments, other than Other investments measured at NAV,

Equity securities and

Restricted cash

Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services.

Other investments measured at NAV

In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

Restricted cash (current and non-current) Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services.

Other investments measured at NAV In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

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public- or private-sector entities.

AVH Derivative Assets

Fair values are calculated using a Monte Carlo simulation approach.

AVH Derivative Assets Fair values are calculated using a Monte Carlo simulation approach.

Unobservable inputs include expected volatility, expected dividend yield and control and acquisition premiums.

Long-term debt

Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities or assets.

Long-term debt Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities or assets.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

As of June 30, 2020 , United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing"), Airbus S.A.S.

As of September 30, 2020, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing"), Airbus S.A.S.

("Airbus") and Embraer S.A.

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Scheduled Aircraft Deliveries

Aircraft Type

Number of Firm

Commitments (a)

Last Six Months of 2020

Aircraft Type Number of Firm

Commitments (a) Last Three Months of 2020 2021 2022 After 2022

Airbus A321XLR 50 — — — 50

Airbus A350 45 — — — 45

Boeing 737 MAX 171 16 24 — 131

Boeing 787 11 3 8 — —

Embraer E175 15 11 4 — —

(a) United also has options and purchase rights for additional aircraft.

Th e aircraft listed in the table above are scheduled for delivery through 2030 .

The aircraft listed in the table above are scheduled for delivery through 2030.

To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company's future capital commitments could change.

The Company may assign the purchase obligation for each of the 20 Embraer E175 aircraft to one of its regional partners at the time of such aircraft's delivery, subject to certain conditions.

Following the Federal Aviation Administration ("FAA") order issued on March 13, 2019 prohibiting the operation of Boeing 737 MAX series aircraft by U.S.

certificated operators ("FAA Order"), Boeing suspended deliveries of new Boeing 737 MAX aircraft.

certificated operators ("FAA Order"), Boeing suspended deliveries of new Boeing 737 MAX

As a result, scheduled deliveries of Boeing 737 MAX series aircraft have been delayed, and the Company expects these delays to continue.

The extent of the delay to the scheduled deliveries of new Boeing 737 MAX aircraft is expected to be impacted by the length of time the FAA Order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA Order, among other factors, and these factors have been and could continue to be significantly impacted by the COVID-19 pandemic.

United also has agreements to purchase 20 used Airbus A319 aircraft with expected delivery dates through 2022 and 13 used Boeing 737-700 aircraft with expected delivery dates through 2021 .

On April 17, 2020, United entered into an agreement with BOC Aviation (USA) Corporation ("BOCA"), a subsidiary of BOC Aviation Limited , to finance through a sale and leaseback transaction six new Boeing model 787-9 aircraft and 16 new Boeing model 737-9 MAX aircraft subject to purchase agreements between United and Boeing.

In connection with delivery of each aircraft from Boeing, United will assign its right to purchase such aircraft to BOCA, and simultaneous with BOCA's purchase from Boeing, United will enter into a long-term lease for such aircraft with BOCA.

Two Boeing model 787-9 aircraft were delivered in the second quarter of 2020 under this transaction (and each is presently subject to a long-term lease from BOCA to United), and the remaining 20 aircraft are scheduled to be delivered through the end of 2020.

Upon delivery, the Company will account for those aircraft which have a repurchase option at a price other than fair value as part of Flight equipment on the Company's balance sheet and the related obligation as Other liabilities (current and noncurrent) since they do not qualify for sale recognition.

The remaining aircraft in this transaction that qualify for sale recognition will be recorded as Operating lease right-of-use assets and lease liabilities on the Company's balance sheet after recognition of related gains or losses on such sale.

Accordingly, we anticipate that a certain number of 2020 and 2021 MAX deliveries described in the table above may move to later years.

If the FAA Order is not lifted by the two-year anniversary of its issuance, an event of loss is likely to occur under certain of the Company's financing documents related to the Boeing 737 MAX aircraft.

An event of loss would require the Company to prepay at par approximately $ 450 million of indebtedness incurred to finance these aircraft.

The Company expects that it would be able to refinance any such prepayment.

In March 2020, the Company entered into a confidential settlement with Boeing with respect to compensation for financial damages incurred in 2019 due to the grounding of the Boeing 737 MAX aircraft.

In June 2020, the Company entered into an amended and restated confidential agreement with Boeing which provides for the settlement of additional items related to aircraft delivery and updates the scheduled delivery for substantially all undelivered Boeing 737 MAX aircraft.

The compensation to the Company under the amended and restated settlement agreement is in the form of credit memos to be issued at future dates upon the satisfaction of certain conditions related to aircraft deliveries.

The Company plans to account for this settlement as a reduction to the cost basis of future firm order Boeing 737 MAX aircraft deliveries and previously-delivered Boeing 737 MAX aircraft, which is expected to reduce future depreciation expense associated with these aircraft.

The table below summarizes United's commitments as of June 30, 2020 , which include aircraft and related spare engines, aircraft improvements and all non-aircraft capital commitments (in billions):

Last six months of 2020

The compensation to the Company under the amended and restated settlement agreement is in the form of credit memos to be issued upon the satisfaction of certain conditions related to aircraft deliveries.

The Company is accounting for this settlement as a reduction to the cost basis of future firm order Boeing 737 MAX aircraft deliveries and previously-delivered Boeing 737 MAX aircraft, which will reduce future depreciation expense associated with these aircraft.

United also has agreements to purchase 20 used Airbus A319 aircraft with expected delivery dates through 2022 and 11 used Boeing 737-700 aircraft with expected delivery dates through 2021.

In the first nine months of 2020, United entered into agreements with third parties to finance through sale and leaseback transactions new Boeing model 787-9 aircraft and Boeing model 737 MAX aircraft subject to purchase agreements between United and Boeing.

In connection with delivery of each aircraft from Boeing, United will assign its right to purchase such aircraft to the buyer, and simultaneous with the buyer's purchase from Boeing, United will enter into a long-term lease for such aircraft with the buyer as lessor.

Seven Boeing model 787-9 aircraft were delivered under these transactions (and each is presently subject to a long-term lease to United).

Remaining aircraft in the agreements are scheduled to be delivered through 2021.

Upon delivery of aircraft in these sale and leaseback transactions, the Company will account for these aircraft which have a repurchase option at a price other than fair value as part of Flight equipment on the Company's balance sheet and the related obligation recorded in Other current liabilities and Other financial liabilities from sale-leasebacks (noncurrent) since they do not qualify for sale recognition.

The table below summarizes United's commitments as of September 30, 2020, which include aircraft and related spare engines, aircraft improvements and all non-aircraft capital commitments (in billions):

Last three months of 2020 $ 1.3

After 2024 13.9

Regional CPAs.

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We have set forth below estimates based on our current assumptions of our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is higher.

Based on these assumptions as of June 30, 2020 , our future payments through the end of the terms of our CPAs are presented in the table below (in billions):

Last six months of 2020

As of June 30, 2020 , United is the guarantor of approximately $ 1.9 billion in aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon.

During the third quarter, the Company’s estimate of future payments declined due to lower expected future flight activity and a wind-down of the ExpressJet Airlines, LLC ("ExpressJet") CPA agreement.

Based on these assumptions as of September 30, 2020, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):

Last three months of 2020 $ 0.4

After 2024 3.3

In July 2020, the Company announced its plans to consolidate its Embraer 145 ("E145") operations into a single regional partner.

As a result, the Company is in the process of terminating its CPA with ExpressJet.

ExpressJet flew its last commercial flight, on behalf of United, on September 30, 2020.

Additionally, United will transfer all of its E145 flying over to Champlain Enterprises, LLC d/b/a CommutAir.

As of September 30, 2020, United is the guarantor of approximately $ 1.9 billion in aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon.

These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the respective governing bodies.

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Miscellaneous, net on the Company's statements of consolidated operations.

As of June 30, 2020 , United is the guarantor of $ 126 million of aircraft mortgage debt issued by one of United's regional carriers.

As of September 30, 2020, United is the guarantor of $ 123 million of aircraft mortgage debt issued by one of United's regional carriers.

The aircraft mortgage debt is subject to similar increased cost provisions as described below for the Company's debt, and the Company would potentially be responsible for those costs under the guarantees.

Increased Cost Provisions.

certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs.

At June 30, 2020 , the Company had $ 7.6 billion of floating rate debt with remaining terms of up to 12 years that are subject to these increased cost provisions.

In United's financing transactions that include loans in which United is the borrower, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans with respect to which the interest rate is based on the London Interbank Offered Rate ("LIBOR"), for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs.

At September 30, 2020, the Company had $ 12.3 billion of floating rate debt with remaining terms of up to 12 years that are subject to these increased cost provisions.

In several financing transactions involving loans or leases from non-U.S.

entities, with remaining terms of up to 12 years and an aggregate balance of $ 7.4 billion , the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S.

entities, with remaining terms of up to 12 years and an aggregate balance of $ 10.8 billion, the Company bears the risk of any change in

tax laws that would subject loan or lease payments thereunder to non-U.S.

entities to withholding taxes, subject to customary exclusions.

Labor Negotiations.

As of June 30, 2020 , the Company had approximately 91,800 employees, of whom approximately 85 % were represented by various U.S.

labor organizations and approximately 22 % were on voluntary unpaid leaves of absence.

As of September 30, 2020, the Company had approximately 87,887 employees, of whom approximately 85 % were represented by various U.S.

labor organizations and approximately 52 % participated in voluntary separation programs and voluntary leave of absence programs.

On February 1, 2019, the collective bargaining agreement with the Air Line Pilots Association ("ALPA"), the labor union representing United's pilots, became amendable.

The Company and ALPA are in negotiations for an amended agreement.

On September 28, 2020, United's pilots approved an agreement to avoid furloughs, at least until June 2021.

The agreement offers, among other things, a second round of an early separation option for all pilots with at least 10 years of service and age 50 and over.

The Company and UNITE HERE, the labor union representing United's Catering Operations employees, started negotiations for a first collective bargaining agreement in March 2019.

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NOTE 10 - DEBT

As of June 30, 2020 , United had its entire capacity of $ 2.0 billion available under the revolving credit facility of the Revolving Credit Agreement.

As of September 30, 2020, United had $ 1.0 billion available under the revolving credit facility of the Revolving Credit Agreement.

To maximize United's flexibility under a debt incurrence covenant contained in two of United's financings, on July 2, 2020, United took the proactive step of borrowing $ 1.0 billion under the Revolving Credit Agreement, which leaves $ 1.0 billion available for borrowing under such agreement by United at any time until April 1, 2022.

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Certain details of the pass-through trusts with proceeds received from issuance of debt in 2020 are as follows (in millions, except stated interest rate):

EETC Issuance Date

Stated interest rate

Total proceeds received from issuance of debt during 2020

Total debt recorded as of June 30, 2020

September 2019

EETC Issuance Date Class Face Amount Stated

rate Total proceeds received

from issuance of debt

during 2020 Total debt recorded

as of September 30, 2020

September 2019 AA $ 702 2.70 % $ 189 $ 702

September 2019 A 287 2.90 % 77 287

September 2019 B 232 3.50 % 62 232

$ 1,221 $ 328 $ 1,221

Used Aircraft Facility.

United party thereto from time to time, as guarantors, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent.

On March 9, 2020, the Company entered into a Term Loan Credit and Guaranty Agreement (the "Used Aircraft Credit Agreement"), among United, as borrower, UAL, as parent and guarantor, the subsidiaries of UAL other than United party thereto from time to time, as guarantors, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent.

The obligations of United under the Used Aircraft Credit Agreement are secured by liens on certain aircraft of United and certain related assets.

United borrowed the full amount of $ 2 billion under the Used Aircraft Credit Agreement (the "Used Aircraft Facility").

United borrowed the full amount of $ 2 billion under the Used Aircraft

Credit Agreement (the "Used Aircraft Facility").

The principal amount of the Used Aircraft Facility must be repaid in a single installment on the maturity date on March 8, 2021.

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If the Company does not meet the minimum collateral coverage ratio when required, it must either provide additional collateral to secure its obligations under the Spare Engines Credit Agreement or repay the loans under the Spare Engines Credit Agreement (or both) to the extent necessary to maintain compliance with the collateral coverage ratio.

During the second quarter of 2020, pursuant to the PSP Agreement and in connection with the U.S.

Treasury Department providing the Company with total funding of approximately $ 5.0 billion under the Payroll Support Program of the CARES Act , UAL issued a promissory note to the U.S.

Treasury Department evidencing senior unsecured indebtedness of UAL of approximately $ 1.3 billion .

The principal amount of the PSP Note will increase in an amount equal to 30 % of any

disbursement made by the U.S.

Treasury Department to United under the PSP Agreement after June 30, 2020 .

The remaining disbursement is expected by the end of July 2020.

The aggregate principal amount of the PSP Note after all disbursements will be approximately $ 1.5 billion .

During the second and third quarters of 2020, pursuant to the PSP Agreement and in connection with Treasury providing the Company with total funding of approximately $ 5.1 billion under the Payroll Support Program of the CARES Act , UAL issued a promissory note to Treasury evidencing senior unsecured indebtedness of UAL of approximately $ 1.5 billion.

The PSP Note is guaranteed by United and will mature ten years after the initial issuance on April 20, 2030.

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UAL may, at its option, prepay the PSP Note, at any time, and from time to time, at par.

UAL is required to prepay the PSP Note upon the occurrence of certain change of control triggering events.

required to prepay the PSP Note upon the occurrence of certain change of control triggering events.

The PSP Note does not require any amortization and is to be repaid in full on the maturity date.

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MileagePlus Financing.

On July 2, 2020 , MPH and MIPA (the "Issuers") issued $ 3.8 billion aggregate principal amount of their 6.50 % Senior Secured Notes due 2027 (the "Notes").

On July 2, 2020, MPH and Mileage Plus Intellectual Property Assets, Ltd., an indirect wholly-owned subsidiary of MPH ("MIPA" and, together with MPH, the "Issuers") issued $ 3.8 billion aggregate principal amount of their 6.50 % Senior Secured Notes due 2027 (the "Notes").

The Notes have a fixed annual interest rate of 6.50 %, which will be paid in cash, quarterly in arrears on March 20, June 20, September 20 and December 20 of each year, beginning on September 21, 2020 (each a "Payment Date").

Concurrently with the issuance of the Notes, the Issuers entered into a credit agreement (the "Credit Agreement") that provides for a term loan facility in an aggregate principal amount of up to $ 3.0 billion (the "Term Loan Facility").

On July 2, 2020 , the Issuers borrowed $ 3.0 billion in aggregate principal amount under the Term Loan Facility.

Loans outstanding under the Term Loan Facility will bear interest at a variable rate equal to LIBOR (but not less than 1.0 % per annum), plus a margin of 5.25 % per annum, payable on each Payment Date.

The principal on the Notes and the Term Loan Facility will be repaid in quarterly installments on each Payment Date, beginning on September 20, 2022 .

The scheduled maturity date of the Notes and of the Term Loan Facility is June 20, 2027 .

The Issuers lent the proceeds of the Notes and of the Term Loan Facility to United, after depositing a portion of such proceeds in reserve accounts to cover future interest payments.

The Notes and the loans under the Term Loan Facility are guaranteed by UAL, United and certain other subsidiaries of UAL.

Concurrently with the issuance of the Notes, the Issuers entered into a credit agreement that provides for a term loan facility in an aggregate principal amount of up to $ 3.0 billion (the "MP Term Loan Facility").

On July 2, 2020, the Issuers borrowed $ 3.0 billion in aggregate principal amount under the MP Term Loan Facility.

Loans outstanding under the MP Term Loan Facility will bear interest at a variable rate equal to LIBOR (but not less than 1.0 % per annum), plus a margin of 5.25 % per annum, payable on each Payment Date.

The principal on the Notes and the MP Term Loan Facility will be repaid in quarterly installments on each Payment Date, beginning on September 20, 2022.

The scheduled maturity date of the Notes and of the MP Term Loan Facility is June 20, 2027.

The Issuers lent the proceeds of the Notes and of the MP Term Loan Facility to United, after depositing a portion of such proceeds in reserve accounts to cover future interest payments.

The Notes and the loans under the MP Term Loan Facility are guaranteed by UAL, United and certain other subsidiaries of UAL.

The Notes and the MP Term Loan Facility are secured by first-priority security interests in substantially all of the assets of the Issuers, other than excluded property and subject to certain permitted liens, including security interests in specified cash accounts that include the accounts into which MileagePlus revenues are or will be paid by United's marketing partners and by United.

On June 30, 2020, the Company entered into a $ 200 million Term Loan Credit and Guaranty Agreement (the "Bridge Loan"), among United, as borrower, UAL, as parent and guarantor, and Barclays Bank PLC, as administrative agent.

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and Europe, South America, and Mexico.

United borrowed the full amount of the Bridge Loan on July 1, 2020 .

The principal amount of the Bridge Loan must be repaid in a single installment on the maturity date of September 29, 2020 .

Borrowings under the Bridge Loan bear interest at a variable rate equal to LIBOR (but not less than 1.00 % per annum) plus 1.75 % per annum or (at United's election) another rate based on certain market interest rates, plus a margin of 0.75 % per annum.

United borrowed the full amount of the Bridge Loan on July 1, 2020 and repaid it in a single installment on the maturity date of September 29, 2020.

Credit Agreement.

On September 28, 2020, the Company entered into a Loan and Guarantee Agreement (the "Credit Agreement"), among United, as borrower, UAL, as parent and guarantor, the subsidiaries of UAL other than United party thereto from time to time, as guarantors, Treasury, as lender, and The Bank of New York Mellon, as administrative and collateral agent.

The Credit Agreement provides for a Term Loan Facility of up to approximately $ 5.2 billion pursuant to the Loan Program established under Section 4003(b) of the CARES Act.

The loans under the Term Loan Facility may be disbursed in up to three disbursements on or before March 26, 2021.

On September 28, 2020, United borrowed an amount equal to $ 520 million.

The principal amount must be repaid in a single installment on the maturity date on September 28, 2025.

United may prepay all or a portion from time to time, at par plus accrued and unpaid interest.

Borrowings under the Credit Agreement bear interest at a variable rate equal to LIBOR (but not less than 0 %), plus a margin of 3.00 % per annum.

The obligations of United under the Credit Agreement are secured by liens on certain route authorities of United and certain related slots and gate leaseholds and other related assets.

Several of the Company's debt agreements contain covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness.

As of June 30, 2020 , UAL and United were in compliance with their respective debt covenants.

The table below presents the Company's contractual principal payments (not including debt discount or debt issuance costs and any debt entered into after the balance sheet date) at June 30, 2020 under then-outstanding long-term debt agreements (in millions):

Last six months of 2020

As of September 30, 2020, UAL and United were in compliance with their respective debt covenants.

The table below presents the Company's contractual principal payments (not including debt discount or debt issuance costs) at September 30, 2020 under then-outstanding long-term debt agreements (in millions):

Last three months of 2020 $ 661

After 2024 12,150

NOTE 11 - SPECIAL CHARGES (CREDIT)

For the three and six months ended June 30, special charges (credit), special termination benefits and pension settlement losses, unrealized gains and losses on investments and certain credit losses in the statements of consolidated operations consisted of the following (in millions):

For the three and nine months ended September 30, special charges (credit), special termination benefits and pension settlement losses, unrealized gains and losses on investments and certain credit losses in the statements of consolidated operations consisted of the following (in millions):

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

CARES Act grant $ ( 1,494 ) $ — $ ( 3,083 ) $ —

Impairment of assets

Severance and benefit costs 350 2 413 14

Impairment of assets 38 — 168 69

(Gains) losses on sale of assets and other special charges 25 25 35 33

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Nonoperating credit loss on BRW Term Loan and related guarantee — — 697 —

Total nonoperating special charges (credit) and unrealized (gains) losses on investments

Total nonoperating special charges and unrealized (gains) losses on investments 400 ( 21 ) 1,638 ( 72 )

Total operating and nonoperating special charges (credit) and unrealized (gains) losses on investments ( 681 ) 6 ( 829 ) 44

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CARES Act grant.

During the three and six months ended June 30, 2020 , the Company received approximately $ 4.5 billion in funding pursuant to the Payroll Support Program under the CARES Act, which consists of $ 3.2 billion in a grant and $ 1.3 billion in an unsecured loan.

The Company recorded $ 57 million in warrants issued to the U.S.

Treasury Department, within stockholder's equity, as an offset to the grant proceeds.

As of June 30, 2020 , we recognized $ 1.6 billion of the grant as a credit to Special charges (credit) with the remaining $ 1.5 billion recorded as Payroll Support Program deferred credit on our balance sheet.

We expect to recognize the remainder of the grant proceeds, including additional proceeds expected in July 2020 , from the Payroll Support Program as Special charge (credit) by the end of 2020 as the salaries and wages the grant is intended to offset are incurred.

During the nine months ended September 30, 2020, the Company received approximately $ 5.1 billion in funding pursuant to the Payroll Support Program under the CARES Act, which consists of $ 3.6 billion in a grant and $ 1.5 billion in an unsecured loan.

The Company also recorded $ 66 million in warrants issued to Treasury, within stockholders' equity, as an offset to the grant income.

For the nine months ended September 30, 2020, we recognized $ 3.1 billion of the grant as a credit to Special charges (credit) with the remaining $ 453 million recorded as a deferred credit on our balance sheet.

We expect to recognize the remainder of the grant income from the Payroll Support Program as Special charge (credit) during the fourth quarter of 2020 as the salaries and wages the grant is intended to offset are incurred.

Impairment of assets .

During the third quarter of 2020, the Company recorded an impairment of $ 38 million of the right-of-use asset associated with the embedded aircraft lease in one of our CPA agreements.

We review flight equipment and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired.

We measure cash flows at the contract level with our CPA partners.

This impairment was primarily due to the impact to cash flows from the pandemic and the relatively short remaining term under the CPA agreement.

In the first quarter of 2020, in response to decreased demand caused by the COVID-19 pandemic, the Company temporarily grounded certain of its mainline fleet, and those aircraft continue to be temporarily grounded.

In the first quarter of 2020, as required under relevant accounting standards, United performed forecasted cash flow analyses and determined that the carrying value of the tested fleets is recoverable from future cash flows expected to be generated by those fleets.

To determine whether impairments exist for active and temporarily parked mainline aircraft, we group assets at the fleet-type level.

To the extent we make decisions to permanently ground any of our fleet, or our estimates of future cash flows generated by our fleet change, we may be required to record impairment charges in future periods.

We update the cash flow analysis each quarter.

There were no new impairment indicators related to the temporarily-grounded aircraft in the third quarter of 2020.

United assesses its goodwill and intangible assets for potential impairment on an annual basis as of October 1, and on an interim basis if there are indicators that an impairment of goodwill or the intangible assets may have occurred.

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For all other intangible assets, the Company performed a qualitative assessment of whether it was more likely than not that an impairment had occurred.

To determine fair value, the Company used discounted cash flow methods appropriate for each asset.

determine fair value, the Company used discounted cash flow methods appropriate for each asset.

Key inputs into the models included forecasted capacity, revenues, fuel costs, other operating costs and an overall discount rate.

The assumptions used for future projections include that demand will remain suppressed for the remainder of 2020 and likely into 2021.

The assumptions used for future projections include that demand will likely remain suppressed through 2021.

These assumptions are inherently uncertain as they relate to future events and circumstances.

In the second quarter of 2020, the Company again quantitatively assessed its goodwill and China routes using the methodologies described above.

There was not a need to quantitatively assess the other intangible assets for impairment.

The Company conducted another intangible asset impairment review in the second quarter of 2020 and in the third quarter of 2020 the Company again performed similar quantitative and qualitative assessments as in first quarter described above.

In light of the ongoing impact of the COVID-19 pandemic on both the U.S.

and global economies, the significant, sustained impact on the demand for travel and government policies that restrict air travel, the exact timing of the recovery from the COVID-19 pandemic, and the speed at which such recovery could occur, continues to remain uncertain and could result in additional impairment charges in the future.

We expect to continue to modify our cost management structure, liquidity-raising efforts and capacity as the timing of demand recovery becomes more certain.

As a result of the impairment assessments, the Company determined that its China routes fair value was less than its carrying value as of March 31, 2020 and June 30, 2020 .

Accordingly, during the three and six months ended June 30, 2020 , the Company recorded impairment charges of $ 80 million and $ 130 million , respectively, for its China routes which was primarily caused by the COVID-19 pandemic and the Company's subsequent suspension of flights to China.

We expect to continue to modify our cost management structure and capacity as the timing of demand recovery becomes more certain.

As a result of the impairment assessments, the Company recorded impairment charges of $ 130 million during the nine months ended September 30, 2020 for its China routes which was primarily caused by the COVID-19 pandemic, the Company's subsequent suspension of flights to China and a further delay in the expected return of full capacity to the China markets.

The Company's China routes are subject to usage requirements imposed by the U.S.

and Chinese governments.

For the summer 2020 season, both governments have issued relief from their frequency and slot usage requirements.

For the summer 2020 season, both governments issued relief from their frequency and slot usage requirements.

The Company, therefore, has been able to reduce its mainland China service without violating the governments' rules.

The Company is advocating for a continuation of this relief through the winter 2020/2021 season.

The additional impairment in the second quarter of 2020 was the result of a further delay in the expected return of full capacity to the China markets.

As of June 30, 2020 , the fair value of the China routes was approximately $ 1.0 billion .

No other impairments were recorded.

To determine whether impairments exist for active and temporarily parked aircraft, we group assets at the fleet-type level.

There were no new impairment indicators related to the temporarily-grounded aircraft in the second quarter of 2020.

As of September 30, 2020, the fair value of the China routes was approximately $ 1.1 billion.

No impairments were recorded in the third quarter of 2020.

Severance and benefit costs .

During the three and six months ended June 30, 2020 , the Company recorded $ 63 million related to pay continuation and benefits provided to employees that chose to voluntarily separate from the Company.

As announced in July 2020, the Company started the involuntary furlough process earlier this summer when issuing WARN Act notices to 36,000 of its employees.

The Company recorded $ 350 million and $ 413 million during the three and nine months ended September 30, 2020, respectively, related to the workforce reduction and voluntary plans for employee severance, pay continuance from voluntary retirements, and benefits-related costs (and additional costs associated with special termination benefits and settlement losses discussed below).

Nonoperating special termination benefits and settlement losses.

During the three and six months ended June 30, 2020 , the Company recorded $ 231 million of settlement losses related to the Company's primary defined benefit pension plans covering certain U.S.

non-pilot employees, and special termination benefits offered under voluntary separation programs to certain front-line U.S.

based employees participating in the non-pilot defined benefit pension plan and postretirement medical programs.

During the three and nine months ended September 30, 2020, the Company recorded $ 415 million and $ 646 million, respectively, of settlement losses related to the Company's primary defined benefit pension plan covering certain U.S.

non-pilot employees, and special termination benefits offered, under furlough and voluntary separation programs.

See Note 6 to the financial statements included in Part I, Item 1 for additional information.

Nonoperating unrealized gains (losses) on investments, net.

During the three and six months ended June 30, 2020 , the Company recorded gains of $ 9 million and losses of $ 310 million , respectively.

The six months ended June 30, 2020 losses were primarily due to $ 284 million decrease in the market value of its investment in Azul and $ 24 million for the decrease in fair value of the AVH Derivative Assets.

During the three and nine months ended September 30, 2020, the Company recorded gains of $ 15 million and losses of $ 271 million, respectively, primarily for changes in the fair value of its investment in Azul.

Also during the nine months ended September 30, 2020, the Company recorded losses of $ 24 million for the decrease in fair value of the AVH Derivative Assets.

Nonoperating credit loss on BRW Term Loan and related guarantee.

During the six months ended June 30, 2020 , the Company recorded a $ 697 million expected credit loss allowance for the BRW Term Loan and related guarantee.

United recorded the allowance based on United's assessment of AVH's financial uncertainty due to its high level of leverage and the fact that the airline had ceased operations due to the COVID-19 pandemic.

BRW's equity and BRW's holdings of AVH equity are secured as a pledge under the BRW Term Loan, which is currently in default.

Impairment of assets.

During the three months ended June 30, 2019 , the Company recorded a $ 47 million impairment for aircraft engines removed from operations, a $ 6 million charge for the early termination of several regional aircraft finance leases and $ 8 million in other miscellaneous impairments.

During the six months ended June 30, 2019 , in addition to the charges described above, the Company recorded an $ 8 million fair value adjustment for aircraft purchased off lease.

During the nine months ended September 30, 2020, the Company recorded a $ 697 million expected credit loss allowance for the BRW Term Loan and related guarantee.

AVH is currently in bankruptcy.

See Notes 7 and 9 to the financial statements included in Part I, Item 1 for additional information.

Severance and benefit costs .

During the three and six months ended June 30, 2019 , the Company recorded management severance of $ 6 million and $ 10 million , respectively.

During the six months ended June 30, 2019 , the Company recorded $ 2 million of severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the International Brotherhood of Teamsters (the "IBT").

During the three and nine months ended September 30, 2019, the Company recorded management severance of $ 2 million and $ 12 million, respectively.

During the nine months ended September 30, 2019, the Company recorded $ 2 million of severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the IBT.

In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and received a severance payment, with a maximum value of $ 100,000 per participant, based on years of service, with retirement dates through early 2019.

Impairment of assets.

During the nine months ended September 30, 2019, the Company recorded a $ 47 million impairment for aircraft engines removed from operations, an $ 8 million fair value adjustment for aircraft purchased off lease, a $ 6 million charge for the early termination of several regional aircraft finance leases and $ 8 million in other miscellaneous impairments.

Nonoperating unrealized gains (losses) on investments, net.

During the three and six months ended June 30, 2019 , the Company recorded gains of $ 38 million and $ 52 million , respectively, for the change in market value of its investment in Azul.

Also, during the three and six months ended June 30, 2019 , the Company recorded losses of $ 4 million and $ 1 million , respectively, for the change in fair value of the AVH Derivative Assets.

For equity investments and derivative assets subject to MTM accounting, the Company records gains and losses as part of Nonoperating income (expense):

Miscellaneous, net in its statements of consolidated operations.

During the three and nine months ended September 30, 2019, the Company recorded gains of $ 25 million and $ 77 million, respectively, primarily for the change in market value of its investment in Azul.

Also, during the three and nine months ended September 30, 2019, the Company recorded losses of $ 4 million and $ 5 million, respectively, for the change in fair value of the AVH Derivative Assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements