What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-25 · 255 added, 147 removed, 209 unchanged (66% of the section changed)

8 unchanged sentences

We sometimes use the words "we," "our," "us," and the "Company" in this report for disclosures that relate to all of UAL and United.

2019 Highlights

2019 net income was $3.0 billion , or $11.58 diluted earnings per share, as compared to $2.1 billion , or $7.67 diluted earnings per share, in 2018 .

Revenue for 2019 increased $1.9 billion over 2018 due to a 3.5% growth in ASMs and a PRASM increase of 1.5% in 2019 compared to 2018 .

In 2019 , UAL repurchased approximately 19.2 million of its common stock for $1.6 billion .

As of December 31, 2019 , the Company had approximately $3.1 billion remaining to purchase shares under its share repurchase programs.

UAL ended 2019 with $6.9 billion in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short-term investments and available capacity under the revolving credit facility of its Amended and Restated Credit and Guaranty Agreement (as amended, the "Credit Agreement").

RPMs for 2019 increased 4.0% as compared to 2018 , and ASMs increased 3.5% from the prior year, resulting in a load factor of 84.0% in 2019 versus 83.6% in 2018 .

For 2019 and 2018 , the Company recorded U.S.

Department of Transportation on-time arrival rates of 77.9% and 79.8%, respectively, and mainline completion factors of 99.2%.

Impact of COVID-19 and Outlook

The novel coronavirus (COVID-19) pandemic, together with the measures implemented or recommended 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.

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 2020, resulting in a net loss of $7.1 billion.

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 the efficacy and speed of vaccination programs in curbing the spread of the virus, the introduction and spread of new variants of the virus which may be resistant to currently approved vaccines, passenger testing requirements, mask mandates 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 57% of its scheduled capacity for 2020.

In the first quarter of 2021, the Company expects scheduled capacity to be down at least 51% versus the first quarter of 2019.

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, relative to 2019 levels, until vaccines for COVID-19 are widely distributed and are effective in curbing the spread of the virus.

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 in 2020 (including by postponing projects deemed non-critical to the Company's operations);

• terminated its share repurchase program;

• issued or entered into approximately $13.4 billion in new secured notes, secured term loan facilities and new aircraft financings in 2020, including short term borrowings that were paid in 2020;

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

• availed itself of financial assistance and/or financing made available by the U.S.

Treasury Department ("Treasury"), as further described below;

• raised approximately $2.1 billion in cash proceeds from the issuance and sale of UAL common stock in 2020;

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

• elected to defer the payment of $199 million in payroll taxes incurred through December 31, 2020, as provided by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), until December 2021, at which time 50% is due, with the remaining amount due December 2022;

• 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 the end of 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.

The Company also entered into an agreement with its pilots to distribute fewer flight hours to a larger number of pilots, while also reaching agreements to provide a path to early retirement and reduce expense through voluntary leave of absence programs.

In addition, and as announced in July 2020, the Company started the involuntary furlough process by 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.

As a result of the Company's entry into the PSP2 Agreement, as described below, the Company issued recall notices to these furloughed employees and others impacted by furlough mitigation programs.

See the discussion below for more detail about the PSP2 Agreement and the recall process.

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

These funds were used to pay for the wages, salaries and benefits of United employees.

Approximately $3.6 billion of the $5.1 billion was provided as a direct grant, and approximately $1.5 billion consists of indebtedness evidenced by a 10-year senior unsecured promissory note issued by UAL to Treasury (the "PSP Note").

See Note 2 to the financial statements included in Part II, Item 8 of this report for additional information related to warrants issued in connection with the PSP Note and Note 10 to the financial statements included in Part II, Item 8 of this report for a discussion of the PSP Note.

During 2020, UAL and United entered into a loan and guarantee agreement with Treasury.

The agreement provides for a term loan facility of up to approximately $7.5 billion (the "CARES Act Term Loan Facility") pursuant to the loan program established under Section 4003(b)(1) of the CARES Act (the "Loan Program").

The loans (the "CARES Act Term Loans") may be disbursed in up to three disbursements on or before May 28, 2021.

On September 28, 2020, United borrowed, and recorded as Long-term debt on the Company's consolidated balance sheet, $520 million under the CARES Act 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 2 to the financial statements included in Part II, Item 8 of this report for a discussion on warrants issued in connection with the CARES Act Term Loans and Note 10 to the financial statements included in Part II, Item 8 of this report for a discussion of the CARES Act Term Loans.

Under the PSP Agreement and the 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 and certain limitations on executive compensation.

On January 15, 2021, United entered into a Payroll Support Agreement (the "PSP2 Agreement") with Treasury providing the Company with total funding of approximately $2.6 billion, pursuant to the Payroll Support Program established under Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (the "PSP Extension Law").

These funds were used to pay for the wages, salaries and benefits of United employees, including the payment of lost wages, salaries and benefits to returning employees.

Approximately $1.9 billion was provided as a direct grant and approximately $753 million consists of indebtedness evidenced by a 10-year senior unsecured promissory note issued by UAL to Treasury (the "PSP2 Note").

As of February 25, 2021, we have received a total of $1.3 billion.

See Note 2 to the financial statements included in Part II, Item 8 of this report for additional information on warrants issued in connection with the PSP2 Note and Note 10 to the financial statements included in Part II, Item 8 of this report for a discussion of the PSP2 Note.

Pursuant to the PSP2 Agreement, the Company is required to comply with certain provisions of the PSP Extension Law, including, among others, the requirement that all funds provided under the Payroll Support Program will be used by United exclusively for the continuation of payment of its U.S.

employee wages, salaries and benefits, including the payment of lost wages, salaries and benefits to returning U.S.

requirements to maintain U.S.

employment levels from the date of the PSP2 Agreement through March 31, 2021;

requirements to recall (as such term is defined in the PSP2 Agreement), any U.S.

employees subject to involuntary termination or furlough between October 1, 2020 and the date of the PSP2 Agreement,

compensate such returning employees for certain lost salary, wages and benefits between December 1, 2020 and the date of the PSP2 Agreement and restore certain rights and protections for such returning employees;

provisions prohibiting certain reductions in U.S.

employee wages, salaries and benefits;

provisions prohibiting the payment of dividends and the repurchase of certain equity until March 31, 2022;

and provisions restricting the payment of certain executive compensation until October 1, 2022.

As a result of the PSP2 Agreement, the Company offered employment, through March 2021, to employees who were impacted by involuntary furloughs.

Because the Company cannot predict with certainty whether it will receive further payroll support from the federal government or when demand for air travel will increase in the short term, the Company is preparing for the possibility that these recalled employees might again be furloughed as soon as the end of the first quarter of 2021.

The Company may record additional costs associated with these actions in the first quarter of 2021.

Also, in order to reduce the number of such furloughs, during the first quarter of 2021, the Company offered voluntary leave and other programs to certain of its frontline employees, the cost of which cannot be estimated at this time.

Results of Operations

4 unchanged sentences

The table below illustrates the year-over-year percentage change in the Company's operating revenues for the years ended December 31 (in millions, except percentage changes):

Increase (Decrease)

2020 2019 Increase (Decrease) % Change

Passenger revenue $ 11,805 $ 39,625 $ (27,820) (70.2)

Cargo 1,648 1,179 469 39.8

Other operating revenue 1,902 2,455 (553) (22.5)

Total operating revenue $ 15,355 $ 43,259 $ (27,904) (64.5)

The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year changes:

Increase (decrease) from 2018 (a):

The table below presents passenger revenue and select operating data of the Company, broken out by geographic region, expressed as year-over-year changes:

Increase (decrease) from 2019:

Domestic Atlantic Pacific Latin

Passenger revenue (in millions) $ (16,717) $ (5,326) $ (3,546) $ (2,231) $ (27,820)

Passenger revenue (67.4) % (77.9) % (79.4) % (63.4) % (70.2) %

Average fare per passenger (11.7) % 0.1 % 3.6 % (7.8) % (16.2) %

Yield (7.0) % (9.0) % 11.5 % (1.9) % (3.4) %

PRASM (31.0) % (44.8) % (27.0) % (24.1) % (30.9) %

Passengers (63.1) % (77.9) % (80.1) % (60.3) % (64.4) %

RPMs (traffic) (64.9) % (75.7) % (81.5) % (62.7) % (69.1) %

1 unchanged sentence

Passenger load factor (points) (22.0) (32.5) (27.9) (19.2) (23.8)

(a) See Part II, Item 6.

See Part II, Item 6.

Selected Financial Data, of this report for the definition of these statistics.

Passenger revenue increased $1.9 billion , or 5.1% , in 2019 as compared to 2018 , primarily due to a 4.0% increase in traffic, continuing strong domestic demand, improvements in average fares in the Latin and Domestic markets, and increases in ancillary fees driven by improved product offerings.

Cargo revenue decreased $58 million , or 4.7% , in 2019 as compared to 2018 , primarily due to an approximately 3% decrease in cargo ton miles and a 2% decline in cargo ton mile yield.

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China.

The World Health Organization has declared COVID-19 to constitute a "Public Health Emergency of International Concern." On January 30, 2020, the U.S.

Department of State issued a Level 4 "do not travel" advisory for China.

government has also implemented enhanced screenings, quarantine requirements and travel restrictions in connection with the COVID-19 outbreak.

The Company has suspended its flights between the United States and each of Beijing, Chengdu, Shanghai and Hong Kong through April 24, 2020.

These routes represented approximately 5% of the Company's 2020 planned capacity and the Company's other trans-Pacific routes represented an additional 10% of the Company's 2020 planned capacity.

As of the date of this report, the Company is experiencing an approximately 100% decline in near-term demand to China and an approximately 75% decline in near-term demand on the rest of the Company's trans-Pacific routes.

The extent of the impact of the COVID-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the impact of the COVID-19 on overall demand for air travel, all of which are highly uncertain and cannot be predicted.

If traffic on the Company's trans-Pacific routes were to remain at these levels for an extended period, and/or routes in other parts of the Company's network begin to see significant declines in demand, our results of operations for full year 2020 may be materially adversely affected.

Passenger revenue decreased $27.8 billion, or 70.2%, in 2020 as compared to 2019, primarily due to the decrease in demand for air travel as a result of the worldwide spread of COVID-19 and the associated shelter-in-place directives and travel restrictions.

Earlier in 2020, the Company suspended change fees and effective August 30, 2020, the Company eliminated change fees on all standard Economy and Premium cabin tickets for travel within the 50 U.S.

states, Puerto Rico and the U.S.

Virgin Islands.

Also, in December 2020, the Company eliminated change fees on flights from the U.S.

to all international destinations and fees on Basic Economy and all other international travel tickets issued by March 31, 2021.

The elimination of change fees and waivers associated with the COVID-19 pandemic resulted in change fee revenue declining $542 million in 2020 as compared to 2019.

Cargo revenue increased $469 million, or 39.8%, in 2020 as compared to 2019, primarily due to an increase in cargo-only charter flights with higher yields as a result of increased demand for critical goods during the COVID-19 pandemic.

Other operating revenue decreased $553 million, or 22.5%, in 2020 as compared to 2019, primarily due to a decline in mileage revenue from non-airline partners, including the co-branded credit card partner, Chase, and lower revenue from airport lounges due to United Club closures and fewer overall customers utilizing these lounges.

Operating Expense.

The table below includes data related to the Company's operating expense for the years ended December 31 (in millions, except percentage changes):

Increase (Decrease)

2020 2019 Increase (Decrease) % Change

Salaries and related costs $ 9,522 $ 12,071 $ (2,549) (21.1)

Aircraft fuel 3,153 8,953 (5,800) (64.8)

Regional capacity purchase

Landing fees and other rent

Depreciation and amortization 2,488 2,288 200 8.7

Landing fees and other rent 2,127 2,543 (416) (16.4)

Regional capacity purchase 2,039 2,849 (810) (28.4)

Aircraft maintenance materials and outside repairs 858 1,794 (936) (52.2)

1 unchanged sentence

Aircraft rent 198 288 (90) (31.3)

Special charges

Special charges (credit) (2,616) 246 (2,862) NM

Other operating expenses 3,486 6,275 (2,789) (44.4)

Total operating expenses $ 21,714 $ 38,958 $ (17,244) (44.3)

Salaries and related costs increased $613 million , or 5.3% , in 2019 as compared to 2018 , primarily due to higher contractual pay rates, higher benefit expenses, higher employee incentives and a 4.0% increase in average full-time equivalent employees.

Employee incentives included $157 million increase in profit sharing in 2019 as compared to 2018 .

Aircraft fuel expense decreased $354 million , or 3.8% , in 2019 as compared to 2018 , primarily due to a 7.1% decrease in fuel prices, partially offset by a 3.5% increase in capacity.

The table below presents the significant changes in aircraft fuel cost per

gallon for the years ended December 31 (in millions, except percentage changes and per gallon data):

Salaries and related costs decreased $2.5 billion, or 21.1%, in 2020 as compared to 2019, primarily due to a 22.4% reduction in employees resulting from voluntary separation programs and furloughs caused by COVID-19, $623 million lower profit sharing and other employee incentives due to the impact of COVID-19 on 2020 results and $180 million in tax credits provided by the Employee Retention Credit under the CARES Act in 2020.

Aircraft fuel expense decreased $5.8 billion, or 64.8%, in 2020 as compared to 2019.

The table below presents the significant changes in aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes and per gallon data):

Fuel expense $ 3,153 $ 8,953 (64.8)

Total fuel consumption (gallons) 2,004 4,292 (53.3)

Average price per gallon $ 1.57 $ 2.09 (24.9)

Regional capacity purchase costs increased $200 million , or 7.6% , in 2019 as compared to 2018 , primarily due to a rate increase under various capacity purchase agreements with regional carriers and a 4.1% increase in regional flying.

Depreciation and amortization increased $123 million , or 5.7% , in 2019 as compared to 2018 , primarily due to the additions of new and used aircraft and new capital projects related both to infrastructure and information technology.

Aircraft rent decreased $145 million , or 33.5% , in 2019 as compared to 2018 , primarily due to the purchase of leased aircraft and the conversion of certain operating leases to finance leases.

The table below presents special charges incurred by the Company during the years ended December 31 (in millions):

Impairment of assets

Depreciation and amortization increased $200 million, or 8.7%, in 2020 as compared to 2019, primarily due to additions of aircraft, upgrades to aircraft interiors and completion of technology projects.

Landing fees and other rent decreased $416 million, or 16.4%, in 2020 as compared to 2019, primarily due to reduced flying.

A portion of other rents, especially at airport facilities, is fixed in nature and is not impacted by the reduction in flights.

Regional capacity purchase costs decreased $810 million, or 28.4%, in 2020 as compared to 2019, primarily due to reduced regional flying as a result of COVID-19 and reduced rates under certain capacity purchase agreements.

Aircraft maintenance materials and outside repairs decreased $936 million, or 52.2%, in 2020 as compared to 2019, primarily due to a reduction in airframe checks, engine overhauls, expenses associated with power-by-the-hour engine maintenance contracts and line maintenance due to reduced flying.

Distribution expenses decreased $1.2 billion, or 72.2%, in 2020 as compared to 2019, as a result of the overall decrease in passenger revenue due to the COVID-19 pandemic.

Aircraft rent decreased $90 million, or 31.3%, in 2020 as compared to 2019, primarily due to the purchase of leased aircraft.

The table below presents special charges (credit) recorded by the Company during the years ended December 31 (in millions):

CARES Act grant $ (3,536) $ —

Severance and benefit costs 575 16

Termination of an engine maintenance service agreement

Impairment of assets 318 171

(Gains) losses on sale of assets and other special charges 27 59

1 unchanged sentence

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Other operating expenses increased $474 million , or 8.2% , in 2019 as compared to 2018 , primarily due to increased purchased services related to airport operations weather-related costs, technology initiatives, catering costs, facility projects and crew-related expenses.

Other operating expenses decreased $2.8 billion, or 44.4%, in 2020 as compared to 2019, primarily due to the impacts of COVID-19 on our catering, airport ground handling, navigation fees, technology projects, advertising and crew-related expenses.

Nonoperating Income (Expense).

The following table illustrates the year-over-year dollar and percentage changes in the Company's nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):

Increase (Decrease)

2020 2019 Increase (Decrease) % Change

Interest expense $ (1,063) $ (731) $ 332 45.4

1 unchanged sentence

Interest income 50 133 (83) (62.4)

Unrealized gains (losses) on investments, net

Miscellaneous, net

Total nonoperating expense, net

Interest expense increased $61 million , or 9.1% , in 2019 as compared to 2018 , primarily due to the conversion of certain operating leases to finance leases and debt issued for the acquisition of new aircraft.

Interest income increased $32 million , or 31.7% , in 2019 as compared to 2018 , primarily due to higher levels of cash balances throughout the year.

Unrealized gains (losses) on investments, net increased $158 million in 2019 as compared to 2018 , primarily due to the change in market value of certain of its equity investments and derivative assets.

Unrealized gains (losses) on investments, net (194) 153 (347) NM

Miscellaneous, net (1,327) (27) 1,300 NM

Total nonoperating expense, net $ (2,463) $ (387) $ 2,076 NM

Interest expense increased $332 million, or 45.4%, in 2020 as compared to 2019, primarily due to the issuance of new debt in 2020 to provide additional liquidity to the Company during the COVID-19 pandemic.

Interest income decreased $83 million, or 62.4%, in 2020 as compared to 2019, primarily due to a decrease in interest rates.

Unrealized gains (losses) on investments, net decreased $347 million in 2020 as compared to 2019, due to $194 million in losses in 2020 as compared to $153 million in gains in the year-ago period, primarily as a result of a decrease in the market value of the Company's equity investment in Azul and a decrease in the fair value of the Avianca Holdings S.A.

("AVH") share call options, AVH share appreciation rights and AVH share-based upside sharing agreement.

See Notes 9 and 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Miscellaneous, net decreased $45 million , or 62.5% , in 2019 as compared to 2018 , primarily due to more favorable foreign exchange rates and the remeasurement of postretirement plans due to a plan change.

Miscellaneous, net increased $1.3 billion in 2020 as compared to 2019, primarily due to credit loss allowances associated with the Company's Term Loan Agreement, with, among others, BRW Aviation Holding LLC and BRW Aviation LLC, and related guarantee and settlement losses and special termination benefits related to furloughs and voluntary separation programs under the Company's non-pilot U.S.

defined benefit pension plan and postretirement medical programs.

See Notes 7, 8, 13 and 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Income Taxes.

2 unchanged sentences

As of December 31, 2020, the Company had $11.7 billion in unrestricted cash, cash equivalents and short-term investments, an increase of approximately $6.7 billion from December 31, 2019.

The Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the Credit Agreement available for borrowings as of December 31, 2019 .

We have a significant amount of fixed obligations, including debt, aircraft leases, leases of airport property and other facilities and pension funding obligations.

At December 31, 2019 , the Company had approximately $14.8 billion of debt and finance lease obligations, including $1.5 billion that are due within the next 12 months.

In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare engines.

As of December 31, 2019 , our current liabilities exceeded our current assets by approximately $6.7 billion .

However, approximately $7.3 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not cash outlays.

The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.

For 2020 , the Company expects approximately $7.0 billion of gross capital expenditures.

The Company also had approximately $7.0 billion available for borrowing by United under the Loan Program at any time until May 28, 2021 and $1.0 billion available for borrowing by United under the revolving credit facility of the Credit Agreement at any time until April 1, 2022.

The Company has taken a number of actions in response to the significant decline in international and domestic demand for air travel related to COVID-19, as discussed under "Impact of COVID-19 and Outlook" above.

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 April 20, 2020, United entered into the PSP Agreement with Treasury providing the Company with total funding of approximately $5.1 billion pursuant to the Payroll Support Program established under the CARES Act.

These funds were used to pay for the wages, salaries and benefits of United employees.

During 2020, UAL and United entered into a loan and guarantee agreement with Treasury.

The agreement provides for a CARES Act Term Loan Facility of up to approximately $7.5 billion pursuant to the Loan Program.

The CARES Act Term Loans may be disbursed in up to three disbursements on or before May 28, 2021.

On September 28, 2020, United borrowed $520 million under the CARES Act 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.

On January 15, 2021, United entered into the PSP2 Agreement with Treasury, providing the Company with total funding of approximately $2.6 billion, approximately $1.9 billion as a direct grant and approximately $753 million from the PSP2 Note.

See Note 10 to the financial statements included in Part II, Item 8 of this report for a discussion of the PSP2 Note.

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 and pay dividends on or repurchase stock.

As of December 31, 2020, UAL and United were in compliance with their respective debt covenants.

In addition, in connection with the PSP Agreement, the PSP2 Agreement and the Loan Program, the Company and its business will be subject to certain restrictions.

We have a significant amount of fixed obligations, including debt and leases of aircraft, airport and other facilities, and pension funding obligations.

As of December 31, 2020, the Company had approximately $33.9 billion of debt, finance lease, operating lease and sale-leaseback obligations, including $2.7 billion that will become due in the next 12 months.

In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines.

For 2021, including the impact of the recent Boeing agreement, the Company expects approximately $4.4 billion of gross capital expenditures.

See Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments.

As of December 31, 2019 , a substantial portion of the Company's assets, principally aircraft, route authorities and airport slots, was pledged under various loan and other agreements.

Collateral pledged under these loans continues to be sufficient to satisfy the loan covenants.

We must sustain our profitability and/or access the capital markets to meet our significant long-term debt and finance lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines.

See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company.

Our 2021 liquidity needs will be met through our existing liquidity levels plus additional debt or equity issuances.

We must return to profitability and/or access the capital markets to meet our significant long-term debt and finance lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines.

Financing may be necessary to satisfy the Company's capital commitments for its firm order aircraft and other related capital expenditures.

The Company has backstop financing commitments available from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions.

See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on aircraft financing and other debt instruments.

As of December 31, 2020, a substantial portion of the Company's assets, principally aircraft and certain related assets, its loyalty program, certain route authorities and airport slots, was pledged under various loan and other agreements.

As of December 31, 2020, the Company had unencumbered assets, including aircraft, engines and other physical assets, routes, slots and gates, among other items, available to be pledged as collateral for future financings, if needed.

The following is a discussion of the Company's sources and uses of cash for 2020 as compared to 2019.

2 unchanged sentences

Operating Activities.

Cash flow provided by operations for the year ended December 31, 2019 was $6.9 billion compared to $6.2 billion in the same period in 2018.

The increase is primarily attributable to an increase in operating income which was $4.3 billion for 2019 as compared to $3.2 billion for 2018.

Cash flows used by operations for the year ended December 31, 2020 was $4.1 billion compared to $6.9 billion provided by operations in the same period in 2019.

The change is primarily attributable to a $10.7 billion decrease in operating income for 2020 as compared to 2019 caused by the COVID-19 pandemic.

At December 31, 2020, $4.8 billion of current liabilities related to tickets sold to passengers for travel which includes $3.1 billion of 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.

On February 24, 2021, the Company extended the expiration dates for all tickets issued between May 1, 2019 and March 31, 2021 to March 31, 2022.

While we expect many of those passengers to utilize these ETCs and FFCs during 2021, a delay in the recovery from the COVID-19 pandemic could result in a further extension of their expiration dates.

Investing Activities.

The Company's capital expenditures were $4.5 billion and $4.1 billion in 2019 and 2018 , respectively.

The Company's capital expenditures, net of flight equipment purchase deposit returns, were $1.7 billion and $4.5 billion in 2020 and 2019, respectively.

The Company's capital expenditures for both years were primarily attributable to the purchase of aircraft, aircraft improvements, facility and fleet-related costs and the purchase of information technology assets.

Maturities and sales of short-term investments provided $2.3 billion of liquidity in 2020.

In December 2019, United issued the AVH Convertible Loan.

For additional information regarding the AVH Convertible Loan, see Note 8 to the financial statements included in Part II, Item 8 of this report.

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, and BRW is the majority shareholder of 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 equity and shares, collectively, the "BRW Loan Collateral").

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

The BRW Term Loan was made in conjunction with a revenue-sharing joint business agreement among United, Aerovías del Continente Americano S.A ("Avianca"), a subsidiary of AVH, and Copa as described in Part 1, Item 1 of this report.

For additional information regarding the BRW Term Loan Agreement and related agreements, see Notes 8, 9 and 13 to the financial statements included in Part II, Item 8 of this report.

In April 2018, through a wholly-owned subsidiary, the Company invested $138 million in Azul Linhas Aéreas Brasileiras S.A.

("Azul") thus increasing its preferred equity stake in Azul to approximately 8% (representing approximately 2% of the total capital stock of Azul).

Financing Activities.

Significant financing events in 2020 were as follows:

Share Repurchases.

The Company used $1.6 billion of cash to purchase approximately 19.2 million shares of its common stock during 2019 .

In December 2017, UAL's Board of Directors authorized a $3.0 billion share repurchase program to acquire UAL's common stock.

In July 2019, UAL's Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL's common stock.

As of December 31, 2019 , the Company had approximately $3.1 billion remaining to purchase shares under its share repurchase programs.

Debt Issuances.

During 2019 , United received and recorded $1.8 billion of proceeds as debt related to enhanced equipment trust certificate ("EETC") offerings created in 2019 to finance the purchase of aircraft.

Also, United received and recorded $350 million of proceeds from the 4.875% Senior Notes due January 15, 2025 and borrowed approximately $105 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2019 .

During 2020, United received and recorded $16.8 billion from various credit agreements, including the MileagePlus financing, the PSP Note, the CARES Act Term Loan Facility and enhanced equipment trust certificate ("EETC") pass-through trusts established in September 2019 and October 2020.

As of December 31, 2020, United had recorded approximately $159 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex at Los Angeles International Airport.

1 unchanged sentence

During the year ended December 31, 2020, the Company made debt and finance lease principal payments of $4.4 billion.

Significant financing events in 2018 were as follows:

Share Issuance .

During the year ended December 31, 2020, the Company raised approximately $2.1 billion in cash proceeds from the issuance and sale of UAL common stock, par value $0.01 per share, including through "at the market offerings" under an equity distribution agreement (the "Distribution Agreement"), dated June 15, 2020, among the Company, Citigroup Global Markets Inc., BofA Securities, Inc.

Morgan Securities LLC.

(the "ATM Offering").

During the quarter ended December 31, 2020, approximately 20.8 million shares were sold in the ATM Offering at an average price of $46.85 per share, with net proceeds to the Company totaling approximately $968 million.

During the year ended December 31, 2020, approximately 21.4 million shares were sold in the ATM Offering at an average price of $46.70 per share, with net proceeds to the Company totaling approximately $989 million.

As of February 23, 2021, the Company had sold all of the 28 million shares authorized under the ATM Offering, at an average price of $45.82 per share, with net proceeds to the Company of approximately $1.3 billion.

The Board of Directors has authorized the Company to establish a new program providing for the issuance and sale from time to time of up to 37 million additional shares of UAL common stock in "at the market offerings".

See Note 2 to the financial statements included in Part II, Item 8 of this report for more information about these issuances.

Share Repurchases .

The Company used $1.2 billion of cash to purchase approximately 17.5 million shares of its common stock during 2018.

In 2020, UAL's Board of Directors terminated the share repurchase program.

In 2020, prior to the termination of the program, UAL repurchased approximately 4 million shares of UAL common stock in open market transactions for $0.3 billion.

See Part II, Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities of this report for additional information.

Significant financing events in 2019 were as follows:

Debt Issuances .

During 2019, United received and recorded $1.8 billion of proceeds as debt related to EETC offerings created in 2019 to finance the purchase of aircraft.

Also, United borrowed approximately $424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2018.

As of December 31, 2019, United had recorded approximately $39 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex at Los Angeles International Airport.

Debt and Finance Lease Principal Payments.

During the year ended December 31, 2019, the Company made debt and finance lease principal payments of $1.4 billion.

Share Repurchases.

The Company used $1.6 billion of cash to purchase approximately 19.2 million shares of its common stock during 2019.

For additional information regarding these Liquidity and Capital Resource matters, see Notes 2, 10, 11 and 13 to the financial statements included in Part II, Item 8 of this report.

2 unchanged sentences

As of the filing date of this report, UAL and United had the following corporate credit ratings:

S&P Moody's Fitch

UAL B+ Ba2 BB-

United B+ * BB-

*The credit agency does not issue corporate credit ratings for subsidiary entities.

These credit ratings are below investment grade levels;

however, the Company has been able to secure financing with investment grade credit ratings for certain EETCs and term loans.

however, the Company has been able to secure financing with investment grade credit ratings for certain EETCs, term loans and secured bond financings.

Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company.

2 unchanged sentences

See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments.

Pension and other postretirement plans

Long-term debt and debt covenants

Leases and capacity purchase agreements

Commitments and contingencies

Pension and other postretirement plans Note 7

Long-term debt and debt covenants Note 10

Leases and capacity purchase agreements Note 11

Commitments and contingencies Note 13

Contractual Obligations.

3 unchanged sentences

The table below provides a summary of the Company's material contractual obligations as of December 31, 2020 (in billions):

2021 2022 2023 2024 2025 After 2025 Total

Long-term debt (a) $ 1.9 $ 3.9 $ 2.7 $ 5.1 $ 3.7 $ 10.0 $ 27.3

3 unchanged sentences

Operating lease obligations 0.8 0.7 0.7 0.7 0.6 4.0 7.5

Sale-leasebacks financial obligations 0.1 0.1 0.1 0.1 0.1 1.5 2.0

Regional CPAs (c) 1.8 1.8 1.7 1.5 1.2 3.1 11.1

1 unchanged sentence

Pension obligations (e) — — 0.2 0.2 0.3 1.5 2.2

Capital purchase obligations (f)

Purchase obligations (f) 4.9 2.9 2.8 1.6 2.0 10.1 24.3

Total contractual obligations $ 10.9 $ 10.6 $ 9.2 $ 10.0 $ 8.5 $ 31.6 $ 80.8

11 unchanged sentences

Amounts are subject to change based on numerous assumptions, including the performance of assets in the plans and bond rates.

(f) Represents contractual commitments for firm order aircraft, spare engines and other capital purchase commitments.

(f) Represents contractual commitments for firm order aircraft (including the order entered into on February 26, 2021 with Boeing), spare engines and other capital purchase commitments.

See Note 13 to the financial statements included in Part II, Item 8 of this report for a discussion of our purchase commitments.

4 unchanged sentences

Letters of Credit and Surety Bonds.

As of December 31, 2019, United had cash collateralized $73 million of letters of credit, which generally have evergreen clauses and are expected to be renewed on an annual basis.

As of December 31, 2019, United also had $414 million of surety bonds securing various obligations with expiration dates through 2023.

Guarantee of BRW Commitment.

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, 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, for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary, or upon such sale, as applicable, of $217 million.

In 2018, the Company recorded a liability of $31 million for the fair value of 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.

As of December 31, 2020, United had approximately $658 million of letters of credit and surety bonds securing various obligations with expiration dates through 2030.

Certain of these amounts are cash collateralized and reported within Restricted cash on our statement of financial position.

See Note 13 to the financial statements included in Part II, Item 8 of this report for more information related to these letters of credit and surety bonds.

Guarantee of Debt of Others.

5 unchanged sentences

Generally, the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United.

The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft.

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.

The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by aircraft and, in certain structures, spare engines and spare parts.

United is responsible for the payment obligations under the equipment notes.

In certain EETC structures, 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 United's consolidated balance sheet because the proceeds held by the depositary are not United's assets.

The total amount of EETC funds held in escrow was $328 million as of December 31, 2019 .

There were no EETC funds held in escrow as of December 31, 2020.

See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information.

20 unchanged sentences

The Company has identified the following critical accounting policies that impact the preparation of the financial statements.

Revenue Recognition .

Passenger revenue is recognized when transportation is provided.

Passenger tickets and related ancillary services sold by the Company for flights are purchased primarily via credit card transactions, with payments collected by the Company in advance of the performance of related services.

The Company initially records ticket sales in its Advance ticket sales liability, deferring revenue recognition until the travel occurs.

For travel that has more than one flight segment, the Company deems each segment as a separate performance obligation and recognizes revenue for each segment as travel occurs.

Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided.

Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate.

When necessary, the Company records a reserve against its billings and payables with other airlines based on historical experience.

The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners.

For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are responsible for their portion of the contract (i.e.

transportation of the passenger).

The Company, as the agent, recognizes revenue within Other operating revenue at the time of the travel for the net amount representing commission to be retained by the Company for any segments flown by other airlines.

Advance ticket sales represent the Company's liability to provide air transportation in the future.

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 ETCs and 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.

On February 24, 2021, the Company extended the expiration dates for all tickets issued between May 1, 2019 and March 31, 2021 to March 31, 2022.

As of December 31, 2020, the Company's Advance ticket sales liability included $3.1 billion related to these credits.

The Company records breakage revenue on the travel date for its estimate of tickets that will expire unused.

To determine breakage, the Company uses its historical experience with refundable and nonrefundable expired tickets and other facts, such as recent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets.

The Company continues to use its historical experience and most recent trends and program changes to estimate its breakage.

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

Given the uncertainty of travel demand caused by COVID-19, a significant portion of the $3.1 billion related to the ETCs and FFCs may expire unused in future periods and get recognized as breakage.

Also, 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.

Frequent Flyer Accounting.

5 unchanged sentences

Miles can be redeemed for free (other than taxes and government-imposed fees), discounted or upgraded air travel and non-travel awards.

Miles Earned in Conjunction with Travel.

When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the travel occurs and defers a portion of the ticket sale representing the value of the related miles as a separate performance obligation.

The Company determines the estimated selling price of travel and miles as if each element is sold on a separate basis.

The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro-rata basis.

At the time of travel, the Company records the portion allocated to the miles to Frequent flyer deferred revenue on the Company's consolidated balance sheet and subsequently recognizes it into revenue when miles are redeemed for air travel and non-air travel awards.

Co-Brand Agreement .

United has a significant contract (the "Co-Brand Agreement") to sell MileagePlus miles to its co-branded credit card partner JPMorgan Chase Bank, N.A.

During 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 its co-branded credit card partner 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.

Chase awards miles to MileagePlus members based on their credit card activity.

2 unchanged sentences

The Company records Passenger revenue related to the travel awards when the transportation is provided and records Other revenue related to the non-travel awards when the goods or services are delivered.

The Company records the cost associated with non-travel awards in Other operating revenue.

The Company records the cost associated with non-travel awards in Other operating revenue, as an agent.

• Marketing – United has a performance obligation to provide Chase access to United's customer list and the use of United's brand.

11 unchanged sentences

We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated consideration from the Co-Brand Agreement on a prospective basis.

In February 2020 , the Company announced that they had entered into a Third Amended and Restated Co-Branded Card Marketing Services Agreement (as amended from time to time, the "Agreement") with Chase.

The Agreement, which replaces the Co-Brand Agreement, also extends the term into 2029 and modifies certain other terms.

We will continue to account for the considerations received under the Agreement to the separately identifiable performance obligations using the estimated selling price allocation methodology explained above.

In connection with the Agreement the Company, entered into an Amended and Restated Co-Branded Card Strategic Alliance Agreement with Visa U.S.A.

Estimate of Miles Not Expected to be Redeemed .

The Company's estimated selling price of miles is based on an equivalent ticket value less breakage, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles.

The equivalent ticket value is based on the prior 12 months' weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region.

The estimated selling price of miles is adjusted by breakage that considers a number of factors, including redemption patterns of various customer groups.

The Company's breakage model is based on the assumption that the likelihood that an account will redeem its miles can be estimated based on a consideration of the account's historical behavior.

The Company uses a logit regression model to estimate the probability that an account will redeem its current miles balance.

The Company reviews its breakage estimates annually based upon the latest available information.

The Company's estimate of the expected breakage of miles requires significant management judgment.

Current and future changes to breakage assumptions, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the program.

For the portion of the outstanding miles that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining miles are redeemed.

The following table summarizes information related to the Company's Frequent flyer deferred revenue liability:

Frequent flyer deferred revenue at December 31, 2019 (in millions)

Percentage of miles earned not expected to be redeemed

Impact of 1% change in outstanding miles expected to be redeemed or weighted average ticket value on deferred revenue (in millions)

BRW Notes Receivable.

The BRW Term Loan, currently in default, is secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH.

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.

In addition, Kingsland is pursuing a foreclosure process which is expected to result in a judicially supervised sale of the collateral, following the grant of summary judgment by a New York state court on September 26, 2019.

United evaluated the $499 million carrying value of the BRW Term Loan as of December 31, 2019 using the fair value of the collateral and determined that the value of the collateral is sufficient to recover the carrying value of the BRW Term Loan.

As a result, the Company concluded that the BRW Term Loan is not impaired.

The carrying value of the BRW Term Loan represents the original loan amount plus accrued and unpaid interest and certain expenses associated with the loan origination.

The fair market value of AVH equity was estimated using an income approach and a market approach with equal weight applied to each approach.

Under the income approach, the value was estimated by discounting expected future cash flows at a weighted average cost of capital to a single present value amount.

Under the market approach, the value was estimated by reference to multiples of enterprise value to earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR") for a group of publicly-traded market comparable companies, along with AVH's own EBITDAR levels.

See Note 8 to the financial statements included in Part II, Item 8 of this report for additional information.

Indefinite-lived intangible assets.

7 unchanged sentences

Actual results will be influenced by the competitive environment, fuel costs and other expenses, and potentially other unforeseen events or circumstances that could have a material impact on future results.

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 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.

Based on our assessment at year-end, a 10% decline in the fair value of our China routes would not have resulted in an incremental impairment.

See Note 1 and 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Tax valuation allowance .

A tax valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company's management assesses available positive and negative evidence regarding the Company's ability to realize its deferred tax assets and records a valuation allowance when it is more likely than not that deferred tax assets will not be realized.

In order to form a conclusion, management considers positive evidence in the form of taxable income in prior carryback years, reversing temporary differences, tax planning strategies and projections of future taxable income during the periods in which those temporary differences become deductible, as well as negative evidence such as historical losses.

Although the Company was in a cumulative loss position at the end of 2020, management determined that the 2020 results were not indicative of future results due to the impact of the COVID-19 pandemic on its operations.

The Company concluded that the positive evidence outweighs the negative evidence, primarily driven by the approval and distribution of COVID-19 vaccines as well as increased confidence with the timing of the recovery.

The Company has $6.6

billion of deferred tax assets, of which $2.3 billion are attributable to federal net operating losses ("NOLs") at December 31, 2020.

The majority of the NOLs do not expire and the Company expects to recognize the NOLs through the reversal of existing deferred tax liabilities of $6.5 billion and projected future taxable income.

Therefore, we have not recorded a valuation allowance on our deferred tax assets other than the capital loss carryforwards and state attributes that have short expiration periods.

While the Company expects to generate sufficient future profits to fully utilize these NOLs, the Company may have to record a valuation allowance against its NOLs if it is unable to generate sufficient taxable income in future periods.

Recording a valuation allowance against our NOLs would not impact our ability to use them.

However, our ability to use NOLs may be significantly limited due to various circumstances, as discussed in more detail in Part I, Item 1A.

Risk Factors—"The Company's ability to use its net operating loss carryforwards and certain other tax attributes to offset future taxable income for U.S.

federal income tax purposes may be significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of UAL common stock, or if taxable income does not reach sufficient levels." Assumptions about our future taxable income are consistent with the plans and estimates used to manage our business.

Management will continue to evaluate future financial performance to determine whether such performance is both sustained and significant enough to provide sufficient evidence to support not recording a valuation allowance on these NOLs.

Any reduction in estimated future taxable income may require additional valuation allowance against the deferred tax assets, which could be material.

As of December 31, 2020, the Company has recorded $185 million of valuation allowance against its capital loss deferred tax assets.

Capital losses have a limited carryforward period of five years, and they can be utilized only to the extent of capital gains.

The Company does not anticipate generating sufficient capital gains to utilize the losses before they expire, therefore, a valuation allowance is necessary as of December 31, 2020.

Additionally, the Company recorded a valuation allowance of $62 million on the state NOL and state tax credit deferred tax assets primarily due to utilization limitations resulting from a prior ownership change.

Forward-Looking Information

2 unchanged sentences

Such forward-looking statements are and will be subject to many risks and uncertainties relating to the Company's operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements.

Words such as "expects," "will," "plans," "anticipates," "indicates," "believes," "estimates," "forecast," "guidance," "outlook," "goals", "targets" and similar expressions are intended to identify forward-looking statements.

Words such as "expects," "will," "plans," "anticipates," "indicates," "remains," "believes," "estimates," "forecast," "guidance," "outlook," "goals", "targets" and similar expressions are intended to identify forward-looking statements.

Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured.

2 unchanged sentences

Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following:

our ability to execute our strategic operating plan, including our growth, revenue-generating and cost-control initiatives;

the duration and spread of the ongoing global COVID-19 pandemic and the outbreak of any other disease or similar public health threat and the impact on our business, results of operations and financial condition;

the lenders' ability to accelerate the MileagePlus indebtedness, foreclose upon the collateral securing the MileagePlus indebtedness or exercise other remedies if we are not able to comply with the covenants in the MileagePlus financing agreements;

the effects of borrowing pursuant to the Loan Program under the CARES Act and the effects of the grant and promissory note through the Payroll Support Program under the CARES Act;

the costs and availability of financing;

our significant amount of financial leverage from fixed obligations and ability to seek additional liquidity and maintain adequate liquidity;

our ability to comply with the terms of our various financing arrangements;

our ability to utilize our net operating losses to offset future taxable income;

the material disruption of our strategic operating plan as a result of the COVID-19 pandemic and our ability to execute our strategic operating plans in the long term;

general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets);

6 unchanged sentences

our ability to cost-effectively hedge against increases in the price of aircraft fuel, if we decide to do so;

the effects of any technology failures, cybersecurity or significant data breaches;

the effects of any technology failures or cybersecurity or significant data breaches;

disruptions to services provided by third-party service providers;

potential reputational or other impact from adverse events involving our aircraft or operations, the aircraft or operations of our regional carriers or our code share partners or the aircraft or operations of another airline;

potential reputational or other impact from adverse events involving our aircraft or operations, the aircraft or operations of our regional carriers or our code share partners or the

aircraft or operations of another airline;

our ability to attract and retain customers;

1 unchanged sentence

the mandatory grounding of aircraft in our fleet;

disruptions to our regional network;

impact of regulatory, investigative and legal proceedings and legal compliance risks;

the success of our investments in other airlines, including in other parts of the world;

disruptions to our regional network as a result of the COVID-19 pandemic or otherwise;

the impact of regulatory, investigative and legal proceedings and legal compliance risks;

the success of our investments in other airlines, including in other parts of the world, which involve significant challenges and risks, particularly given the impact of the COVID-19 pandemic;

industry consolidation or changes in airline alliances;

4 unchanged sentences

any disruptions to operations due to any potential actions by our labor groups;

an outbreak of a disease that affects travel demand or travel behavior, such as the existing threat of COVID-19;

the impact of any management changes;

4 unchanged sentences

the costs and availability of aviation and other insurance;

the costs and availability of financing;

our ability to maintain adequate liquidity;

our ability to comply with the terms of our various financing arrangements;

our ability to realize the full value of our intangible assets and long-lived assets;

any impact to our reputation or brand image and other risks and uncertainties set forth under Part I, Item 1A., Risk Factors, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.

any impact to our reputation or brand image and other risks and uncertainties set forth under Part I, Item 1A.

Risk Factors, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis