What changed in this filing

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Item 1. Financial Statements

2021-04-22 compared with 2020-10-15 · 307 added, 545 removed, 413 unchanged (67% of the section changed)

3 unchanged sentences

(In millions, except per share amounts)

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Operating revenue:

6 unchanged sentences

Aircraft fuel 851 1,726

Regional capacity purchase 425 721 1,550 2,124

Landing fees and other rent 500 645 1,552 1,893

Depreciation and amortization 623 615

Landing fees and other rent 519 623

Regional capacity purchase 479 737

Aircraft maintenance materials and outside repairs 269 434

1 unchanged sentence

Aircraft rent 55 50

Special charges (credit) ( 1,081 ) 27 ( 2,467 ) 116

Special charges (credits) ( 1,377 ) 63

Other operating expenses 874 1,453

Total operating expenses 4,104 9,907 16,167 28,931

Operating income (loss) ( 1,615 ) 1,473 ( 4,224 ) 3,440

Total operating expense 4,602 8,951

Operating loss ( 1,381 ) ( 972 )

Nonoperating income (expense):

2 unchanged sentences

Interest income 7 26

Unrealized gains (losses) on investments, net 15 21 ( 295 ) 72

Unrealized losses on investments, net ( 22 ) ( 319 )

Miscellaneous, net ( 19 ) ( 699 )

Total nonoperating expense, net ( 370 ) ( 1,142 )

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

Loss before income tax benefit ( 1,751 ) ( 2,114 )

Income tax benefit ( 394 ) ( 410 )

Net loss $ ( 1,357 ) $ ( 1,704 )

Loss per share, basic and diluted $ ( 4.29 ) $ ( 6.86 )

The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

2 unchanged sentences

(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

Three Months Ended March 31,

Net loss $ ( 1,357 ) $ ( 1,704 )

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Total other comprehensive income (loss), net of tax 13 ( 53 )

Total comprehensive income (loss), net $ ( 1,591 ) $ 1,327 $ ( 5,463 ) $ 2,667

Total comprehensive loss, net $ ( 1,344 ) $ ( 1,757 )

The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

2 unchanged sentences

(In millions, except shares)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Current assets:

3 unchanged sentences

Receivables, less allowance for credit losses (2021 — $ 74 ;

2020 — $ 78 )

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2021 — $ 502 ;

15 unchanged sentences

Restricted cash 218 218

Notes receivable, less allowance for credit losses (2020 — $ 559 )

Investments in affiliates and other, net 824 1,180

Deferred income taxes 520 131

Investments in affiliates and other, less allowance for credit losses (2021 — $ 526 ;

2020 — $ 522 )

Total other assets 9,212 8,745

4 unchanged sentences

(In millions, except shares)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Advance ticket sales $ 4,907 $ 4,819

Accounts payable $ 1,838 $ 1,595

Frequent flyer deferred revenue 772 2,440

Accrued salaries and benefits 2,267 1,960

Advance ticket sales 5,502 4,833

Frequent flyer deferred revenue 1,251 908

Current maturities of long-term debt 1,783 1,911

Current maturities of finance leases 136 46

Current maturities of operating leases 623 612

Current maturities of finance leases 179 182

Other 724 724

1 unchanged sentence

Long-term debt 25,849 24,836

Long-term obligations under finance leases 278 220

Long-term obligations under operating leases 4,985 4,986

Long-term obligations under finance leases 240 224

Other liabilities and deferred credits:

Frequent flyer deferred revenue 4,858 5,067

Postretirement benefit liability 1,012 789

Pension liability 2,478 2,460

Deferred income taxes 389 1,736

Postretirement benefit liability 1,013 994

Other financial liabilities from sale-leasebacks 1,568 1,140

6 unchanged sentences

authorized 1,000,000,000 shares;

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

outstanding 323,577,438 and 311,845,232 shares at March 31, 2021 and December 31, 2020, respectively

Additional capital invested 8,923 8,366

Retained earnings 4,524 9,716

Stock held in treasury, at cost ( 3,834 ) ( 3,897 )

Retained earnings 1,239 2,626

Accumulated other comprehensive loss ( 1,126 ) ( 1,139 )

5 unchanged sentences

(In millions)

Nine Months Ended

September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities:

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

Net cash provided by operating activities $ 447 $ 63

Cash Flows from Investing Activities:

Capital expenditures, net of returns of purchase deposits on flight equipment ( 1,630 ) ( 3,336 )

Capital expenditures ( 444 ) ( 1,959 )

Purchases of short-term and other investments — ( 541 )

1 unchanged sentence

Other, net 10 1

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

Net cash used in investing activities ( 329 ) ( 1,572 )

Cash Flows from Financing Activities:

Proceeds from issuance of debt 13,024 1,109

Proceeds from issuance of debt, net of discounts and fees 1,336 2,813

Proceeds from equity issuance 532 —

Payments of long-term debt ( 964 ) ( 726 )

Payments of long-term debt, finance leases and other financing liabilities ( 569 ) ( 253 )

Repurchases of common stock — ( 353 )

Principal payments under finance leases ( 53 ) ( 105 )

Capitalized financing costs ( 294 ) ( 51 )

Other, net ( 21 ) ( 18 )

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

Net cash provided by financing activities 1,278 2,189

Net increase in cash, cash equivalents and restricted cash 1,396 680

3 unchanged sentences

Property and equipment acquired through the issuance of debt, finance leases and other $ 509 $ 128

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

Lease modifications and lease conversions 22 439

Right-of-use assets acquired through operating leases 180 30

Warrants received for entering into agreements with Archer Aviation Inc ("Archer")

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

Current assets:

Cash and cash equivalents $ 12,666 $ 3,442

7 unchanged sentences

Stock Additional

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

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

Balance at December 31, 2020 311.8 $ 4 $ 8,366 $ ( 3,897 ) $ 2,626 $ ( 1,139 ) $ 5,960

Net loss — — — — ( 1,357 ) — ( 1,357 )

1 unchanged sentence

Stock settled share-based compensation — — 32 — — — 32

Issuance of common stock 11.0 — 532 — — — 532

Warrants issued — — 47 — — — 47

Net treasury stock issued for share-based awards 0.8 — ( 54 ) 63 ( 30 ) — ( 21 )

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

Balance at March 31, 2021 323.6 $ 4 $ 8,923 $ ( 3,834 ) $ 1,239 $ ( 1,126 ) $ 5,206

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

2 unchanged sentences

Stock settled share-based compensation — — 22 — — — 22

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 — ( 55 ) 40 ( 4 ) — ( 19 )

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

Balance at March 31, 2020 247.3 $ 3 $ 6,096 $ ( 3,901 ) $ 7,991 $ ( 771 ) $ 9,418

(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.

2 unchanged sentences

(In millions)

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Operating revenue:

6 unchanged sentences

Aircraft fuel 851 1,726

Regional capacity purchase 425 721 1,550 2,124

Landing fees and other rent 500 645 1,552 1,893

Depreciation and amortization 623 615

Landing fees and other rent 519 623

Regional capacity purchase 479 737

Aircraft maintenance materials and outside repairs 269 434

1 unchanged sentence

Aircraft rent 55 50

Special charges (credit) ( 1,081 ) 27 ( 2,467 ) 116

Special charges (credits) ( 1,377 ) 63

Other operating expenses 874 1,453

Total operating expense 4,602 8,951

Operating income (loss) ( 1,615 ) 1,474 ( 4,223 ) 3,442

Operating loss ( 1,381 ) ( 972 )

Nonoperating income (expense):

2 unchanged sentences

Interest income 7 26

Unrealized gains (losses) on investments, net 15 21 ( 295 ) 72

Unrealized losses on investments, net ( 22 ) ( 319 )

Miscellaneous, net ( 19 ) ( 698 )

Total nonoperating expense, net ( 370 ) ( 1,141 )

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

Loss before income tax benefit ( 1,751 ) ( 2,113 )

Income tax benefit ( 394 ) ( 409 )

Net loss $ ( 1,357 ) $ ( 1,704 )

The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

2 unchanged sentences

(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

Three Months Ended March 31,

Net loss $ ( 1,357 ) $ ( 1,704 )

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Total other comprehensive income (loss), net of tax 13 ( 53 )

Total comprehensive income (loss), net $ ( 1,591 ) $ 1,327 $ ( 5,462 ) $ 2,668

Total comprehensive loss, net $ ( 1,344 ) $ ( 1,757 )

The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

2 unchanged sentences

(In millions, except shares)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Current assets:

3 unchanged sentences

Receivables, less allowance for credit losses (2021 — $ 74 ;

2020 — $ 78 )

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2021 — $ 502 ;

15 unchanged sentences

Restricted cash 218 218

Notes receivable, less allowance for credit losses (2020 — $ 559 )

Investments in affiliates and other, net 824 1,180

Deferred income taxes 492 103

Investments in affiliates and other, less allowance for credit losses (2021 — $ 526 ;

2020 — $ 522 )

Total other assets 9,184 8,717

4 unchanged sentences

(In millions, except shares)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:

Advance ticket sales $ 4,907 $ 4,819

Accounts payable $ 1,838 $ 1,595

Frequent flyer deferred revenue 772 2,440

Accrued salaries and benefits 2,267 1,960

Advance ticket sales 5,502 4,833

Frequent flyer deferred revenue 1,251 908

Current maturities of long-term debt 1,783 1,911

Current maturities of finance leases 136 46

Current maturities of operating leases 623 612

Current maturities of finance leases 179 182

Other 727 728

1 unchanged sentence

Long-term debt 25,849 24,836

Long-term obligations under finance leases 278 220

Long-term obligations under operating leases 4,985 4,986

Long-term obligations under finance leases 240 224

Other liabilities and deferred credits:

Frequent flyer deferred revenue 4,858 5,067

Postretirement benefit liability 1,012 789

Pension liability 2,478 2,460

Deferred income taxes 416 1,763

Postretirement benefit liability 1,013 994

Other financial liabilities from sale-leasebacks 1,568 1,140

5 unchanged sentences

authorized 1,000 shares;

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

issued and outstanding 1,000 shares at both March 31, 2021 and December 31, 2020

Additional capital invested 117 85

1 unchanged sentence

Accumulated other comprehensive loss ( 1,126 ) ( 1,139 )

Receivable from related parties 1,078 ( 143 )

Payable to parent 2,602 2,043

Total stockholder's equity 5,175 5,928

4 unchanged sentences

(In millions)

Nine Months Ended

September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities:

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

Net cash provided by operating activities $ 426 $ 45

Cash Flows from Investing Activities:

Capital expenditures, net of returns of purchase deposits on flight equipment ( 1,630 ) ( 3,336 )

Capital expenditures ( 444 ) ( 1,959 )

Purchases of short-term investments and other investments — ( 541 )

1 unchanged sentence

Other, net 10 1

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

Net cash used in investing activities ( 329 ) ( 1,572 )

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 )

Proceeds from issuance of debt, net of discounts and fees 1,336 2,813

Proceeds from issuance of parent company stock 532 —

Payments of long-term debt, finance leases and other financing liabilities ( 569 ) ( 253 )

Dividend to UAL — ( 353 )

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 cash provided by financing activities 1,299 2,207

Net increase in cash, cash equivalents and restricted cash 1,396 680

3 unchanged sentences

Property and equipment acquired through the issuance of debt, finance leases and other $ 509 $ 128

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

Lease modifications and lease conversions 22 439

Right-of-use assets acquired through operating leases 180 30

Warrants received for entering into agreements with Archer

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

Current assets:

Cash and cash equivalents $ 12,666 $ 3,436

6 unchanged sentences

(In millions)

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

Capital Invested Retained Earnings Accumulated

Other Comprehensive Income (Loss) (Receivable from) Payable to Related Parties, Net Total

Balance at December 31, 2020 $ 85 $ 4,939 $ ( 1,139 ) $ 2,043 $ 5,928

Net loss — ( 1,357 ) — — ( 1,357 )

1 unchanged sentence

Stock-settled share-based compensation 32 — — — 32

Impact of UAL common stock issuance — — — 532 532

Other — — — 27 27

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

Balance at March 31, 2021 $ 117 $ 3,582 $ ( 1,126 ) $ 2,602 $ 5,175

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

5 unchanged sentences

Other — — — ( 18 ) ( 18 )

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

Balance at March 31, 2020 $ 10 $ 10,302 $ ( 771 ) $ ( 161 ) $ 9,380

(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.

18 unchanged sentences

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;

• 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;

• 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.

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.

however, see Part I, Item 2 of this report for additional discussion regarding trends associated with the matters discussed in the " Impact of the COVID-19 Pandemic" section below.

Impact of the COVID-19 Pandemic

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, and this reduction in demand has continued through the date of this report.

The Company cut, relative to first quarter 2019 capacity, approximately 54 % of its scheduled capacity for the first quarter of 2021.

However, since March 2021, the Company has seen increasing demand for travel both domestically and in countries where entry is permitted.

The Company expects its second quarter scheduled capacity to be down approximately 45 % versus the second quarter of 2019.

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 and the continuation of existing or implementing of new government travel restrictions.

The Company entered into a number of transactions to improve its liquidity.

In the first quarter of 2021, the Company has:

• issued or entered into approximately $ 1.4 billion in new enhanced equipment trust certificate ("EETC") and government loans;

• raised approximately $ 0.5 billion in net cash proceeds from the issuance and sale of UAL common stock.

Furthermore, on January 15, 2021, United entered into a Payroll Support Program Extension Agreement (the "PSP2 Agreement") with the U.S.

Treasury Department ("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 $ 753 million as indebtedness evidenced by a 10 -year senior unsecured promissory note (the "PSP2 Note").

The Company expects to receive an additional amount of approximately $ 391 million under the PSP2 Agreement, of which $ 117 million is expected to be in the form of an unsecured loan.

See Note 2 of this report for additional information on the warrants issued in connection with the PSP2 Note and Note 8 of this report for a discussion of the PSP2 Note.

As a result of the PSP2 Agreement, the Company offered an opportunity to return to active employment to employees who were impacted by involuntary furloughs.

The American Rescue Plan Act of 2021 ("PSP3") was enacted on March 11, 2021, authorizing Treasury to provide additional assistance to a passenger air carrier or contractor that (1) received financial assistance under the PSP Extension Law;

(2) provided air transportation as of March 31, 2021 and (3) has not conducted involuntary terminations or furloughs or reduced pay rates or benefits between March 31, 2021 and the date on which the air carrier makes certain certifications that will be included in its PSP3 agreement with Treasury.

The Company expects to enter into a PSP3 agreement with Treasury and expects to receive assistance of approximately $ 2.8 billion, of which approximately $ 0.8 billion is expected to be in the form of an unsecured loan.

The Company also expects to issue, to Treasury, warrants to purchase up to approximately 1.5 million shares of UAL common stock at a strike price of $ 53.92 .

During the first quarter of 2021, the Company offered Voluntary Separation Leave ("VSL") programs to certain U.S.

based front-line employees.

The Company offered, based on employee group, age and completed years of service, pay continuation, health care coverage and travel benefits.

Approximately 4,500 employees elected to voluntarily separate from the Company.

See Note 5 and Note 9 of this report for additional information on charges related to these programs.

On April 21, 2021, United issued, through a private offering to eligible purchasers, $ 4.0 billion in aggregate principal amount of two series of notes, consisting of $ 2.0 billion in aggregate principal amount of 4.375 % senior secured notes due 2026 (the "2026 Notes") and $ 2.0 billion in aggregate principal amount of 4.625 % senior secured notes due 2029 (the "2029 Notes" and, together with the 2026 Notes, the "Notes," and each a "series" of Notes).

Concurrently with the closing of the offering of the Notes, United also entered into a new Term Loan Credit and Guaranty Agreement (the "New Term Loan Facility") initially providing term loans (the "New Term Loans") up to an aggregate amount of $ 5.0 billion and a new Revolving Credit and Guaranty Agreement (the "New Revolving Credit Facility" and, together with the New Term Loan Facility, the "New Loan Facilities") initially providing revolving loan commitments of up to $ 1.75 billion.

United borrowed the full amount of the New Term Loans on April 21, 2021.

United used the net proceeds from the offering of the Notes and borrowings under the New Term Loan Facility (i) to repay in full the $ 1.4 billion aggregate principal amount outstanding under the term loan facility (the "2017 Term Loan Facility") included in the Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (the "Existing Credit Agreement"), the $ 1.0 billion aggregate principal amount outstanding under the revolving credit facility (the "2017 Revolving Credit Facility") included in the Existing Credit Agreement and the $ 520 million aggregate principal amount outstanding under the Loan and Guarantee Agreement, dated as of September 28, 2020, among United, UAL, Treasury and the Bank of New York Mellon, as administrative agent, as amended (the "CARES Act Loan” and, together with the 2017 Term Loan Facility and the 2017 Revolving Credit Facility, the "Facilities") entered into pursuant to the loan program established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), (ii) to pay fees and expenses relating to the offering of the Notes and (iii) for United's general corporate purposes.

As a result of such repayments, the Facilities were terminated on April 21, 2021 and no further borrowings may be made thereunder.

See Note 8 of this report for additional information on the Notes and the New Loan Facilities.

NOTE 1 - REVENUE

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Department of Transportation) (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Domestic (U.S.

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Advance Ticket Sales.

All tickets sold at any given point of time have travel dates extending up to 12 months.

All tickets sold at any given point in time have travel dates through the next 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.

In February 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 March 31, 2021, the Company's Advance ticket sales liability included $ 2.8 billion related to these ETCs and FFCs.

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.

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

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

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 Advance ticket sales 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 amount of the March 31, 2021 Advance ticket sales that will be recognized in revenue in 2021 compared to amounts refunded to customers or exchanged into ETCs.

In the three months ended March 31, 2021 and 2020, the Company recognized approximately $ 0.7 billion and $ 2.6 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.

The Company charges fees, separately from ticket sales, for certain ancillary services that are directly related to passengers' travel, such as baggage fees, premium seat 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

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.

The Company recorded $ 308 million and $ 705 million of ancillary fees within passenger revenue in the three months ended March 31, 2021 and 2020, respectively.

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

Three Months Ended March 31,

Total Frequent flyer deferred revenue - beginning balance $ 5,975 $ 5,276

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Total Frequent flyer deferred revenue - ending balance $ 6,109 $ 5,488

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.

In the three months ended March 31, 2021 and 2020, the Company recognized, in Other operating revenue, $ 362 million and $ 530 million, respectively, related to the marketing, advertising, non-travel miles redeemed (net of related costs) and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our JPMorgan Chase Bank, N.A.

co-brand agreement.

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).

Given the uncertainty in travel demand caused by COVID-19, we currently estimate a large 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 2 - LOSS PER SHARE

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

Three Months Ended March 31,

Loss available to common stockholders $ ( 1,357 ) $ ( 1,704 )

Weighted-average shares outstanding, basic and diluted 316.6 248.5

Loss per share, basic and diluted $ ( 4.29 ) $ ( 6.86 )

During the first quarter of 2021, UAL entered into a warrant agreement with Treasury pursuant to which UAL issued to Treasury warrants to purchase up to approximately 1.7 million shares of UAL common stock (the "PSP2 Warrants").

The PSP2 Warrants have a strike price of $ 43.26 per share.

The PSP2 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.

The relative fair value of the PSP2 Warrants was calculated using a Black-Scholes options pricing model, and approximately $ 47 million was recorded within stockholders' equity with an offset to the CARES Act grant credit.

The PSP2 Warrants contain customary anti-dilution provisions, registration rights and are freely transferable.

Pursuant to the terms of the PSP2 Warrants, PSP2 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.

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.

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.

As of March 31, 2021 , the Company had the following warrants outstanding:

Warrant Description Number of Shares of UAL Common Stock (in millions) Exercise Price Expiration Dates

PSP1 Warrants (a) 4.8 $ 31.50 4/20/2025 — 9/30/2025

CARES Act Loan Warrants (b) 1.7 31.50 9/28/2025

PSP2 Warrants 1.7 43.26 1/15/2026 — 3/8/2026

(a) Warrants issued in connection with the $ 1.5 billion 10 -year senior unsecured promissory note with Treasury provided under the Payroll Support Program of the CARES Act ("PSP1").

(b) Warrants issued in connection with the CARES Act Loan.

On June 15, 2020, UAL entered into an equity distribution agreement with Citigroup Global Markets Inc., BofA Securities, Inc.

Morgan Securities LLC, relating to the issuance and sale from time to time by UAL (the "2020 ATM Offering"), of up to 28 million shares of UAL's common stock, par value $ 0.01 per share.

In the first quarter of 2021, the Company sold approximately 7 million shares at an average price of $ 42.98 per share, with net proceeds to the Company of approximately $ 282 million.

With these sales, the Company sold all of the shares authorized under the 2020 ATM Offering.

On March 3, 2021, the Company entered into an equity distribution agreement (the "Distribution Agreement") with Morgan Stanley & Co.

LLC, AmeriVet Securities, Inc., Barclays Capital Inc., BofA Securities, Inc., BBVA Securities Inc., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co.

Morgan Securities LLC, Loop Capital Markets LLC and Wells Fargo Securities, LLC (collectively, the "Managers"), relating to the issuance and sale from time to time by UAL (the "2021 ATM Offering"), through the Managers, of up to 37 million shares of UAL's common stock, par value $ 0.01 per share (the "2021 ATM Shares").

Sales of the 2021 ATM 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 (the "Securities Act").

Under the terms of the Distribution Agreement, UAL may also sell the 2021 ATM Shares to any Manager, as principal for its own account, at a price agreed upon at the time of sale.

If UAL sells the 2021 ATM Shares to a Manager as principal, UAL will enter into a separate terms agreement with such Manager.

During the quarter ended March 31, 2021, approximately 4 million shares were sold in the 2021 ATM Offering at an average price of $ 57.50 per share, with net proceeds to the Company totaling approximately $ 250 million.

NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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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, 2020 $ ( 1,102 ) $ 2 $ ( 39 ) $ ( 1,139 )

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Amounts reclassified to earnings 5 (a) — ( 1 ) 4

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 March 31, 2021 $ ( 1,084 ) $ 1 $ ( 43 ) $ ( 1,126 )

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

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Amounts reclassified to earnings ( 4 ) (a) — 1 ( 3 )

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).

Balance at March 31, 2020 $ ( 613 ) $ ( 14 ) $ ( 144 ) $ ( 771 )

(a) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 5 of this report for additional information).

NOTE 4 - INCOME TAXES

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.

The Company's effective tax rate for the three months ended March 31, 2021 and March 31, 2020 was 22.5 % and 19.4 %, 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.

The first quarter 2020 rate was impacted by a $ 66 million valuation allowance related to unrealized capital losses.

We recognize deferred tax assets to the extent that we

believe these assets are more likely than not to 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.

On the basis of this evaluation, we continue to maintain a valuation allowance of $ 242 million as of March 31, 2021 which is primarily attributable to deferred tax assets on unrealized capital losses and certain state net operating losses and state credits.

NOTE 5 - 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):

The Company's net periodic benefit cost includes the following components for the three months ended March 31 (in millions):

Pension Benefits Other Postretirement Benefits Affected Line Item

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Amortization of prior service credit — — ( 31 ) ( 31 ) 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

Special termination benefits — — 46 — Miscellaneous, net

Other — 3 — — Miscellaneous, net

Total $ 78 $ 57 $ 16 $ ( 33 )

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

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.

As part of a first quarter VSL program, the Company offered special termination benefits in the form of additional subsidies for retiree medical costs for certain U.S.-based front-line employees.

The subsidies are in the form of a one-time contribution into the employee's Retiree Health Account of $ 125,000 for full-time employees and $ 75,000 for part-time employees.

As a result, the Company recorded $ 46 million for those additional benefits in the first quarter of 2021.

Share-Based Compensation.

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

In the three months ended March 31, 2021, 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.

These share-based compensation awards included 2.8 million restricted stock units ("RSUs"), consisting of 1.2 million time-vested RSUs and 1.6 million short-term performance-based RSUs.

The time-vested RSUs vest equally in 25 % increments every 6 months over a two-year period from the date of grant (on August 31st and February 28th).

The short-term performance-based RSUs vest upon the achievement of established goals based on financial and customer satisfaction metrics for the performance period January 1, 2021 to December 31, 2021.

RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees.

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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

Three Months Ended March 31,

Share-based compensation expense $ 34 $ 18

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Unrecognized share-based compensation $ 203 $ 88

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.

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

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 6 - 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

March 31, 2021 December 31, 2020

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

Cash and cash equivalents $ 12,666 $ 12,666 $ — $ — $ 11,269 $ 11,269 $ — $ —

Restricted cash - current 254 254 — — 255 255 — —

Restricted cash - non-current 218 218 — — 218 218 — —

Short-term investments:

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government and agency notes 22 — 22 — 33 — 33 —

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 182 182 — — 205 205 — —

AVH Derivative Assets — — — — 24 — — 24

Other assets 116 — 81 35 36 — — 36

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 .

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.

Restricted cash - current — Primarily includes $ 217 million of cash collateral for a standby letter of credit associated with guarantees related to the BRW Term Loan (as defined below).

See Note 7 of this report for additional information on the BRW Term Loan and guarantees.

The balance also includes amounts to be used for the payment of fees, principal and interest on 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.

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

Short-term investments — The short-term investments shown in the table above are classified as available-for-sale.

As of March 31, 2021, corporate debt securities have remaining maturities of less than two years , asset-backed securities have remaining maturities of less than one year to approximately nine years and U.S.

government and agency notes have maturities of less than one year .

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.

("Azul"), consisting of approximately 8 % of Azul's outstanding preferred shares (representing approximately 2 % of the total capital stock of Azul).

The Company recorded $ 23 million and $ 293 million in losses during the three months ended March 31, 2021 and 2020, respectively, for changes to the fair market value of its equity investment in Azul in Unrealized losses on investments, net in the Company's statements of consolidated operations.

The carrying value of our investment in Azul was $ 182 million at March 31, 2021.

Other assets — The other assets represent warrants provided to United for the purchase of Class B membership units in Alclear Holdings, LLC and warrants for the purchase of shares from Archer.

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

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Carrying Amount Fair Value Carrying Amount Fair Value

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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,

Short-term investments,

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.

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.

Other assets Fair value is determined utilizing the Black-Scholes options pricing model or observable market prices.

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.

Avianca Loan .

Avianca Holdings S.A.

("AVH") and certain of its affiliates filed voluntary r eorganization 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").

As part of the AVH Reorganization Proceedings, the Company has a debtor-in-possession ("DIP") term loan ("DIP Loan") receivable under the terms of the DIP credit agreement.

The DIP Loan is not convertible.

It bears paid-in-kind interest at a rate of 14.5 % per annum and has a scheduled maturity date in November 2021.

The DIP Loan becomes immediately payable upon AVH's emergence from bankruptcy, in either cash or shares of AVH stock, at AVH's election.

As of March 31, 2021, the DIP Loan had a balance of $ 164 million and was recorded in Receivables on the Company's consolidated balance sheet.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

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

As of March 31, 2021, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing"), Airbus S.A.S.

("Airbus") and Embraer S.A.

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Aircraft Type Number of Firm

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

Commitments (a) Last Nine Months

of 2021 2022 After 2022

Airbus A321XLR 50 — — 50

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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

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

United also has an agreement to purchase seven used Boeing 737-700 aircraft with expected delivery dates in 2021.

In addition, United has an agreement to purchase 15 used Airbus A319 aircraft, which it intends to sell, with expected delivery dates in 2021 and 2022.

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

Ten Boeing model aircraft were delivered in the first quarter of 2021 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 in the last nine months of 2021.

Upon delivery of aircraft in these sale and leaseback transactions in 2021, the Company accounted for six of these aircraft, which have a repurchase option at a price other than fair value, as part of Flight equipment on the Company's consolidated 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 four aircraft that qualified for sale recognition were recorded as Operating lease right-of-use assets and Current/Long-term obligations under operating leases on the Company's consolidated balance sheet after recognition of related gains on such sale.

The table below summarizes United's commitments as of March 31, 2021, which include aircraft and related spare engines, aircraft improvements and all non-aircraft capital commitments (in billions):

Last nine months of 2021 $ 4.0

After 2025 10.2

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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

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

Based on these assumptions as of March 31, 2021, our estimated future payments through the end of the terms of our CPAs are presented in the table below (in billions):

Last nine months of 2021 $ 1.6

After 2025 3.7

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

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

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

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

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

As of March 31, 2021, 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.

The leasing arrangements associated with these obligations are accounted for as operating leases recognized on the Company's consolidated 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.

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").

In November 2018, in connection with funding the BRW Term Loan Agreement, the Company entered into an agreement with Kingsland Holdings Limited ("Kingsland"), AVH's largest minority shareholder, 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 American Depositary Receipts ("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, and (2) guaranteed BRW's obligation to pay Kingsland the difference 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.

Due to AVH’s financial uncertainty and subsequent bankruptcy filing in 2019, the Company recorded the full amount of the guarantee as a liability.

Additionally, the Company posted $ 217 million as cash collateral for a standby letter of credit in favor of Citibank, N.A.

that serves as security for a loan from Citibank to Kingsland (recorded in Restricted cash – current on the Company's consolidated balance sheet).

Any drawings under the letter of credit would offset the Company's maximum possible put and guarantee payment to Kingsland by an equal amount.

The posting of this collateral, and any potential credit against the Company's put and guarantee payment, are entirely related to the original transactions entered in 2018 and do not represent any new or incremental investment.

As of March 31, 2021, United is the guarantor of $ 116 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.

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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.

At March 31, 2021, the Company had $ 10.4 billion of floating rate debt with remaining terms of up to approximately 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

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

entities, with remaining terms of up to approximately 12 years and an aggregate balance of $ 8.2 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S.

entities to withholding taxes, subject to customary exclusions.

Labor Negotiations.

As of 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.

As of March 31, 2021, the Company had approximately 84,100 employees, of whom approximately 85 % were represented by various U.S.

labor organizations.

Credit Card Processing Agreements.

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NOTE 8 - 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.

In September 2019, United created enhanced equipment trust certificate ("EETC") pass-through trusts, each of which issued pass-through certificates.

As of March 31, 2021, United had $ 1.0 billion available for borrowing under the 2017 Revolving Credit Facility at any time until April 1, 2022 and $ 1.0 billion aggregate principal amount outstanding under the 2017 Revolving Credit Facility.

United also had $ 1.4 billion aggregate principal amount outstanding under the 2017 Term Loan Facility.

On April 21, 2021, United paid all amounts outstanding under the 2017 Revolving Credit Facility and the 2017 Term Loan Facility, terminated the 2017 Revolving Credit Facility and the 2017 Term Loan Facility and entered into the New Loan Facilities described below.

In February 2021, United created EETC pass-through trusts 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.

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Certain details of the pass-through trusts with proceeds received from issuance of debt in 2021 are as follows (in millions, except stated interest rate):

EETC Issuance Date Class Face Amount Stated

rate Total proceeds received

from issuance of debt

during 2020 Total debt recorded

as of September 30, 2020

September 2019 AA $ 702 2.70 % $ 189 $ 702

September 2019 A 287 2.90 % 77 287

September 2019 B 232 3.50 % 62 232

$ 1,221 $ 328 $ 1,221

Used Aircraft Facility.

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

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

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

Credit Agreement (the "Used Aircraft Facility").

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.

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.

EETC Issuance Date Class Face Amount Stated interest rate Total proceeds received from issuance of debt Total debt recorded as of March 31, 2021

February 2021 B $ 600 4.88 % $ 600 $ 600

During the first quarter of 2021, UAL issued a $ 753 million PSP2 Note to Treasury evidencing senior unsecured indebtedness of UAL.

The PSP2 Note is guaranteed by United, and will mature ten years after issuance on January 15, 2031 (the "Maturity Date").

If any subsidiary of UAL (other than United) guarantees other unsecured indebtedness of UAL with a principal balance in excess of a specified amount, then such subsidiary shall be required to guarantee the obligations of UAL under the PSP2 Note.

UAL may, at its option, prepay the PSP2 Note, at any time, and from time to time, at par.

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

UAL is required to prepay the PSP2 Note upon the occurrence of certain change of control triggering events.

The PSP2 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.

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

Interest on the PSP2 Note is payable semi-annually in arrears on the last business day of March and September of each year, beginning on March 31, 2021, at a rate of 1.00 % in years 1 through 5, and at the Secured Overnight Financing Rate (SOFR) plus 2.00 % in years 6 through 10.

As of March 31, 2021, UAL and United were in compliance with their respective debt covenants.

The table below presents the Company's contractual principal payments (not including $ 533 million of unamortized debt discount, premiums and debt issuance costs) at March 31, 2021 under then-outstanding long-term debt agreements (in millions):

Last nine months of 2021 $ 1,427

After 2025 10,896

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):

On April 21, 2021, United issued, through a private offering to eligible purchasers, $ 4.0 billion in aggregate principal amount of two series of Notes, consisting of $ 2.0 billion in aggregate principal amount of the 2026 Notes and $ 2.0 billion in aggregate principal amount of the 2029 Notes.

The 2026 Notes, issued at a price of 100 % of their principal amount, bear interest at a rate of 4.375 % per annum and will mature on April 15, 2026.

The 2029 Notes, issued at a price of 100 % of their principal amount, bear interest at a rate of 4.625 % per annum and will mature on April 15, 2029.

The Notes are guaranteed on an unsecured basis by UAL.

New Loan Facilities.

Concurrently with the closing of the offering of the Notes, United also entered into the New Loan Facilities, consisting of the New Term Loan Facility initially providing New Term Loans up to an aggregate amount of $ 5.0 billion and the New Revolving Credit Facility initially providing revolving loan commitments of up to $ 1.75 billion.

United borrowed the full amount of the New Term Loans on April 21, 2021, which bear interest at a variable rate equal to LIBOR (but not less than 0.75 % per annum) plus a margin of 3.75 % per annum.

The principal amount of the New Term Loan Facility must be repaid in consecutive quarterly installments of 0.25 % of the original principal amount thereof with the balance due at maturity.

Borrowings under the New Revolving Credit Facility bear interest at a variable rate equal to LIBOR plus a margin of 3.00 % to 3.50 % per annum.

United pays a commitment fee equal to 0.75 % per annum on the undrawn amount available under the New Revolving Credit Facility.

United used the net proceeds from the offering of the Notes and borrowings under the New Term Loan Facility (i) to repay in full all of the Facilities, including the $ 1.4 billion aggregate principal amount outstanding under the 2017 Term Loan Facility, the $ 1.0 billion aggregate principal amount outstanding under the 2017 Revolving Credit Facility and the $ 520 million aggregate principal amount outstanding under the CARES Act Loan, (ii) to pay fees and expenses relating to the offering of the Notes and (iii) for United’s general corporate purposes.

As a result of such repayments, the Facilities were terminated on April 21, 2021 and no further borrowings may be made thereunder.

The Notes and the New Loan Facilities are secured on a senior basis by security interests granted by United to the collateral trustee for the benefit of the holders of the Notes and the lenders under the New Loan Facilities, among other parties, on the following:

(i) all of United's route authorities granted by the U.S.

Department of Transportation to operate scheduled service between any international airport located in the United States and any international airport located in any country other than the United States (except Cuba), (ii) United's rights to substantially all of its landing and take-off slots at foreign and domestic airports, including at John F.

Kennedy International Airport, LaGuardia Airport and Ronald Reagan Washington National Airport (subject to certain exclusions), and (iii) United's rights to use or occupy space at airport terminals, each to the extent necessary at the relevant time for servicing scheduled air carrier service authorized by an applicable route authority.

NOTE 9 - SPECIAL CHARGES (CREDITS)

For the three months ended March 31, special charges (credits), certain credit losses and unrealized losses on investments 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 $ ( 1,810 ) $ —

2 unchanged sentences

(Gains) losses on sale of assets and other special charges 16 13

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 )

Total operating special charges (credits) ( 1,377 ) 63

Nonoperating special termination benefits 46 —

Nonoperating unrealized losses on investments, net 22 319

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

Total nonoperating special charges and unrealized losses on investments, net 68 1,016

Total operating and nonoperating special charges (credits) and unrealized losses on investments, net ( 1,309 ) 1,079

Income tax expense (benefit), net of valuation allowance 291 ( 14 )

Total operating and nonoperating special charges (credit) and unrealized (gains) losses on investments, net of income taxes $ ( 533 ) $ 4 $ ( 454 ) $ 34

Total operating and nonoperating special charges (credits) and unrealized losses on investments, net of income taxes $ ( 1,018 ) $ 1,065

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.

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.

During the three months ended March 31, 2021, the Company received approximately $ 2.6 billion in funding pursuant to the PSP2 Agreement, which included a $ 753 million unsecured loan.

The Company recorded $ 1.8 billion as grant income and $ 47 million for the PSP2 Warrants issued to Treasury as part of the PSP2 Agreement, within stockholders' equity, as an offset to the grant income.

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.

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.

During the three months ended March 31, 2021, the Company recorded $ 417 million related to pay continuation and benefits-related costs provided to employees who chose to voluntarily separate from the Company.

The Company offered, based on employee group, age and completed years of service, pay continuation, health care coverage, and travel benefits.

Approximately 4,500 employees elected to voluntarily separate from the Company.

Impairment of assets.

In February 2021, the Company voluntarily and temporarily removed all 52 Boeing 777-200/200ER aircraft powered by Pratt & Whitney 4000 series engines from its schedule due to an engine failure incident with one of its aircraft.

The Company viewed this incident as an indicator of potential impairment.

Accordingly, as required under relevant accounting standards only, United performed forecasted cash flow analyses and determined that the carrying value of the Boeing 777-200/200ER fleet is expected to be recoverable from future cash flows expected to be generated by that fleet and, consequently, no impairment was recorded.

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

During the three months ended March 31, 2021, the Company recorded $ 16 million of net charges, driven by charges for the termination of the lease associated with three floors of its headquarters at the Willis Tower in Chicago and utility charges related to the February winter storms in Texas, partially offset by net gains, primarily on sale-leaseback transactions (see Note 7 of this report for additional information on the sale-leaseback transactions).

Nonoperating special termination benefits.

During the three months ended March 31, 2021, as part of a first quarter VSL program, the Company recorded $ 46 million of special termination benefits in the form of additional subsidies for retiree medical costs for certain U.S.-based front-line employees.

The subsidies are in the form of a one-time contribution into the employee's Retiree Health Account of $ 125,000 for full-time employees and $ 75,000 for part-time employees.

Nonoperating unrealized losses on investments, net.

During the three months ended March 31, 2021, the Company recorded losses of $ 22 million primarily for the decrease in the market value of its investment in Azul.

Impairment of assets.

During the three months ended March 31, 2020, the Company recorded a $ 50 million impairment for its China routes, which was primarily caused by the COVID-19 pandemic and the Company's subsequent suspension of flights to China.

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

During the three months ended March 31, 2020, the Company recorded a $ 10 million one-time special charge related to the wind-down of the CPA with Trans States Airlines, LLC and $ 3 million for costs related to the transition of fleet types within other regional carrier contracts.

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.

During the three months ended March 31, 2020, the Company recorded a $ 697 million expected credit loss allowance for the BRW Term Loan and related guarantee.

AVH is currently in bankruptcy.

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

Severance and benefit costs .

During the three and 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.

See Notes 6 and 7 of this report for additional information.

Nonoperating unrealized losses on investments, net.

During the three months ended March 31, 2020, the Company recorded losses of $ 319 million primarily for the $ 293 million decrease in the market value of its investment in Azul and $ 24 million for the decrease in fair value of the AVH share call options, AVH share appreciation rights and AVH share-based upside sharing agreement.

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

What changed 10-Q

Item 1. Financial Statements