United Airlines Holdings, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. UNITED AIRLINES HOLDINGS, INC. STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED ) (In millions, except per share amounts) 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 Total operating revenue 2,489 11,380 11,943 32,371 Operating expense: Salaries and related costs 2,229 3,063 7,354 8,993 Aircraft fuel 508 2,296 2,474 6,704 Regional capacity purchase 425 721 1,550 2,124 Landing fees and other rent 500 645 1,552 1,893 Depreciation and amortization 626 575 1,859 1,682 Aircraft maintenance materials and outside repairs 115 490 659 1,319 Distribution expenses 53 432 379 1,234 Aircraft rent 50 67 147 221 Special charges (credit) ( 1,081 ) 27 ( 2,467 ) 116 Other operating expenses 679 1,591 2,660 4,645 Total operating expenses 4,104 9,907 16,167 28,931 Operating income (loss) ( 1,615 ) 1,473 ( 4,224 ) 3,440 Nonoperating income (expense): Interest expense ( 345 ) ( 191 ) ( 712 ) ( 570 ) Interest capitalized 16 22 54 65 Interest income 8 36 45 103 Unrealized gains (losses) on investments, net 15 21 ( 295 ) 72 Miscellaneous, net ( 411 ) ( 12 ) ( 1,317 ) ( 40 ) Total nonoperating expense, net ( 717 ) ( 124 ) ( 2,225 ) ( 370 ) Income (loss) before income taxes ( 2,332 ) 1,349 ( 6,449 ) 3,070 Income tax expense (benefit) ( 491 ) 325 ( 1,277 ) 702 Net income (loss) $ ( 1,841 ) $ 1,024 $ ( 5,172 ) $ 2,368 Earnings (loss) per share, basic $ ( 6.33 ) $ 4.01 $ ( 18.91 ) $ 9.07 Earnings (loss) per share, diluted $ ( 6.33 ) $ 3.99 $ ( 18.91 ) $ 9.04 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 3 Table of Contents UNITED AIRLINES HOLDINGS, INC. STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (In millions) 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 Other comprehensive income (loss), net of tax: Employee benefit plans 250 304 ( 292 ) 294 Investments and other — ( 1 ) 1 5 Total other comprehensive income (loss), net of tax 250 303 ( 291 ) 299 Total comprehensive income (loss), net $ ( 1,591 ) $ 1,327 $ ( 5,463 ) $ 2,667 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 4 Table of Contents UNITED AIRLINES HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In millions, except shares) September 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 13,150 $ 2,762 Short-term investments 552 2,182 Restricted cash 76 — Receivables, less allowance for credit losses (2020 — $ 9 ; 2019 — $ 9 ) 1,171 1,364 Aircraft fuel, spare parts and supplies, less obsolescence allowance (2020 — $ 483 ; 2019 — $ 425 ) 961 1,072 Prepaid expenses and other 566 814 Total current assets 16,476 8,194 Operating property and equipment: Flight equipment 38,167 35,421 Other property and equipment 8,470 7,926 Purchase deposits for flight equipment 1,174 1,360 Total operating property and equipment 47,811 44,707 Less — Accumulated depreciation and amortization ( 16,161 ) ( 14,537 ) Total operating property and equipment, net 31,650 30,170 Operating lease right-of-use assets 4,544 4,758 Other assets: Goodwill 4,527 4,523 Intangibles, less accumulated amortization (2020 — $ 1,481 ; 2019 — $ 1,440 ) 2,852 3,009 Restricted cash 172 106 Notes receivable, less allowance for credit losses (2020 — $ 559 ) 144 671 Investments in affiliates and other, net 824 1,180 Total other assets 8,519 9,489 Total assets $ 61,189 $ 52,611 (continued on next page) 5 Table of Contents UNITED AIRLINES HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In millions, except shares) September 30, 2020 December 31, 2019 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Advance ticket sales $ 4,907 $ 4,819 Accounts payable 1,831 2,703 Frequent flyer deferred revenue 772 2,440 Accrued salaries and benefits 1,994 2,271 Current maturities of long-term debt 4,584 1,407 Current maturities of finance leases 136 46 Current maturities of operating leases 623 686 Other 944 566 Total current liabilities 15,791 14,938 Long-term debt 22,297 13,145 Long-term obligations under finance leases 278 220 Long-term obligations under operating leases 4,943 4,946 Other liabilities and deferred credits: Frequent flyer deferred revenue 5,063 2,836 Postretirement benefit liability 1,012 789 Pension liability 2,282 1,446 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 Commitments and contingencies Stockholders' equity: Preferred stock — — Common stock at par, $ 0.01 par value; authorized 1,000,000,000 shares; outstanding 290,990,454 and 251,216,381 shares at September 30, 2020 and December 31, 2019, respectively 3 3 Additional capital invested 7,383 6,129 Retained earnings 4,524 9,716 Stock held in treasury, at cost ( 3,898 ) ( 3,599 ) Accumulated other comprehensive loss ( 1,009 ) ( 718 ) Total stockholders' equity 7,003 11,531 Total liabilities and stockholders' equity $ 61,189 $ 52,611 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 6 Table of Contents UNITED AIRLINES HOLDINGS, INC. CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (In millions) Nine Months Ended September 30, 2020 2019 Cash Flows from Operating Activities: Net cash provided by (used in) operating activities $ ( 1,956 ) $ 5,728 Cash Flows from Investing Activities: Capital expenditures, net of returns of purchase deposits on flight equipment ( 1,630 ) ( 3,336 ) Purchases of short-term and other investments ( 552 ) ( 2,168 ) Proceeds from sale of short-term and other investments 2,182 2,282 Other, net 10 ( 9 ) Net cash provided by (used in) investing activities 10 ( 3,231 ) Cash Flows from Financing Activities: Proceeds from issuance of debt 13,024 1,109 Proceeds from equity issuance 1,135 — Payments of long-term debt ( 964 ) ( 726 ) Repurchases of common stock ( 353 ) ( 1,431 ) Principal payments under finance leases ( 53 ) ( 105 ) Capitalized financing costs ( 294 ) ( 51 ) 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 Cash, cash equivalents and restricted cash at beginning of the period 2,868 1,799 Cash, cash equivalents and restricted cash at end of the period (a) $ 13,398 $ 3,063 Investing and Financing Activities Not Affecting Cash: 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 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 — Current 76 4 Restricted cash — Non-current 172 100 Total cash, cash equivalents and restricted cash $ 13,398 $ 3,063 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 7 Table of Contents UNITED AIRLINES HOLDINGS, INC. STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (UNAUDITED) (In millions) Common 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 Warrants issued — — 40 — — — 40 Net treasury stock issued for share-based awards — — ( 2 ) 1 — — ( 1 ) 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 ) Stock settled share-based compensation — — 80 — — — 80 Sale of common stock 43.7 — 1,135 — — — 1,135 Repurchases of common stock ( 4.4 ) — — ( 342 ) — — ( 342 ) Net treasury stock issued for share-based awards 0.5 — ( 58 ) 43 ( 3 ) — ( 18 ) Warrants issued — — 97 — — — 97 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 Net income — — — — 1,024 — 1,024 Other comprehensive income — — — — — 303 303 Stock settled share-based compensation — — 18 — — — 18 Repurchases of common stock ( 4.1 ) — — ( 363 ) — — ( 363 ) Net treasury stock issued for share-based awards — — ( 3 ) 1 1 — ( 1 ) 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 Stock settled share-based compensation — — 49 — — — 49 Repurchases of common stock ( 16.8 ) — — ( 1,426 ) — — ( 1,426 ) Net treasury stock issued for share-based awards 0.5 — ( 58 ) 35 ( 8 ) — ( 31 ) 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. 2016-13 , Financial Instruments—Credit Losses . See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 8 Table of Contents UNITED AIRLINES, INC. STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED) (In millions) 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 Total operating revenue 2,489 11,380 11,943 32,371 Operating expense: Salaries and related costs 2,229 3,063 7,354 8,993 Aircraft fuel 508 2,296 2,474 6,704 Regional capacity purchase 425 721 1,550 2,124 Landing fees and other rent 500 645 1,552 1,893 Depreciation and amortization 626 575 1,859 1,682 Aircraft maintenance materials and outside repairs 115 490 659 1,319 Distribution expenses 53 432 379 1,234 Aircraft rent 50 67 147 221 Special charges (credit) ( 1,081 ) 27 ( 2,467 ) 116 Other operating expenses 679 1,590 2,659 4,643 Total operating expense 4,104 9,906 16,166 28,929 Operating income (loss) ( 1,615 ) 1,474 ( 4,223 ) 3,442 Nonoperating income (expense): Interest expense ( 345 ) ( 191 ) ( 712 ) ( 570 ) Interest capitalized 16 22 54 65 Interest income 8 36 45 103 Unrealized gains (losses) on investments, net 15 21 ( 295 ) 72 Miscellaneous, net ( 411 ) ( 12 ) ( 1,317 ) ( 40 ) Total nonoperating expense, net ( 717 ) ( 124 ) ( 2,225 ) ( 370 ) Income (loss) before income taxes ( 2,332 ) 1,350 ( 6,448 ) 3,072 Income tax expense (benefit) ( 491 ) 326 ( 1,277 ) 703 Net income (loss) $ ( 1,841 ) $ 1,024 $ ( 5,171 ) $ 2,369 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 9 Table of Contents UNITED AIRLINES, INC. STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (In millions) 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 Other comprehensive income (loss), net of tax: Employee benefit plans 250 304 ( 292 ) 294 Investments and other — ( 1 ) 1 5 Total other comprehensive income (loss), net of tax 250 303 ( 291 ) 299 Total comprehensive income (loss), net $ ( 1,591 ) $ 1,327 $ ( 5,462 ) $ 2,668 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 10 Table of Contents UNITED AIRLINES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In millions, except shares) September 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 13,150 $ 2,756 Short-term investments 552 2,182 Restricted cash 76 — Receivables, less allowance for credit losses (2020 — $ 9 ; 2019 — $ 9 ) 1,171 1,364 Aircraft fuel, spare parts and supplies, less obsolescence allowance (2020 —$ 483 ; 2019 — $ 425 ) 961 1,072 Prepaid expenses and other 566 814 Total current assets 16,476 8,188 Operating property and equipment: Flight equipment 38,167 35,421 Other property and equipment 8,470 7,926 Purchase deposits for flight equipment 1,174 1,360 Total operating property and equipment 47,811 44,707 Less — Accumulated depreciation and amortization ( 16,161 ) ( 14,537 ) Total operating property and equipment, net 31,650 30,170 Operating lease right-of-use assets 4,544 4,758 Other assets: Goodwill 4,527 4,523 Intangibles, less accumulated amortization (2020 — $ 1,481 ; 2019 — $ 1,440 ) 2,852 3,009 Restricted cash 172 106 Notes receivable, less allowance for credit losses (2020 — $ 559 ) 144 671 Investments in affiliates and other, net 824 1,180 Total other assets 8,519 9,489 Total assets $ 61,189 $ 52,605 (continued on next page) 11 Table of Contents UNITED AIRLINES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In millions, except shares) September 30, 2020 December 31, 2019 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Advance ticket sales $ 4,907 $ 4,819 Accounts payable 1,831 2,703 Frequent flyer deferred revenue 772 2,440 Accrued salaries and benefits 1,994 2,271 Current maturities of long-term debt 4,584 1,407 Current maturities of finance leases 136 46 Current maturities of operating leases 623 686 Other 948 571 Total current liabilities 15,795 14,943 Long-term debt 22,297 13,145 Long-term obligations under finance leases 278 220 Long-term obligations under operating leases 4,943 4,946 Other liabilities and deferred credits: Frequent flyer deferred revenue 5,063 2,836 Postretirement benefit liability 1,012 789 Pension liability 2,282 1,446 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 Commitments and contingencies Stockholder's equity: Common stock at par, $ 0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at both September 30, 2020 and December 31, 2019 — — Additional capital invested 68 — Retained earnings 6,835 12,353 Accumulated other comprehensive loss ( 1,009 ) ( 718 ) Receivable from related parties 1,078 ( 143 ) Total stockholder's equity 6,972 11,492 Total liabilities and stockholder's equity $ 61,189 $ 52,605 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 12 Table of Contents UNITED AIRLINES, INC. CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (In millions) Nine Months Ended September 30, 2020 2019 Cash Flows from Operating Activities: Net cash provided by (used in) operating activities $ ( 1,968 ) $ 5,698 Cash Flows from Investing Activities: Capital expenditures, net of returns of purchase deposits on flight equipment ( 1,630 ) ( 3,336 ) Purchases of short-term investments and other investments ( 552 ) ( 2,168 ) Proceeds from sale of short-term and other investments 2,182 2,282 Other, net 10 ( 9 ) Net cash provided by (used in) investing activities 10 ( 3,231 ) Cash Flows from Financing Activities: Proceeds from issuance of debt 13,024 1,109 Proceeds from issuance of parent's stock 1,135 — Payments of long-term debt ( 964 ) ( 726 ) Dividend to UAL ( 353 ) ( 1,431 ) Principal payments under finance leases ( 53 ) ( 105 ) Capitalized financing costs ( 294 ) ( 51 ) 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 Cash, cash equivalents and restricted cash at beginning of the period 2,862 1,793 Cash, cash equivalents and restricted cash at end of the period (a) $ 13,398 $ 3,057 Investing and Financing Activities Not Affecting Cash: 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 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 — Current 76 4 Restricted cash — Non-current 172 100 Total cash, cash equivalents and restricted cash $ 13,398 $ 3,057 The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 13 Table of Contents UNITED AIRLINES, INC. STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY (UNAUDITED) (In millions) Additional 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 ) Dividend to UAL ( 12 ) ( 330 ) — — ( 342 ) Stock settled share-based compensation 80 — — — 80 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 Net income — 1,024 — — 1,024 Other comprehensive income — — 303 — 303 Dividend to UAL ( 18 ) ( 345 ) — — ( 363 ) Stock settled share-based compensation 18 — — — 18 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 — 2,369 — — 2,369 Other comprehensive income — — 299 — 299 Dividend to UAL ( 647 ) ( 779 ) — — ( 1,426 ) Stock settled share-based compensation 49 — — — 49 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. 2016-13 , Financial Instruments—Credit Losses . See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 14 Table of Contents UNITED AIRLINES HOLDINGS, INC. AND UNITED AIRLINES, INC. COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) United Airlines Holdings, Inc. (together with its consolidated subsidiaries, "UAL" or the "Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, "United"). This Quarterly Report on Form 10-Q is a combined report of UAL and United, including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United's operating revenues and operating expenses comprise nearly 100% of UAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words "we," "our," "us," and the "Company" in this report for disclosures that relate to all of UAL and United. The UAL and United unaudited condensed consolidated financial statements shown here have been prepared as required by the U.S. Securities and Exchange Commission (the "SEC"). Some information and footnote disclosures normally included in financial statements that comply with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted as permitted by the SEC. The financial statements include all adjustments, including normal recurring adjustments and other adjustments, which are considered necessary for a fair presentation of the Company's financial position and results of operations. The UAL and United financial statements should be read together with the information included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "2019 Form 10-K"). The Company's quarterly financial data is subject to seasonal fluctuations. Historically its second and third quarter financial results have reflected higher travel demand, and were better than its first and fourth quarter financial results; however, see Part I, Item 2 of this report for additional discussion regarding trends associated with the matters discussed in the " Recent Developments" section below. Recent Developments 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 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. In addition to the schedule reductions discussed above, the Company has: • reduced its planned capital expenditures and reduced operating expenditures for the remainder of 2020 and 2021 (including by postponing projects deemed non-critical to the Company's operations); • terminated its share repurchase program; • issued approximately $ 10.2 billion in secured notes, secured term loan facilities and new aircraft financings; 15 Table of Contents • 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; • 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; and • 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 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. The CARES Act is intended to respond to the COVID-19 pandemic and its impact on the economy, public health, state and local governments, individuals, and businesses. The CARES Act also provides supplemental appropriations for federal agencies to respond to the COVID-19 pandemic. On April 20, 2020, United entered into a Payroll Support Program Agreement (the "PSP Agreement") with the U.S. 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 $ 3.6 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. 16 Table of Contents 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. NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS The Company adopted Accounting Standards Update No. 2016-13 , Financial Instruments—Credit Losses ("ASU 2016-13") effective January 1, 2020. ASU 2016-13 replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, entities are required to estimate lifetime expected credit losses. For available-for-sale debt securities, entities are required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. 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 nine months ended September 30, 2020 results. NOTE 2 - REVENUE Revenue by Geography. The table below presents the Company's operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) (in millions): 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. All tickets sold at any given point of time have travel dates extending up to 12 months. The Company defers amounts related to future travel in its Advance ticket sales liability account. The Company's Advance ticket sales liability also includes credits issued to customers on electronic travel certificates ("ETCs") and future flight credits ("FFCs"), primarily for ticket cancellations, which can be applied towards a purchase of a new ticket. 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 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. The Company continues to use its historical experience and most recent trends and program changes to estimate its breakage. The Company will continue to update its breakage estimates as future information is received. 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. The Company charges fees, separately from ticket sales, for certain ancillary services that are directly related to passengers' travel, such as ticket change fees, baggage fees, inflight amenities fees, and other ticket-related fees. 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 $ 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 17 Table of Contents 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 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 Total miles awarded 268 662 1,056 1,951 Travel miles redeemed (Passenger revenue) ( 87 ) ( 607 ) ( 444 ) ( 1,634 ) Non-travel miles redeemed (Other operating revenue) ( 16 ) ( 34 ) ( 53 ) ( 103 ) Total Frequent flyer deferred revenue - ending balance $ 5,835 $ 5,219 $ 5,835 $ 5,219 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 $ 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. The Co-Brand Agreement extended the term of the agreement into 2029 and modified certain other terms, resulting in a different allocation among the separately identifiable performance obligations. The portion related to the MileagePlus miles awarded of the total amounts received from our various partner agreements is deferred and presented in the table above as an increase to the frequent flyer liability. We determine the current portion of our frequent flyer liability based on expected redemptions in the next 12 months. Given the uncertainty in travel demand caused by COVID-19, we currently estimate a greater percentage of award redemptions will occur beyond 12 months, however this estimate may change as travel demand and award redemptions become clearer in future periods. NOTE 3 - EARNINGS (LOSS) PER SHARE 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 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 Basic weighted-average shares outstanding 291.0 255.3 273.5 261.0 Effect of employee stock awards and warrants (a) — 1.1 — 1.0 Diluted weighted-average shares outstanding 291.0 256.4 273.5 262.0 Earnings (loss) per share, basic $ ( 6.33 ) $ 4.01 $ ( 18.91 ) $ 9.07 Earnings (loss) per share, diluted $ ( 6.33 ) $ 3.99 $ ( 18.91 ) $ 9.04 (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 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). The PSP Warrants will expire five years after issuance, and are exercisable either through net share settlement, in cash or in shares of UAL common stock, at UAL's option. The PSP Warrants contain customary anti-dilution provisions and registration rights and are freely transferable. 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 stockholders' equity with an offset to the CARES Act grant credit. 18 Table of Contents 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. LLC and Barclays Capital Inc. (collectively, the "Underwriters"), relating to the issuance and sale by UAL of 39,250,000 shares of its common stock, par value $ 0.01 per share, at a price to the public of $ 26.50 per share. Pursuant to the Underwriting Agreement, UAL granted the Underwriters a 30 -day option to purchase up to an additional 3,925,000 shares of UAL common stock on the same terms, and such option was exercised in full, resulting in total proceeds of approximately $ 1.1 billion. On June 15, 2020, UAL entered into an equity distribution agreement (the "Distribution Agreement") with Citigroup Global Markets Inc., BofA Securities, Inc. and J.P. 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. 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. Under the terms of the Distribution Agreement, UAL may also sell shares to any Manager, as principal for its own account, at a price agreed upon at the time of sale. If UAL sells shares to a Manager as principal, UAL will enter into a separate agreement with such Manager. 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 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 406 (a) — ( 90 ) 316 Balance at September 30, 2020 $ ( 935 ) $ 3 $ ( 77 ) $ ( 1,009 ) Balance at June 30, 2019 $ ( 675 ) $ 3 $ ( 135 ) $ ( 807 ) Changes in value 394 — ( 87 ) 307 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 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 19 Table of Contents 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 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 September 30 (in millions): Pension Benefits Other Postretirement Benefits Affected Line Item in the Statements of Consolidated Operations 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 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. non-pilot employees. The Company does not have any minimum required contributions for 2020. 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 20 Table of Contents 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 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 nine months ended September 30, 2020, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2017 Incentive Compensation Plan. These share-based compensation awards included 2.4 million restricted stock units ("RSUs"), consisting of 2.1 million time-vested RSUs and 0.3 million performance-based RSUs. The time-vested RSUs vest pro-rata, typically on February 28th of each year, over a three-year period from the date of grant. The amount of performance-based RSUs vest upon the achievement of established goals based on the Company's absolute pre-tax margin performance as well as a customer metric based on the Company's relative quarterly average of net promoter scores as compared to a group of industry peers, both of which are measured for the three-year performance period ending December 31, 2022. RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees. The cash payments are based on the 20 -day average closing price of UAL common stock immediately prior to the vesting date. The table below presents information related to share-based compensation (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Share-based compensation expense $ 41 $ 33 $ 83 $ 70 September 30, 2020 December 31, 2019 Unrecognized share-based compensation $ 120 $ 77 NOTE 7 - BRW TERM LOAN BRW Term Loan. In November 2018, United, as lender, entered into a Term Loan Agreement (the "BRW Term Loan Agreement") with, among others, BRW Aviation Holding LLC and BRW Aviation LLC ("BRW"), as guarantor and borrower, respectively. BRW Aviation Holding LLC and BRW are affiliates of Synergy Aerospace Corporation ("Synergy"), and BRW is the majority shareholder of Avianca Holdings S.A. ("AVH"). 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. In order to protect the value of its collateral, on May 24, 2019, United began to exercise certain remedies available to it under the terms of the BRW Term Loan Agreement and related documents. In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited ("Kingsland"), AVH's largest minority shareholder, was granted, in accordance with the agreements related to the BRW Term Loan Agreement, authority to manage BRW, which remains the majority shareholder of AVH. Kingsland then continued with the foreclosure process, which was expected to result in a judicially supervised sale of the BRW Loan Collateral. However, upon the filing by AVH and certain of its affiliates of voluntary reorganization proceedings under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York on May 10, 2020 (the "AVH Reorganization Proceedings"), the New York state court judge presiding over the foreclosure proceedings agreed to stay those proceedings until later this year. In the first quarter of 2020, United recorded a full credit loss allowance against the $ 515 million carrying value of the BRW Term Loan and related receivables. 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. The credit loss allowance was recorded as part of Nonoperating income (expense): Miscellaneous, net on the Company's statements of 21 Table of Contents 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. In connection with funding the BRW Term Loan Agreement, the Company entered into certain other agreements with Kingsland. See Note 9 to the financial statements included in Part I, Item I for additional information regarding our obligations to Kingsland and their interrelationship with the BRW Term Loan Agreement. NOTE 8 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS 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): 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 $ — $ — Short-term investments: Corporate debt 397 — 397 — 1,045 — 1,045 — Asset-backed securities 99 — 99 — 690 — 690 — U.S. government and agency notes 52 — 52 — 124 — 124 — Certificates of deposit placed through an account registry service ("CDARS") — — — — 35 — 35 — Other fixed-income securities 4 — 4 — 95 — 95 — Other investments measured at net asset value ("NAV") — — — — 193 — — — Restricted cash — current 76 76 — — — — — — Restricted cash — non-current 172 172 — — 106 106 — — Long-term investments: Equity securities 118 118 — — 385 385 — — 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 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 . U.S. 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 — 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 $ 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 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. 22 Table of Contents Investments presented in the table above have the same fair value as their carrying value. Other fair value information. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above (in millions). Carrying amounts include any related discounts, premiums and issuance costs: 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: 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 (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. The investments measured using NAV are shares of mutual funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. 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. NOTE 9 - COMMITMENTS AND CONTINGENCIES Commitments. 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. ("Embraer") as presented in the table below: Scheduled Aircraft Deliveries 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. 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. 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 23 Table of Contents aircraft. 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. 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 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 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. 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 2021 3.0 2022 1.3 2023 2.8 2024 2.0 After 2024 13.9 $ 24.3 24 Table of Contents Regional CPAs. The table below summarizes the Company's expected future payments through the end of the terms of our capacity purchase agreements ("CPAs"), excluding aircraft ownership costs and variable pass-through costs such as fuel and landing fees, among others. Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict. 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. 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 2021 1.8 2022 1.8 2023 1.5 2024 1.3 After 2024 3.3 $ 10.1 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. Guarantees. 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. The leasing arrangements associated with these obligations are accounted for as operating leases recognized on the Company's balance sheet with the associated expense recorded on a straight-line basis over the expected lease term. All of these bonds are due between 2023 and 2038. In connection with funding the BRW Term Loan Agreement, the Company entered into an agreement with Kingsland pursuant to which, in return for Kingsland's pledge of its 144.8 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 ADRs, the class of AVH securities that trades on the NYSE, in exchange for 18.1 million ADRs) and its consent to BRW's pledge of its AVH common shares to United under the BRW Term Loan Agreement and related agreements, United (1) granted to Kingsland the right to put its AVH common shares to United at market price on the fifth anniversary of the BRW Term Loan Agreement or upon certain sales of AVH common shares owned by BRW, including upon a foreclosure of United's security interest or any completed liquidation or dissolution of AVH, and (2) guaranteed BRW's obligation to pay Kingsland the difference (which amount, if paid by United, will increase the BRW Term Loan by such amount) if the market price of AVH common shares on the fifth anniversary, or upon any such sale, as applicable, is less than $ 12 per ADR on the NYSE, for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary of $ 217 million. In 2018, the Company recorded a liability of $ 31 million for its guarantee to loan additional funds to BRW if required. Any such additional loans to BRW would be collateralized by BRW's AVH shares and other collateral. Due to 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, in March 2020, the Company recorded the full amount under this guarantee with a charge to income of $ 182 million as part of Nonoperating income (expense): Miscellaneous, net on the Company's statements of consolidated operations. 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. 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 $ 10.8 billion, the Company bears the risk of any change in 25 Table of Contents 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 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. The collective bargaining agreement with the International Brotherhood of Teamsters ("IBT") contains provisions that require the Company to align contract terms with other airlines' workgroups under certain conditions, and a review of these terms is expected to occur in December 2020. Credit Card Processing Agreements. The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company's credit card processing agreements, the financial institutions in certain circumstances have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that has been processed by that financial institution, but for which the Company has not yet provided the air transportation. Such financial institutions may require cash or other collateral reserves to be established or withholding of payments related to receivables to be collected, including if the Company does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments. NOTE 10 - DEBT 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. Borrowings under the revolving credit facility bear interest at a variable rate equal to LIBOR (but not less than 0 % per annum), plus a margin of 2.25 % per annum, or (at United's election) another rate based on certain market interest rates, plus a margin of 1.25 % per annum. EETCs . In September 2019, United created enhanced equipment trust certificate ("EETC") pass-through trusts, each of which issued pass-through certificates. The proceeds from the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft financed with the proceeds of such notes. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. The pass-through certificates represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on our consolidated balance sheet because the proceeds held by the depositary are not United's assets. 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 Class Face Amount Stated interest 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. 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 26 Table of Contents 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. Borrowings under the Used Aircraft Credit Agreement bear interest at a variable rate equal to LIBOR (but not less than 1 % per annum), plus a margin of 2.00 %, 2.25 % or 2.50 % per annum, or (at United's election) another rate based on certain market interest rates, plus a margin of 1.00 %, 1.25 % or 1.50 % per annum, in each case, with such incremental increase to the margin occurring at 180 days and 270 days, as applicable. The Used Aircraft Credit Agreement includes covenants that restrict the Company's ability to, among other things, make investments and to pay dividends on, or to repurchase, UAL common stock. In addition, the Used Aircraft Credit Agreement requires the Company to maintain unrestricted cash and cash equivalents and unused commitments available under all revolving credit facilities aggregating not less than $ 2.0 billion and to maintain a minimum ratio of appraised value of collateral to outstanding obligations under the Used Aircraft Credit Agreement of 1.60 to 1. 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 Used Aircraft Credit Agreement or repay the loans under the Used Aircraft Credit Agreement (or both) to the extent necessary to maintain compliance with the collateral coverage ratio. Spare Parts Facility. On March 20, 2020, the Company entered into a Term Loan Credit and Guaranty Agreement (the "Spare Parts 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 Goldman Sachs Bank USA, as administrative agent. The obligations of United under the Spare Parts Credit Agreement are secured by liens on certain spare parts of United and certain related assets. United borrowed the full amount of $ 500 million under the Spare Parts Credit Agreement (the "Spare Parts Facility"). The principal amount of the Spare Parts Facility must be repaid in a single installment on the maturity date on March 22, 2021. Borrowings under the Spare Parts Credit Agreement bear interest at a variable rate equal to LIBOR (but not less than 1 % per annum), plus a margin of 2.75 %, 3.00 %, 3.25 % or 3.50 % per annum, or (at United's election) another rate based on certain market interest rates, plus a margin of 1.75 %, 2.00 %, 2.25 % or 2.50 % per annum, in each case, with such incremental increase to the margin occurring at 90 days, 180 days and 270 days, as applicable. The Spare Parts Credit Agreement includes covenants that restrict the Company's ability to, among other things, make investments and to pay dividends on, or to repurchase, UAL common stock. In addition, the Spare Parts Credit Agreement requires the Company to maintain unrestricted cash and cash equivalents and unused commitments available under all revolving credit facilities aggregating not less than $ 2.0 billion and to maintain a minimum ratio of appraised value of collateral to outstanding obligations under the Spare Parts Credit Agreement of 1.80 to 1 or, if certain types of spare parts are used in calculating such collateral coverage ratio, 2.00 to 1. 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 Parts Credit Agreement or repay the loans under the Spare Parts Credit Agreement (or both) to the extent necessary to maintain compliance with the collateral coverage ratio. Spare Engines Facility. On April 7, 2020, the Company entered into a Term Loan Credit and Guaranty Agreement (the "Spare Engines 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 Bank of America, N.A., as administrative agent. The obligations of United under the Spare Engines Credit Agreement are secured by liens on certain spare engines of United and certain related assets. United borrowed the full amount of $ 250 million under the Spare Engines Credit Agreement (the "Spare Engines Facility"). The principal amount of the Spare Engines Facility must be repaid in a single installment on the maturity date on April 6, 2021. Borrowings under the Spare Engines Credit Agreement bear interest at a variable rate equal to LIBOR (but not less than 1 % per annum), plus a margin of 3.00 %, 3.25 % or 3.50 % per annum, or (at United's election) another rate based on certain market interest rates, plus a margin of 2.00 %, 2.25 % or 2.50 % per annum, in each case, with such incremental increase to the margin occurring at 180 days and 270 days, as applicable. The Spare Engines Credit Agreement includes covenants that restrict the Company's ability to, among other things, make investments and to pay dividends on, or to repurchase, UAL common stock. In addition, the Spare Engines Credit Agreement requires the Company to maintain unrestricted cash and cash equivalents and unused commitments available under all revolving credit facilities aggregating not less than $ 2.0 billion and to maintain a minimum ratio of appraised value of collateral to outstanding obligations under the Spare Engines Credit Agreement of 1.40 to 1. 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. PSP Note. 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. 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 27 Table of Contents 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. Interest on the PSP Note is payable semi-annually in arrears on the last business day of March and September of each year beginning on September 30, 2020 at a rate of 1.00 % in years one through five, and at the Secured Overnight Financing Rate (SOFR) plus 2 % in years six through ten. MileagePlus Financing. 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 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. Bridge Loan. 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. The obligations of United under the Bridge Loan are secured by liens on certain routes of United between cities in the U.S. and Europe, South America, and Mexico. 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 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 2021 4,341 2022 3,494 2023 2,224 2024 4,531 After 2024 12,150 $ 27,401 28 Table of Contents NOTE 11 - SPECIAL CHARGES (CREDIT) 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 CARES Act grant $ ( 1,494 ) $ — $ ( 3,083 ) $ — 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 Total operating special charges (credit) ( 1,081 ) 27 ( 2,467 ) 116 Nonoperating special termination benefits and settlement losses 415 — 646 — Nonoperating unrealized (gains) losses on investments ( 15 ) ( 21 ) 295 ( 72 ) Nonoperating credit loss on BRW Term Loan and related guarantee — — 697 — 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 Income tax expense (benefit), net of valuation allowance 148 ( 2 ) 375 ( 10 ) Total operating and nonoperating special charges (credit) and unrealized (gains) losses on investments, net of income taxes $ ( 533 ) $ 4 $ ( 454 ) $ 34 2020 CARES Act grant. 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. In the first quarter of 2020, the Company evaluated its goodwill and intangible assets for possible impairments due to the impact of the COVID-19 pandemic on UAL's market capitalization and cash flow projections. For goodwill and certain of its intangible assets, including the Company's China routes, London-Heathrow slots, alliances and the United trade name and logo, the Company performed a quantitative assessment which involved determining the fair value of the asset and comparing that amount to the asset's carrying value and, in the case of goodwill, comparing the Company's fair value to its carrying value. 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 29 Table of Contents 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 likely remain suppressed through 2021. These assumptions are inherently uncertain as they relate to future events and circumstances. 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 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 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. 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 . 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. 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 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 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 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 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. 2019 Severance and benefit costs . 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 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. 30 Table of Contents