SECURITIES AND EXCHANGE COMMISSION
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20162018 ☐ |
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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File Number
| | Exact Name of Registrant as
Specified in its Charter, Principal Executive Office Address, Zip Code and Telephone Number, Including Area Code
| | Incorporation
| | Identification No.
|
001-06033 | | United Continental Holdings, Inc.
233 South Wacker Drive
Chicago, Illinois 60606
(872)825-4000 | | Delaware | | 36-2675207 |
001-10323 | | United Airlines, Inc.
233 South Wacker Drive
Chicago, Illinois 60606
(872)825-4000 | | Delaware | | 74-2099724 |
Securities registered pursuant to Section 12(b) of the Act:
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| | | Title of Each Class | | Name of Each Exchange on Which Registered |
United Continental Holdings, Inc. | | Common Stock, $0.01 par value | | New YorkThe Nasdaq Stock ExchangeMarket LLC |
United Airlines, Inc. | | None | | None |
Securities registered pursuant to Section 12(g) of the Act:
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| | | United Continental Holdings, Inc. | | None | | |
| | | United Airlines, Inc. | | None | | |
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| | United Continental Holdings, Inc.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | | | None | |
| United Continental Holdings, Inc. | | Yes x No o | | | |
| | United Airlines, Inc.
| | | None | | |
| United Airlines, Inc. | | Yes x No o | | | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act | | | | |
| United Continental Holdings, Inc. | | Yes ☒o No ☐x | | |
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| United Airlines, Inc. | | Yes ☒o No ☐x | | |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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| Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
| United Continental Holdings, Inc. | | Yes ☐x No ☒o | | |
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| United Airlines, Inc. | | Yes ☐x No ☒o | | |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). |
| United Continental Holdings, Inc. | | Yes ☒x No ☐o | | |
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| United Airlines, Inc. | | Yes ☒x No ☐o | | |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |
| United Continental Holdings, Inc. | | Yes ☒ No ☐x | | |
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| United Airlines, Inc. | | Yes ☒ No ☐x | | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.
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| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. |
| United Continental Holdings, Inc. | | ☒ | | |
| | United Airlines, Inc.
| | ☒ | | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one): | | | | | | | | |
United Continental
Holdings, Inc.
| | Large accelerated filer ☒x | | Accelerated filer ☐o | | Non-accelerated filer ☐o | | Smaller reporting company ☐o | | Emerging growth company o |
United Airlines, Inc. | | Large accelerated filer ☐o | | Accelerated filer ☐o | | Non-accelerated filer ☒x | | Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).
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| o | | Emerging growth company o |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
| United Continental Holdings, Inc. | | Yes ☐ No ☒o | | |
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| United Airlines, Inc. | | Yes ☐ No ☒o | | | | | | | | |
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | | |
| United Continental Holdings, Inc. | | Yes o No x | | | | | | | | |
| United Airlines, Inc. | | Yes o No x | | | | | | | | |
The aggregate market value of common stock held by
non-affiliates of United Continental Holdings, Inc. was
$12,558,237,332$17,844,650,113 as of June
30, 2016,29, 2018, based on the closing
sale price of
$41.04$69.73 on
the New York Stock Exchange reported for that date. There is no market for United Airlines, Inc. common stock.
Indicate the number of shares outstanding of each of the
registrant’sregistrant's classes of common stock, as of February
13, 2017.22, 2019. |
| | |
United Continental Holdings, Inc. | | 314,622,651266,727,577 shares of common stock ($0.01 par value) |
United Airlines, Inc. | | 1,000 shares of common stock ($0.01 par value) (100% owned by United Continental Holdings, Inc.) |
This combined Form
10-K is separately filed by United Continental Holdings, Inc. and United Airlines, Inc.
OMISSION OF CERTAIN INFORMATION
United Airlines, Inc. meets the conditions set forth in General Instruction I(1)(a) and (b) of Form
10-K and
areis therefore filing this form with the reduced disclosure format allowed under that General Instruction.
DOCUMENTS INCORPORATED BY REFERENCE
Information
Certain information required by Items 10, 11, 12 and 13 of Part III of this
Form 10-K are is incorporated by reference for United Continental Holdings, Inc. from its definitive proxy statement for its
20172019 Annual Meeting of Stockholders.
United Continental Holdings, Inc. and Subsidiary Companies
United Airlines, Inc. and Subsidiary Companies
Annual Report on
Form 10-KFor the Year Ended December 31, 20162018
This
Annual Report on Form 10-K ("Form 10-K") contains various
“forward-looking statements”"forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”"Exchange Act"). Forward-looking statements represent our expectations and beliefs concerning future events, based on information available to us on the date of the filing of this
Form 10-K, and are subject to various risks and uncertainties. Factors that could cause actual results to differ materially from those referenced in the forward-looking statements are listed in Part I, Item 1A, Risk Factors and in Part II, Item 7,
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations. We disclaim any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise, except as required by applicable law.
ITEM 1. BUSINESS.
United Continental Holdings, Inc. (together with its consolidated subsidiaries,
“UAL”"UAL" or the
“Company”"Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries,
“United”"United"). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted.
United’sUnited's operating revenues and operating expenses comprise nearly 100% of
UAL’sUAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of
UAL’sUAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words
“we,” “our,” “us,”"we," "our," "us," and the
“Company”"Company" in this report for disclosures that relate to all of UAL and United.
UAL was incorporated under the laws of the State of Delaware on December 30, 1968. Our principal executive office is located at 233 South Wacker Drive, Chicago, Illinois 60606 (telephone number
(872) 825-4000).The
Company’sCompany's website is
www.unitedcontinentalholdings.com.located at www.united.com and its investor relations website is located at ir.united.com. The information contained on or connected to the
Company’s websiteCompany's websites is not incorporated by reference into this
annual reportAnnual Report on
Form 10-K and should not be considered part of this or any other report filed with the U.S. Securities and Exchange Commission
(“SEC”("SEC").
Through this website, the Company’sThe Company's filings with the SEC, including annual reports on
Form 10-K, quarterly reports on
Form 10-Q, current reports on
Form 8-K, and all amendments to those reports, as well as
ourUAL's proxy statement for
ourits annual meeting of stockholders, are accessible without charge
on the Company's investor relations website, as soon as reasonably practicable, after such material is electronically filed with, or furnished to, the SEC. Such filings are also available on the
SEC’sSEC's website at www.sec.gov.
The Company transports people and cargo
through its mainline and regional operations. With key global aviation rights inthroughout North America
Asia-Pacific,and to destinations in Asia, Europe,
the Middle East and Latin
America, UAL has the world’s most comprehensive global route network.America. UAL, through United and its regional carriers, operates more than
4,5004,800 flights a day to
339353 airports across five continents,
from the Company’swith hubs at Newark Liberty International Airport
(“Newark”("Newark"), Chicago
O’HareO'Hare International Airport
(“("Chicago
O’Hare”O'Hare"), Denver International Airport
(“Denver”("Denver"), George Bush Intercontinental Airport
(“("Houston
Bush”Bush"), Los Angeles International Airport
(“LAX”("LAX"), A.B. Won Pat International Airport
(“Guam”("Guam"), San Francisco International Airport
(“SFO”("SFO") and Washington Dulles International Airport
(“("Washington
Dulles”Dulles").
All of the Company’sCompany's domestic hubs are located in large business and population centers, contributing to a large amount of “origin"origin and destination”destination" traffic. The hub and spoke system allows us to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly. Thehub system also allows us to add service to a new destination from a large number of cities using only one or a limited number of aircraft. As discussed underAlliances below, United is a member of Star Alliance, the world’sworld's largest alliance network.
Financial information on the Company’s operating revenues by geographic regions, as reported to the U.S. Department of Transportation (the “DOT”), can be found in Note 17 to the financial statements included in Part II, Item 8 of this report.
Regional. The Company has contractual relationships with various regional carriers to provide regional jet and turbopropaircraft service branded as United Express. These regional operations are an extension of the Company’s mainline network. This regional service complements our operations by carrying traffic that connects to our mainline servicehubs and allows flights to smaller cities that cannot be provided economically with mainline aircraft. Republic Airlines (“Republic”("Republic"), Champlain Enterprises, LLC d/b/a CommutAir (“CommutAir”("CommutAir"), ExpressJet Airlines (“ExpressJet”("ExpressJet"), GoJet Airlines (“GoJet”("GoJet"), Mesa Airlines (“Mesa”), Shuttle America (“Shuttle”("Mesa"), SkyWest Airlines (“SkyWest”("SkyWest"), Air Wisconsin Airlines ("Air Wisconsin"), and Trans States Airlines (“("Trans States”States") are all regional carriers whichthat operate most of theirwith capacity contracted to United under capacity purchase agreements (“CPAs”("CPAs") with United.. Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier-controlled(carrier costs) for operating these flights plus a variable reimbursement (incentive payment for operational performance) based on agreed performance metrics.metrics, subject
to annual adjustments. The fees for carrier-controlledcarrier costs are based on specific rates for various operating expenses of the regional carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures), while others are fixed monthly amounts. Under these CPAs, the Company is responsible for all fuel costs incurred, as well as landing fees facilities rent and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company.Company, and, in some cases, the Company owns or leases some or all of the aircraft subject to the CPA, and leases or subleases, as applicable, such aircraft to the regional carrier. In return, the regional carriers operate thisthe capacity of the aircraft included within the scope of such CPA exclusively for United, on schedules determined by the Company. The Company also determines pricing and revenue management, assumes the inventory and distribution risk for the available seats and permits mileage accrual and redemption for regional flights through its MileagePlus® loyalty program. Alliances. United is a member of Star Alliance, a global integrated airline network and the largest and most comprehensive airline alliance in the world. As of January 1, 2017,2019, Star Alliance carriers served over 1,300 airports in 190193 countries with 18,45018,800 daily departures. Star Alliance members, in addition to United, are Adria Airways, Aegean Airlines, Air Canada, Air China, Air India, Air New Zealand, All Nippon Airways (“ANA”("ANA"), Asiana Airlines, Austrian Airlines, Avianca,Aerovías del Continente Americano S.A. ("Avianca"), Avianca Brasil, Brussels Airlines, Copa Airlines, Croatia Airlines, EGYPTAIR, Ethiopian Airlines, EVA Air, LOT Polish Airlines, Lufthansa, SAS Scandinavian Airlines, Shenzhen Airlines, Singapore Airlines, South African Airways, SWISS, TAP Air Portugal, THAI Airways International and Turkish Airlines. In October 2016,addition to its members, Star Alliance announced the future inclusion ofincludes Shanghai-based Juneyao Airlines as a new connecting partner. United has a variety of bilateral commercial alliance agreements and obligations with Star Alliance members, addressing, among other things, reciprocal earning and redemption of frequent flyer miles, access to airport lounges and, with certain Star Alliancemembers, codesharing of flight operations (whereby one carrier’scarrier's selected flights can be marketed under the brand name of another carrier). In addition to the alliance agreements with Star Alliance members, United currently maintains independent marketing alliance agreements with other air carriers, including Aeromar, Aer Lingus, Air Dolomiti, Azul Linhas Aéreas Brasileiras S.A. ("Azul"), Boutique Air, Cape Air, Eurowings, Germanwings, Great Lakes Airlines, Hawaiian Airlines, Island Air, Jet Airways and Silver Airways. In addition to the marketing alliance agreements with air partners, United also offers atrain-to-plane codeshare and frequent flyer alliance with Amtrak from Newark on select city pairs in the northeastern United States. United also participates in
threefour passenger joint
ventures,business arrangements ("JBAs"): one with Air Canada and the Lufthansa Group (which includes Lufthansa and its affiliates Austrian Airlines, Brussels Airlines, Eurowings and SWISS) covering transatlantic routes, one with ANA covering certain transpacific routes,
and one with Air New Zealand covering certain routes between the United States and New
Zealand.Zealand and one with Avianca and Copa Airlines, which, upon receipt of regulatory approvals will cover routes between the United States and Central and South America, excluding Brazil. These passenger
joint venturesJBAs enable the participating carriers to integrate the services they provide in the respective regions, capturing revenue synergies and delivering
enhanced customer benefits, such as highly competitive flight schedules, fares and services. United
has also
begun implementation of aparticipates in cargo joint ventureJBAs with ANA for transpacific cargo services and with Lufthansa for transatlantic cargo services. ThisThese cargo joint venture offersJBAs offer expanded and more seamless access to cargo space across the carriers’carriers' respective combined networks.
Loyalty Program. United’s United's MileagePlus loyalty program builds customer loyalty by offering awards, benefits and services to program participants. Members in this program earn miles for flights on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can also earn miles by purchasing the goods and services of our network ofnon-airline partners, such as domestic and international credit card issuers, retail merchants, hotels and car rental companies. Members can redeem miles for free (other than taxes and government imposed fees), discounted or upgraded travel andnon-travel awards.The Company
United has an agreement with Chase Bank USA, N.A.
(“Chase”("Chase"), pursuant to which members of
the Company’sUnited's MileagePlus loyalty program who are residents of the United States can earn miles for making purchases using a MileagePlus credit card issued by
Chase.Chase (the "Co-Brand Agreement"). The
agreementCo-Brand Agreement also provides for joint marketing and other support for the MileagePlus credit card and provides Chase with other benefits such as permission to market to the
Company’sCompany's customer database.
Approximately
5.25.6 million and
5.05.4 million MileagePlus flight awards were used on United in
20162018 and
2015,2017, respectively. These awards represented
7.7%7.1% and 7.5% of
United’sUnited's total revenue passenger miles in
20162018 and
2015,2017, respectively. Total miles redeemed for flights on United in
2016,2018, including
class-of-service upgrades, represented approximately
84%86% of the total miles redeemed. In addition, excluding miles redeemed for flights on United, MileagePlus members redeemed miles for approximately
2.02.4 million other awards in
20162018 as compared to
1.82.3 million
other awards in
2015.2017. These awards include United Club memberships, car and hotel awards, merchandise and flights on other air carriers.
Aircraft Fuel. The table below summarizes UAL’sUAL's aircraft fuel consumption and expense during the last three years. | | | | | | | | | | | | | | | | | | | | | | |
| | | Year | | Gallons
Consumed
(in millions) | | | Fuel Expense
(in millions) | | | Average Price
Per Gallon | | | Percentage of
Total
Operating
Expense | | | | |
| | 2016 | | | 3,904 | | | $ | 5,813 | | | $ | 1.49 | | | | 18% | | | | | |
| | 2015 | | | 3,886 | | | $ | 7,522 | | | $ | 1.94 | | | | 23% | | | | | |
| | 2014 | | | 3,905 | | | $ | 11,675 | | | $ | 2.99 | | | | 32% | | | | | |
|
| | | | | | | | | | | | | | | | |
| Year | | Gallons Consumed (in millions) | | Fuel Expense (in millions) | | Average Price Per Gallon | | Percentage of Total Operating Expense | | Available Seat Miles per Fuel Gallon |
| 2018 | | 4,137 |
| | $ | 9,307 |
| | $ | 2.25 |
| | 24 | % | | 67 |
| 2017 | | 3,978 |
| | $ | 6,913 |
| | $ | 1.74 |
| | 20 | % | | 66 |
| 2016 | | 3,904 |
| | $ | 5,813 |
| | $ | 1.49 |
| | 18 | % | | 65 |
Our operational and financial results can be significantly impacted by changes in the price and availability of aircraft fuel. To provide adequate supplies of fuel, the Company routinely enters into purchase contracts that are customarily indexed to market prices for aircraft fuel, and the Company generally has some ability to cover short-term fuel supply and infrastructure disruptions at
somecertain major demand locations. The price of aircraft fuel has fluctuated substantially in the past several
years and in order to lower its exposure to unpredictable increases in the market prices of aircraft fuel, the Company has historically hedged a portion of its planned fuel requirements. As of December 31, 2016, the Company did not have any outstanding fuel hedging contracts.years. The
Company’sCompany's current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.
Third-Party Business.United generates third-party business revenue that includes frequent flyer awardnon-air redemptions, maintenance services, catering and ground handling. Third-party business revenue is recorded in Other operating revenue. Expenses associated with third-party business, except non-air redemptions, are recorded in Other operating expenses. Non-air redemptions expenses are recorded to Other operating revenue. Distribution Channels. The Company’sCompany's airline seat inventory and fares are distributed through the Company’sCompany's direct channels, traditional travel agencies andon-line travel agencies. The use of the Company’sCompany's direct sales website, united.com,www.united.com, the Company’sCompany's mobile applications and alternative distribution systems provides the Company with an opportunity tode-commoditize its services, better present its content, make more targeted offerings, better retain its customers, enhance its brand and lower its ticket distribution costs. Agency sales areprimarily sold using global distribution systems (“GDS”("GDS"). United has developed and expects to continue to develop capabilities to sell certain ancillary products through the GDS channel to provide an enhanced buying experience for customers who purchase in that channel. To increase the Company’s opportunities to sell its full range of products and services and lower distribution costs, the Company will continue to develop new selling capabilities in third-party channels and expand the capabilities of its website and mobile applications.
Domestic Competition. The domestic airline industry is highly competitive and dynamic. The Company’sCompany's competitors consist primarily of other airlines and, to a certain extent, other forms of transportation. Currently, any U.S. carrier deemed fit by the DOTU.S. Department of Transportation (the "DOT") is largely free to operate scheduled passenger service between any two points within the United States. Competition can be direct, in the form of another carrier flying the exactnon-stop route, or indirect, where a carrier serves the same two citiesnon-stop from an alternative airport in that city or via an itinerary requiring a connection at another airport. Air carriers’carriers' cost structures are not uniform and there are numerous factors influencing cost structure. Carriers with lower costs may offer lower fares to passengers, which could have a potential negative impact on the Company’sCompany's revenues. Decisions on domestic pricing are based on intense competitive pressure exerted on the Company by other U.S. airlines. In order to remain competitive and maintain passenger traffic levels, we often find it necessary to match competitors’competitors' discounted fares. Since we compete in a dynamic marketplace, attempts to generate additional revenue through increased fares oftentimes fail. International Competition. Internationally, the Company competes not only with U.S. airlines, but also with foreign carriers. International competition has increased and may continue to increase in the future as a result of airline mergers and acquisitions, joint ventures,JBAs, alliances, restructurings, liberalization of aviation bilateral agreements and new or increased service by competitors, including government subsidized competitors from certain Middle East countries. Competition on international routes is subject to varying degrees of governmental regulation. The Company’sCompany's ability to compete successfully withnon-U.S. carriers on international routes depends in part on its ability to generate traffic to and from the entire United States via its integrated domestic route network and its ability to overcome business and operational challenges across its network worldwide. Foreign carriers currently are prohibited by U.S. law from carrying local passengers between two points in the United States and the Company generally experiences comparable restrictions in foreign countries. Separately, “fifth"fifth freedom rights”rights" allow the Company to operate between points in two different foreign countries and foreign carriers may also have fifth freedom rights between the U.S. and another foreign country. In the absence of fifth freedom rights, or some other extra-bilateral right to conduct operations between two foreign countries, U.S. carriers are constrained from carrying passengers to points beyond designated international gateway cities. To compensate partially for these structural limitations, U.S. and foreign carriers have entered into alliances, joint venturesimmunized JBAs and marketing arrangements that enable these carriers to exchange traffic between each other’sother's flights and route networks. SeeAlliances, above, for additional information.
Seasonality. The air travel business is subject to seasonal fluctuations. Historically, demand for air travel is higher in the second and third quarters, driving higher revenues, than in the first and fourth quarters, which are periods of lower travel demand. All carriers engaged in air transportation in the United States are subject to regulation by the DOT. Absent an exemption, no air carrier may provide air transportation of passengers or property without first being issued a DOT certificate of public convenience and necessity. The DOT also grants international route authority, approves international codeshare arrangements and regulates methods of competition. The DOT regulates consumer protection and maintains jurisdiction over advertising, denied boarding compensation, tarmac delays, baggage liability and other areas and may add additional expensive regulatory burdens in the future. The DOT has
launched investigations or claimed rulemaking authority to regulate commercial agreements among carriers or between carriers and third parties in a wide variety of contexts.
Airlines are also regulated by the Federal Aviation Administration (the
“FAA”"FAA"), an agency within the DOT, primarily in the areas of flight safety, air carrier operations and aircraft maintenance and airworthiness. The FAA issues air carrier operating certificates and aircraft airworthiness certificates, prescribes maintenance procedures, oversees airport operations, and regulates pilot and other employee training. From time to time, the FAA issues directives that require air carriers to inspect or modify aircraft and other equipment, potentially causing the Company to incur substantial, unplanned expenses. The airline industry is also subject to numerous other federal laws and regulations. The U.S. Department of Homeland Security
(“DHS”("DHS") has jurisdiction over virtually every aspect of civil aviation security. The Antitrust Division of the U.S. Department of Justice
(“DOJ”("DOJ") has jurisdiction over certain airline competition matters. The U.S. Postal Service has authority over certain aspects of the transportation of mail by airlines. Labor relations in the airline industry are generally governed by the Railway Labor Act
(“RLA”("RLA"), a federal statute. The Company is also subject to investigation inquiries by the DOT, FAA, DOJ, DHS,
the U.S. Food and Drug Administration ("FDA"), the U.S. Department of Agriculture ("USDA") and other U.S. and international regulatory bodies.
Airport Access. Access to landing andtake-off rights, or “slots,”"slots," at several major U.S. airports and many foreign airports served by the Company are or recently have been, subject to government regulation. Federally mandatedFederally-mandated domestic slot restrictions that limit operations and regulate capacity currently apply at three airports: Reagan National Airport in Washington, D.C. and at("Reagan National"), John F. Kennedy International Airport and LaGuardia Airport in the New York City metropolitan region.region ("LaGuardia"). Of these three airports, United currently operates at two: Reagan National and LaGuardia. Additional restrictions on airline routes and takeoff and landing slots at these and other airports may be proposedimplemented in the future thatand could affect the Company’sCompany's rights of ownership and transfer. In April 2016, the FAA announced that it was lifting slot controls at Newarktransfer as of the winter 2016 season. This change may result in additional congestion at Newark and in the New York City metropolitan region airspacewell as a whole. If slots are eliminated at an airport, or if the number of hours of operation governed by slots is reduced at an airport, the lack of controls on takeoffs and landings could result in greater congestion both at the affected airport or in the regional airspace (e.g., the New York City metropolitan airspace) and could significantly impact the Company’sits operations. Legislation. The airline industry is subject to legislative activityactions (or inactions) that may have an impact on operations and costs. In 2017,2018, the U.S. Congress will continue to consider legislation to reauthorizeapproved a five-year reauthorization for the FAA, which encompasses all significant aviation tax and policy-related issues. As with previous reauthorization legislation, the U.S. Congress may considerThe law includes a range of policy changes thatrelated to airline customer service and aviation safety which, depending on how they are implemented, could impact our operations and costs. Finally, aviation security continuesAdditionally, the U.S. Congress may fail to becontinue to fund the operations of one or more federal government agencies which could negatively impact the Company and the airline industry.
Catering Operations. The Company owns and operates catering kitchens at airports in Denver, Cleveland, Newark, Houston, and Honolulu, which prepare ready-to-eat food for United flights. Some of the Company's kitchens also prepare ready-to-eat food for other domestic and international airlines. These operations are subject to regulation by the FDA and the USDA, as well as other federal, state, and local regulatory agencies. The FDA has begun enforcing the Federal Food Safety Modernization Act which requires all food manufacturers to implement stringent risk-based preventive controls. As a result, ready-to-eat catering operations are a focus of legislativeenhanced scrutiny by the FDA with inspections and regulatory action, requiring changes to the Company’s security processes, potentially increasing the cost of its security procedures and affecting its operations.greater enforcement.
International air transportation is subject to extensive government regulation. In connection with the
Company’sCompany's international services, the Company is regulated by both the U.S. government and the governments of the foreign countries the Company serves. In addition, the availability of international routes to U.S. carriers is regulated by aviation agreements between the U.S. and foreign governments, and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments.
Legislation.Foreign countries are increasingly enacting passenger protection laws, rules and regulations that meet or exceed U.S. requirements. In cases where this activity exceeds U.S. requirements, additional burden and liability may be placed on the Company. Certain countries have regulations requiring passenger compensation and/or enforcement penalties from the Company in addition to changes in operating procedures due to canceled and delayed flights.
Airport Access. Historically, access to foreign markets has been tightly controlled through bilateral agreements between the U.S. and each foreign country involved. These agreements regulate the markets served, the number of carriers allowed to serve each market and the frequency of carriers’carriers' flights. Since the early 1990s, the U.S. has pursued a policy of “Open Skies”"Open Skies" (meaning all U.S.-flag carriers have access to the destination), under which theU.S. government has negotiated a number of bilateral agreements allowing unrestricted access between U.S. and foreign markets. Currently, there are more than 100 Open Skies agreements in effect. However, even with Open Skies, many of the airports that the Company serves in Europe, Asia and Latin America maintain slot controls. A large number of these slot controls exist due to congestion, environmental and noise protection and reduced capacity due to runway and air traffic control (“ATC”("ATC") construction work, among other reasons. London Heathrow International Airport, Frankfurt Rhein-Main Airport, Shanghai Pudong International Airport, Beijing Capital International Airport, Sao Paulo Guarulhos International Airport and Tokyo Haneda International Airport are among the most restrictive foreign airports due to slot and capacity limitations.
The
Company’sCompany's ability to serve some foreign markets and expand into certain others is limited by the absence of aviation agreements between the U.S. government and the relevant foreign governments. Shifts in U.S. or foreign government aviation policies may lead to the alteration or termination of air service agreements. Depending on the nature of any such change, the value of the
Company’sCompany's international route authorities and slot rights may be materially enhanced or diminished.
Similarly, foreign governments control their airspace and can restrict our ability to overfly their territory, enhancing or diminishing the value of the Company's existing international route authorities and slot rights.
The airline industry is subject to increasingly stringent federal, state, local and international environmental requirements, including those regulating emissions to air, water discharges, safe drinking water and the use and management of hazardous substances and wastes.
Climate Change. There is an increasing global regulatory focus on greenhouse gas (“GHG”("GHG") emissions and their potential impacts relating to climate change. Initiatives to regulate GHG emissions from aviation had previously been adopted by the European Union ("EU") in 2009, but applicability to flights arriving or departing from airports outside the EU have been postponed several times. In October 2013,December 2017, the European Parliament voted to extend exemptions for extra-EU flights until December 2023 in order to align the extension date with the completion of the pilot phase of the International Civil Aviation Organization (“ICAO”Organization's ("ICAO"), a United Nations body, agreed to develop a global market based measure to address carbon emissions from international aviation, which was adopted in October 2016. The program, the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”("CORSIA"),. CORSIA, which was adopted in October 2016, is intended to create a single global market-based measure to achieve carbon-neutral growth for international aviation after 2020, which willcan be achieved through airline purchases of carbon offset credits. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted, butpredicted. However, CORSIA is expected to increase operating costs for airlines that operate internationally. In 2016, ICAO also adopted a carbon dioxide (“CO2”("CO2") emission standard for aircraft andaircraft. In 2016, the U.S. Environmental Protection Agency has started the process required("EPA") commenced procedural steps necessary to adopt its own standard, but the standard.timing of further action by the EPA is unknown. While the precise timing and final form of these various programs and requirements continue to evolve, in 2018, the Company announced a pledge to reduce its greenhouse gas emissions by 50 percent relative to 2005 levels by the year 2050 and is taking various actions that are expected to help to reduce its CO2 emissions over time such as improving fuel efficiency, fleet renewal, aircraft retrofits and the commercialization of aviation alternative fuels. Other Regulations. Our operations are subject to a variety of other environmental laws and regulations both in the United States and internationally. These include noise-related restrictions on aircraft types and operating times and state and local air quality initiatives which have, or could in the future, result in curtailments in services, increased operating costs, or limits on expansion.expansion, or further emission reduction requirements. Certain foreign airports and/or governments, both domestically and internationally, either have or are seeking to establish environmental fees and other requirements applicable to carbon emissions, local air quality pollutants and/or noise. In the United States, new regulations affecting underground storage tanks became effective in 2015, which are expected to affect certain airport fuel hydrant systems, potentially impacting operating costs. The implementation of revisedstate plans to achieve national ambient air quality standards for ozone by individual affected states, scheduled for early 2020, is expected to triggerresult in restrictions on mobile sources such as cars, trucks and airport ground support equipment in those jurisdictions where ozone levels exceedsome locations. Certain states may also elect to impose restrictions apart from the newrevised national standards. Finally, environmental cleanup laws cancould require the Company to undertake or subject the Company to liability for investigation and remediation costs at certain owned or leased locations or third partythird-party disposal locations. Until applicability of new regulations to our specific operations is better defined and/or
when newuntil pending regulations are finalized, future costs to comply with such regulations will remain uncertain but are likely to increase our operating costs over time. While we continue to monitor these developments, the precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation industry could be significant.
As of December 31,
2016,2018, UAL, including its subsidiaries, had approximately
88,00092,000 employees. Approximately
80%83% of the
Company’sCompany's employees were represented by various U.S. labor
organizations as of December 31, 2016.organizations.
Collective bargaining agreements between the Company and its represented employee groups are negotiated under the RLA. Such agreements typically do not contain an expiration date and instead specify an amendable date, upon which the agreement is considered
“open"open for amendment.
” In 2016, the Company finalized new or extension agreements with all 11 of its U.S. employee groups, including joint collective bargaining agreements with its flight attendants and technicians and related employees."
The following table reflects the Company’sCompany's represented employee groups, the number of employees per represented group, union representation for each of United’sUnited's employee groups, and the amendable date for each employee group’sgroup's collective bargaining agreement as of December 31, 2016: 2018: | | | | | |
| | | | |
Employee Group | Number of Employees | Union | Agreement Open for Amendment |
Employee
Group
| |
| Number of
Employees |
| | Union
| | Agreement Open
for Amendment
|
Flight Attendants | 23,193 | | 22,779 | |
| Association of Flight Attendants (the “AFA”"AFA") | | August 2021 |
Fleet Service | 13,077 | | 12,812 | |
| International Association of Machinists and Aerospace Workers (the “IAM”"IAM") | | December 2021 |
Passenger Service | 11,932 | | 12,012 | |
| IAM | | December 2021 |
Pilots | 11,742 | | 11,454 | |
| Air Line Pilots Association, International | | January 2019 |
Technicians and Related & Flight Simulator Technicians | 9,236 | | 9,521 | |
| International Brotherhood of Teamsters (the “IBT”"IBT") | | December 2022 |
Storekeeper EmployeesPassenger Service - United Ground Express, Inc. | 2,923 | | 977 | |
| IAM | March 2025 |
| Catering Operations | 2,668 |
| UNITE HERE | (a) |
| Storekeeper Employees | 1,012 |
| IAM | December 2021 |
| Dispatchers | 399 | | 396 | |
| Professional Airline Flight Control Association | December 2021 |
| Fleet Tech Instructors | 131 |
| IAM | December 2021 |
Fleet Tech InstructorsLoad Planners | 64 | | 128 | |
| IAM | | December 2021 |
Load PlannersSecurity Officers | 48 | | 67 | |
| IAM | | December 2021 |
Security OfficersMaintenance Instructors | 41 | | 50 | |
| IAM | | December 2021 |
Maintenance Instructors | | | 42 | | | IAM | | December 2021 |
(a) On October 23, 2018, United's Catering Operations employees voted to unionize under the RLA. In an election overseen by the National Mediation Board, UNITE HERE received the majority of the votes and was officially certified to represent United's frontline Catering Operations employees. The Company expects contract negotiations to begin in 2019.
The following risk factors should be read carefully when evaluating the
Company’sCompany's business and the forward-looking statements contained in this report and other statements the Company or its representatives make from time to time. Any of the following risks could materially and adversely affect the
Company’sCompany's business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this report.
Global
If we do not successfully execute our strategic operating plan, or if our strategic operating plan is unsuccessful, our business, operating results and financial condition could be materially and adversely affected.
We have announced several strategic plans in recent years, including several revenue-generating initiatives and plans to optimize our revenue, such as our plans to add capacity, including international expansion and new or increased service to mid-size airports, and initiatives and plans to optimize and control our costs. We also continue to explore opportunities to enhance our segmentation, including the introduction of Polaris, Basic Economy and United Premium Plus, and are implementing many programs and policies to improve the customer experience at all points in air travel. In developing our strategic operating plan, we make certain assumptions including, but not limited to, those related to customer demand, competition, market consolidation and the global economy. Actual economic, market and other conditions may be different from our assumptions and we may not be able to successfully execute our strategic operating plan. If we do not successfully execute our strategic operating plan, or if actual results vary significantly from our assumptions, our business, operating results and financial condition could be materially and adversely impacted.
Unfavorable economic and political conditions, in the United States and industry conditions constantly change and unfavorable conditionsglobally, may have a material adverse effect on the Company’sour business, operating results and financial condition.
The Company's business and
operating results
of operations.The Company’s business and results of operations are significantly impacted by U.S. and global economic and industrypolitical conditions. The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and global economies. The Company is a global business with operations outside of the United States from which it derives significant operating revenues. The Company’s international operations are a vital part of its worldwide airline network. Volatile economic, political and market conditions in these international regions may have a negative impact on the Company’s operating results and its ability to achieve its business objectives.
Robust demand for the Company’sCompany's air transportation services depends largely on favorable economic conditions, including the strength of the domestic and foreign economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit. Air transportation is often a discretionary purchase that leisure travelers may limit or eliminate during difficult economic times. Short-haul travelers, in particular, have the option to replace air travel with surface travel. In addition, during periods of unfavorable economic conditions, business travelers usually reducehistorically have reduced the volume of their travel, either due to cost-saving initiatives, the replacement of travel with alternatives such as videoconferencing, or as a result of decreased business activity requiring travel. During such periods, the Company’sCompany's business and operating results of operations may be adversely affected due to significant declines in industry passenger demand, particularly with respect to the Company’sCompany's business and premium cabin travelers, and a reduction in fare levels.
As a global business with operations outside of the United States from which it derives significant operating revenues, volatile conditions in certain international regions may have a negative impact on the Company's operating results and its ability to achieve its business objectives. The Company's international operations are a vital part of its worldwide airline network. Political disruptions and instability in certain regions can negatively impact the demand and network availability for air travel.
Stagnant or weakening global economic conditions either in the United States or in other geographic regions
and any future volatility in U.S. and global financial and credit markets may have a material adverse effect on the
Company’sCompany's revenues,
operating results
of operations and liquidity.
If such economic conditions were to disrupt capital markets in the future, the Company may be unable to obtain financing on acceptable terms (or at all) to refinance certain maturing debt and to satisfy future capital commitments.Recently, United Kingdom (“UK”) voters voted for the UK to exit the European Union (the “EU”), anon-binding referendum that, if passed into law, could adversely affect European and worldwide economic and market conditions and could contribute to instability in
The global
financial and foreign exchange markets, including volatility in the value of the British pound and European euro, additional travel restrictions on passengers traveling between the UK and other EU countries and legal uncertainty and potentially divergent national laws and regulations. These adverse effects in European market conditions could negatively impact the Company’s business, results of operations and financial condition.In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies may have a material adverse impact upon the Company’s liquidity, revenues, costs and operating results.
The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on the Company.
our business, operating results and financial condition.
The
U.S. airline industry is
characterizedhighly competitive, marked by
substantial pricesignificant competition
including fromlow-cost carriers. The significant market presencewith respect to routes, fares, schedules (both timing and frequency), services, products, customer service and frequent flyer programs. Consolidation in the airline industry, the rise of
low-cost well-funded government sponsored international carriers,
which engagechanges in
substantial price discounting, may diminish our abilityinternational alliances and the creation of immunized JBAs have altered and are expected to
achieve sustained profitability on domesticcontinue to alter the competitive landscape in the industry, resulting in the formation of airlines and
international routes.alliances with increased financial resources, more extensive global networks and services and competitive cost structures.
Airlines also compete
for market share by increasing or decreasing their capacity, including route systems and the number of
marketsdestinations served. Several of the
Company’sCompany's domestic and international competitors have increased
their international capacity by including service to some destinations that the Company currently serves, causing overlap in destinations served and therefore increasing competition for those destinations. This increased competition in both domestic and international markets may have a material adverse effect on the Company’sCompany's business, operating results and financial condition.
The Company's U.S. operations are subject to competition from traditional network carriers, national point-to-point carriers, and discount carriers, including low-cost carriers and ultra-low-cost carriers. Such carriers may have lower costs and provide service at lower fares to destinations also served by the Company. The significant presence of
operations, financial condition or liquidity.Terrorist attacks orlow-cost carriers, which engage in substantial price discounting, may diminish our ability to achieve sustained profitability on domestic and international hostilities, orroutes. Our ability to compete in the fear of terrorist attacks or hostilities, even if not made directlydomestic market effectively depends, in part, on the airline industry, could negatively affect the Company and the airline industry.
The terrorist attacks on September 11, 2001 involving commercial aircraft severely and adversely impacted the Company’sour ability to maintain a competitive cost structure. If we cannot maintain our costs at a competitive level, then our business, financial condition and operating results of operations, as well as the prospects for the airline industry. Among the effects experienced from the September 11, 2001 terrorist attacks were substantial flight disruption costs caused by theFAA-imposed temporary grounding of the U.S. airline industry’s fleet, significantly increased security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and passenger revenue.
Additional terrorist attacks, even if not made directly on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings or selective cancellation or redirection of flights) could be materially and adversely affectaffected.
Our international operations are subject to competition from both foreign and domestic carriers. Competition is significant from government subsidized competitors from certain Middle East countries. These carriers have large numbers of international widebody aircraft on order and are increasing service to the CompanyU.S. from their hubs in the Middle East. The government support provided to these carriers has allowed them to grow quickly, reinvest in their product, invest in other airlines and the airline industry. Warsexpand their global presence.
Through alliance and other marketing and codesharing agreements with foreign carriers, U.S. carriers have increased their ability to sell international hostilitiestransportation, such as services to and beyond traditional European and Asian gateway cities. Similarly, foreign carriers have obtained increased access to interior U.S. passenger traffic beyond traditional U.S. gateway cities through these relationships. In addition, several JBAs among U.S. and foreign carriers have received grants of antitrust immunity allowing the participating carriers to coordinate schedules, pricing, sales and inventory. If we are not able to continue participating in these types of alliance and other marketing and codesharing agreements in the future, our business, financial condition and operating results could alsobe materially and adversely affected.
High and/or volatile fuel prices or significant disruptions in the supply of aircraft fuel could have a material adverse impact on the Company’sCompany's strategic plans, operating results, financial condition liquidity and resultsliquidity.
Aircraft fuel is critical to the Company's operations and is our single largest operating expense. During the year ended December 31, 2018, the Company's fuel expense was $9.3 billion. The timely and adequate supply of operations.fuel to meet operational demand depends on the continued availability of reliable fuel supply sources, as well as related service and delivery infrastructure. Although the Company has some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations, it depends significantly on the continued performance of its vendors and service providers to maintain supply integrity. Consequently, the Company can neither predict nor guarantee the continued timely availability of aircraft fuel throughout the Company's system.
Aircraft fuel has historically been the Company's most volatile operating expense due to the highly unpredictable nature of market prices for fuel. The Company’sCompany generally sources fuel at prevailing market prices. Market prices for aircraft fuel have historically fluctuated substantially in short periods of time and continue to be highly volatile due to a dependence on a multitude of unpredictable factors beyond the Company's control. These factors include changes in global crude oil prices, the balance between aircraft fuel supply and demand, natural disasters, prevailing inventory levels and fuel production and transportation infrastructure. Prices of fuel are also impacted by indirect factors, such as geopolitical events, economic growth indicators, fiscal/monetary policies, fuel tax policies, changes in regulations, environmental concerns and financial resourcesinvestments in energy markets. Both actual changes in these factors, as well as changes in market expectations of these factors, can potentially drive rapid changes in fuel price levels in short periods of time.
Given the highly competitive nature of the airline industry, the Company may not be sufficientable to absorbincrease its fares and fees sufficiently to offset the adverse effectsfull impact of increases in fuel prices, especially if these increases are significant, rapid and sustained. Further, any such fare or fee increase may not be sustainable, may reduce the general demand for air travel and may also eventually impact the Company's strategic growth and investment plans for the future. In addition, decreases in fuel prices for an extended period of time may result in increased industry capacity, increased competitive actions for market share and lower fares or surcharges in general. If fuel prices were to then subsequently rise quickly, there may be a lag between the rise in fuel prices and any improvement of the revenue environment.
To protect against increases in the market prices of fuel, the Company may hedge a portion of its future
terrorist attacks or other international hostilities.Increasing privacy and data security obligations or a significant data breach may adversely affect the Company’s business.
fuel requirements. The Company is subjectdoes not currently hedge its future fuel requirements. However, to increasing legislative, regulatorythe extent the Company decides to start a hedging program, such hedging program may not be successful in mitigating higher fuel costs, and customer focus on privacy issuesany price protection provided may be limited due to choice of hedging instruments and data security. Also, a numbermarket conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge counterparties. To the Company’s commercial partners, including credit card companies, have imposed data security standardsextent that the Company must meetdecides to hedge a portion of its future fuel requirements and these standards continueuses hedge contracts that have the potential to evolve. Thecreate an obligation to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit the Company's ability to benefit fully from lower fuel costs in the future. If fuel prices decline significantly from the levels existing at the time the Company will continue its efforts to meet its privacy and data security obligations; however, it is possible that certain new obligationsenters into a hedge contract, the Company may be difficultrequired to meet andpost collateral (margin) beyond certain thresholds. There can be no assurance that the Company's hedging arrangements, if any, will provide any particular level of protection against rises in fuel prices or that its counterparties will be able to perform under the Company's hedging arrangements. Additionally, deterioration in the Company's financial condition could increasenegatively affect its ability to enter into new hedge contracts in the Company’s costs. Additionally, the Company must manage evolving cybersecurity risks. The loss, disclosure, misappropriation of or access to customers’, employees’ or business partners’ information or the Company’s failure to meet its obligations could result in legal claims or proceedings, liability or regulatory penalties. A significant data breach or the Company’s failure to meet its obligations may adversely affect the Company’s reputation, business, results of operations and financial condition.
future.
The Company relies heavily on technology and automated systems to operate its business and any significant failure or disruption of the technology or these systems could materially harm its business.
The Company depends on automated systems and technology to operate its business, including, but not limited to, computerized airline reservation systems, demand prediction software, flight operations systems, revenue management systems, accounting systems, technical and business operations systems, telecommunication systems and commercial websites and applications, including www.united.com. United’swww.united.com and the United Airlines app. United's website and other automated systems must be able to accommodate a high volume of traffic, maintain secure information and deliver important flight and schedule information, as well as process critical financial transactions. These systems could suffer substantial or repeated disruptions due to various events, some of which are beyond the Company’sCompany's control, including natural disasters, power failures, terrorist attacks, equipment or software failures, computer viruses or cyber security attacks. Substantial or repeated systems failures or disruptions, including failures or disruptions related to the Company’sCompany's complex integration of systems, could reduce the attractiveness of the Company’sCompany's services versus those of its competitors, materially impair its ability to market its services and operate its flights, result in the unauthorized release of confidential or otherwise protected information, result in increased costs, lost revenue and the loss or compromise of important data, and may adversely affect the Company’sCompany's business, operating results and financial condition.
The Company's business relies extensively on third-party service providers, including certain technology providers. Failure of these parties to perform as expected, or interruptions in the Company's relationships with these providers or their provision of services to the Company, could have an adverse effect on the Company's business, operating results and financial condition.
The Company has engaged third-party service providers to perform a large number of functions that are integral to its business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of information technology infrastructure and services, transmitting or uploading of data, provision of aircraft maintenance and repairs, provision of various utilities, performance of aircraft fueling operations and catering services, among other vital functions and services. The Company does not directly control these third-party service providers, although it does enter into agreements that define expected service performance.
Any of these third-party service providers, however, may materially fail to meet its service performance commitments to the Company or may suffer disruptions to its systems that could impact its services. For example, failures in certain third-party technology or communications systems may cause flight delays or cancellations. The failure of any of the Company's third-party service providers to perform its service obligations adequately, or other interruptions of services, may reduce the Company's revenues and increase its expenses, prevent the Company from operating its flights and providing other services to its customers or result in adverse publicity or harm to its brand. In addition, the Company's business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.
The Company may also have disagreements with such providers or such contracts may be terminated or may not be extended or renewed. For example, the number of flight reservations booked through third-party GDSs or online travel agents ("OTAs") may be adversely affected by disruptions in the business relationships between the Company and these suppliers. Such disruptions, including a failure to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the Company's flight information to be limited or unavailable for display by the affected GDS or OTA operator, significantly increase fees for both the Company and GDS/OTA users and impair the Company's relationships with its customers and travel agencies. Any such disruptions or contract terminations may adversely impact our operations and financial results.
If we are not able to negotiate or renew agreements with third-party service providers, or if we renew existing agreements on less favorable terms, our operations and financial results may be adversely affected.
The Company could experience adverse publicity, harm to its brand, reduced travel demand and potential tort liability as a result of an accident, catastrophe or incident involving its aircraft or its operations, the aircraft or operations of its regional carriers, the aircraft or operations of its codeshare partners, or the aircraft or operations of another airline, which may result in a material adverse effect on the Company's business, operating results and financial condition.
An accident, catastrophe or incident involving an aircraft that the Company operates, or an aircraft that is operated by a codeshare partner, one of the Company's regional carriers or another airline, or an incident involving the Company's operations, or the operations of a codeshare partner, one of the Company's regional carriers or of another airline, could have a material adverse effect on the Company if such accident, catastrophe or incident created a public perception that the Company's operations, or the operations of its codeshare partners or regional carriers, are not safe or reliable, or are less safe or reliable than other airlines. Such public perception could, in turn, result in adverse publicity for the Company, cause harm to the Company's brand and reduce travel demand on the Company's flights, or the flights of its codeshare partners or regional carriers.
In addition, any such accident, catastrophe or incident involving the Company, its regional carriers or its codeshare partners could expose the Company to significant tort liability. Although the Company currently maintains liability insurance in amounts and of the type the Company believes to be consistent with industry practice to cover damages arising from any such accident, catastrophe or incident, and the Company's codeshare partners and regional carriers carry similar insurance and generally indemnify the Company for their operations, if the Company's liability exceeds the applicable policy limits or the ability of another carrier to indemnify it, the Company could incur substantial losses from an accident, catastrophe or incident which may result in a material adverse effect on the Company's operating results and financial condition.
Terrorist attacks, international hostilities or other security events, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect the Company and the airline industry.
Terrorist attacks or international hostilities, even if not made on or targeted directly at the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings, travel restrictions, selective cancellation or redirection of flights and new security regulations) could materially and adversely affect the Company and the airline industry. Security events pose a significant risk to our passenger and cargo operations. These events could include acts of violence in public areas that we cannot control. The Company's financial resources may not be sufficient to absorb the
adverse effects of any future terrorist attacks, international hostilities or other security events. Any such events could have a material adverse impact on the Company's financial condition, liquidity and operating results.
Increasing privacy and data security obligations or a significant data breach may adversely affect the Company's business.
The Company is subject to increasing legislative, regulatory and customer focus on privacy issues and data security. Also, a number of the Company's commercial partners, including credit card companies, have imposed data security standards that the Company must meet. These standards continue to evolve. The Company will continue its efforts to meet its privacy and data security obligations; however, it is possible that certain new obligations may be difficult to meet and could increase the Company's costs.
Additionally, the Company must manage evolving cybersecurity risks. Our network systems and storage applications, and those systems and storage and other business applications maintained by our third-party providers, may be subject to attempts to gain unauthorized access, breach, malfeasance or other system disruptions. In some cases, it is difficult to anticipate or to detect immediately such incidents and the damage caused thereby. While we continually work to safeguard our internal network systems and validate the security of our third-party providers, including through information security policies and employee awareness and training, there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches. The loss, disclosure, misappropriation of or access to customers', employees' or business partners' information or the Company's failure to meet its obligations could result in legal claims or proceedings, penalties and remediation costs. A significant data breach or the Company's failure to meet its obligations may adversely affect the Company's reputation, business, operating results and financial condition.
Disruptions to our regional network and United Express flights provided by third-party regional carriers could adversely affect our business, operating results and financial condition.
The Company has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. These regional operations are an extension of the Company's mainline network and complement the Company's operations by carrying traffic that connects to mainline service and allows flights to smaller cities that cannot be provided economically with mainline aircraft. The Company's business and operations are dependent on its regional flight network, with regional capacity accounting for approximately 11% of the Company's total capacity for the year ended December 31, 2018.
Although the Company has agreements with its regional carriers that include contractually agreed performance metrics, each regional carrier is a separately certificated commercial air carrier and the Company does not control the operations of these carriers. A number of factors may impact the Company's regional network, including weather-related effects and seasonality. In addition, the decrease in qualified pilots driven by changes to federal regulations has adversely impacted and could continue to affect the Company's regional flying. For example, the FAA's expansion of minimum pilot qualification standards, including a requirement that a pilot have at least 1,500 total flight hours, as well as the FAA's revised pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations, have contributed to a smaller supply of pilots available to regional carriers. The decrease in qualified pilots resulting from the regulations as well as factors including a decreased student pilot population and a shrinking U.S. military from which to hire qualified pilots, could adversely impact the Company's operations and financial condition, and could also require the Company to reduce regional carrier flying.
If a significant disruption occurs to the Company's regional network or flights or if one or more of the regional carriers with which the Company has relationships is unable to perform their obligations over an extended period of time, there could be a material adverse effect on the Company's business, financial condition and operating results.
Current or future litigation and regulatory actions, or failure to comply with the terms of any settlement, order or arrangement relating to these actions, could have a material adverse impact on the Company.
From time to time, we are subject to litigation and other legal and regulatory proceedings relating to our business or investigations or other actions by governmental agencies, including as described in Part I, Item 3, “Legal Proceedings”Legal Proceedings, of this annual report on Form10-K.report. No assurances can be given that the results of these or new matters will be favorable to us. An adverse resolution of lawsuits, arbitrations, investigations or other proceedings or actions could have a material adverse effect on our financial condition and operating results, of operations, including as a result ofnon-monetary remedies. remedies, and could also result in adverse publicity. Defending ourselves in these matters may be time-consuming, expensive and disruptive to normal business operations and may result in significant expense and a diversion of management’smanagement's time and attention from the operation of our business, which could impede our ability to achieve our business objectives. Additionally, any amount that we may be required to pay to satisfy a judgment, settlement, fine or penalty may not be covered by insurance. If we fail to comply with the terms contained in any settlement, order or agreement with a governmental authority relating to these matters, we could be subject to criminal or civil penalties, which could have a material adverse impact on the Company. Under our charter and certain indemnification agreements that we have entered into (and may in the future enter into) with our officers, directors and certain third parties, we
could be required to indemnify and advance expenses to them in connection with their involvement in certain actions, suits, investigations and other proceedings. There can be no assurance that any of these payments will not be material.
Disruptions
Our significant investments in other airlines, including in other parts of the world, and the commercial relationships that we have with those carriers may not produce the returns or results we expect.
An important part of our strategy to expand our global network includes making significant investments in airlines in other parts of the world and expanding our commercial relationships with these carriers. For example, in November 2018, United entered into a revenue-sharing joint business agreement with Avianca, Copa and several of their respective affiliates, subject to regulatory approval. Concurrently with this transaction, United advanced a loan of $456 million to affiliates of Synergy Aerospace Corporation ("Synergy"), the majority shareholder of Avianca Holdings S.A. ("AVH"), the parent company of Avianca, and entered into certain other related agreements, including a put arrangement with Avianca's significant minority shareholder, Kingsland Holdings Limited ("Kingsland"). The loan is secured by a pledge of Synergy's equity and Synergy's shares of AVH stock, and the loan and other agreements contain several provisions whereby the Company may acquire AVH stock. We also have an equity investment in Azul. See Note 9 to the Company’sfinancial statements included in Part II, Item 8 of this report for additional information regarding our investments in Avianca and Azul.
We also have investments in several domestic regional
network and United Express flights provided by third-party regional carriers could adversely affectairlines. In January 2019, we completed the
Company’s operations and financial condition.The Company has contractual relationships with various regional carriers to provide regional jet and turboprop service brandedacquisition of a 49.9% interest in ManaAir LLC, which, as United Express. These regional operations are an extensionof immediately following the closing of that investment, owns 100% of the Company’s mainline networkequity interests in ExpressJet Airlines, Inc., a domestic regional airline. We also have minority equity interests in CommutAir and complementRepublic Airways Holdings, Inc. See Note 9 to the Company’s operations by carrying traffic that connectsfinancial statements included in Part II, Item 8 of this report for additional information regarding our investments in regional airlines.
We expect to
mainline servicecontinue exploring similar non-controlling investments in, and
allows flights to smaller cities that cannot be provided economicallyentering into JBAs, commercial agreements, loan transactions and strategic alliances with,
mainline aircraft. The Company’sother carriers as part of our regional and global business
strategy. These transactions and
operationsrelationships involve significant challenges and risks. We are dependent on
its regional flightthese other carriers for significant aspects of our network
in the regions in which they operate. While we work closely with
regional capacity accounting for approximately 11%these carriers, each is a separately certificated commercial air carrier and we do not have control over their operations, strategy, management or business methods. These airlines also are subject to a number of the
Company’s total capacitysame risks as
our business, which are described in this Item 1A., Risk Factors, including competitive pressures on pricing, demand and capacity; changes in aircraft fuel pricing; and the impact of
December 31, 2016.Although the Company has agreements with its regional carriers that include contractually agreed performance metrics, the Company does not control theglobal and local political and economic conditions on operations and customer travel patterns, among others.
As a result of these
carriers. A numberand other factors, we may not realize a satisfactory return on our investment, and we may not receive repayment of
factorsany invested or loaned funds. Further, these investments may
not generate the revenue or operational synergies we expect, and they may distract management focus from our operations or other strategic options. Finally, our reliance on these other carriers in the regions in which they operate may negatively impact
the Company’sour regional
network, including weather-related effects and
seasonality. In addition, the decrease in qualified pilots driven by federal regulations has adversely impacted and could continue to affect the Company’s regional flying. For example, the FAA’s expansion of minimum pilot qualification standards, including a requirement that a pilot have at least 1,500 total flight hours, as well as the FAA’s revised pilot flight and duty time rules, effective January 2014, have contributed to a smaller supply of pilots available to regional carriers. The decrease in qualified pilots resulting from the regulations as well as factors including a decreased student pilot population and a shrinking U.S. military from which to hire qualified pilots, could adversely impact the Company’sglobal operations and
financial condition, and also require the Company to reduce regional carrier flying.If a significant disruption occurs to the Company’s regional networkresults if those carriers are impacted by general business risks or flightsperform below our expectations or ifneeds. Any one or more of these events could have a material adverse effect on our operating results or financial condition.
We may also be subject to consequences from any improper behavior of JBA partners, including for failure to comply with anti-corruption laws such as the regionalU.S. Foreign Corrupt Practices Act. Furthermore, our relationships with these carriers may be subject to the laws and regulations of non-U.S. jurisdictions in which these carriers are located or conduct business. Any political or regulatory change in these jurisdictions that negatively impact or prohibit our arrangements with whichthese carriers could have an adverse effect on our operating results or financial condition. To the Company has relationships is unable to perform their obligationsextent that the operations of any of these carriers are disrupted over an extended period of time thereor their actions subject us to the consequences of failure to comply with laws and regulations, our operating results may be adversely affected.
The airline industry may undergo further change with respect to alliances and JBAs or due to consolidations, any of which could behave a material adverse effect on the Company’s business, financial conditionCompany.
The Company faces and
operations.The Company’s business relies extensively on third-party service providers. Failuremay continue to face strong competition from other carriers due to the modification of these partiesalliances and formation of new JBAs. Carriers may improve their competitive positions through airline alliances, slot swaps and/or JBAs. Certain types of airline JBAs further competition by allowing multiple airlines to performcoordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving many of the benefits of consolidation. Open Skies agreements, including the longstanding agreements between the United States and each of the EU, Canada, Japan, Korea, New Zealand, Australia, Colombia and Panama, as expected,well as the more recent agreements between the United States and each of Mexico and Brazil, may also give rise to better integration opportunities among international carriers. Movement of airlines between current global airline alliances could reduce joint network coverage for members of such alliances while also creating opportunities for JBAs and bilateral alliances that did not exist before such realignment. Further airline and airline alliance consolidations or interruptionsreorganizations could occur in the Company’s relationships with these providers or their provision of services to the Company, could have an adverse effect on the Company’s financial position and results of operations.
future. The Company has engaged third-party service providers to perform a large numberroutinely engages in analyses and discussions regarding its own strategic position, including current and potential alliances, asset acquisitions and divestitures and may have future discussions
with other airlines regarding strategic activities. If other airlines participate in such activities, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of
functions that are integral to its business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of information technology infrastructure and services, transmitting or uploading of data, provision of aircraft maintenance and repairs, provision of various utilities and performance of aircraftfueling operations, among other vital functions and services. The Company does not directly control these third-party service providers, although it does enter into agreements with most of them that define expected service performance. Any of these third-party service providers, however, may materially fail to meet their service performance commitments to the Company, may suffer disruptions to their systems that could impact their services, or the agreements with such providers may be terminated. For example, flight reservations booked by customers and travel agencies via third-party GDSs may be adversely affected by disruptions in the business relationships between the Company and GDS operators. Such disruptions, including a failurepotentially impairing the Company's ability to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the Company’s flight information to be limited or unavailable for display, significantly increase fees for both the Company and GDS users and impair the Company’s relationships withrealize expected benefits from its customers and travel agencies. The failure of any of the Company’s third-party service providers to perform their service obligations adequately, or other interruptions of services, may reduce the Company’s revenues and increase its expenses, prevent the Company from operating its flights and providing other services to its customers or result in adverse publicity or harm to its brand. In addition, the Company’s business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.
own strategic relationships.
Orders for new aircraft typically must be placed years in advance of scheduled deliveries, and changes in the
Company’s routeCompany's network
strategy over time may make aircraft on order less economic for the Company,
but anyresult in costs related to modification or termination of
suchaircraft orders
could result in material liabilityor cause the Company to enter into orders for
the Company.new aircraft on less favorable terms.
The
Company’sCompany's orders for new aircraft are typically made years in advance of actual delivery of such aircraft, and the financial commitment required for purchases of new aircraft is substantial. At December 31,
2016,2018, the Company had firm commitments to purchase
257273 new aircraft from The Boeing Company
(“Boeing”("Boeing"), Airbus S.A.S
(“Airbus”("Airbus") and Embraer S.A.
(“Embraer”("Embraer"), as well as related agreements with engine manufacturers, maintenance providers and others.
AtAs of December 31,
2016,2018, the
Company’sCompany's commitments relating to the acquisition of aircraft and related spare engines, aircraft improvements and other related obligations aggregated
$23.6to a total of $24.7 billion.
Subsequent to the Company placing an order for new aircraft, the Company’s routeCompany's network strategy may change, such that the aircraft on order become less economic to operate flights in the Company’s network.change. As a result, the Company’sCompany's preference for a particular aircraft that it has ordered, often years in advance, may be decreased or eliminated. If the Company were to seek to modify or terminate any of its existing aircraft order commitments, it may be responsible for material obligationsliabilities to its counterparties arising from any such change. However,Additionally, the Company expectsmay have a need for additional aircraft that anyare not available under its existing orders. In such change that it makescases, the Company may seek to acquire aircraft from other sources, such as through lease arrangements, which may result in higher costs or less favorable terms, or through the purchase or lease of used aircraft. The Company may not be able to acquire such aircraft when needed on favorable terms or at all.
A majority of the Company's aircraft and certain parts are sourced from single suppliers; therefore, the Company would be materially and adversely affected if it were unable to obtain additional equipment or support from any of these suppliers.
The Company currently sources the majority of its aircraft and many related aircraft parts from Boeing. In addition, our aircraft suppliers are dependent on other suppliers for certain other aircraft parts. Therefore, if the Company was unable to acquire additional aircraft from Boeing, or if Boeing was unable or unwilling to make timely deliveries of aircraft or to provide adequate support for its products, the Company's operations could be materially and adversely affected. The Company is also dependent on a limited number of suppliers for aircraft engines and certain other aircraft parts and could therefore also be materially and adversely affected in the
long-term best economic interestevent of the
Company.Theunavailability of these engines and other parts.
Union disputes, employee strikes or slowdowns, and other labor-related disruptions could adversely affect the Company's operations and could result in increased costs that impair its financial performance.
United is a highly unionized company. As of December 31, 2018, the Company could experience adverse publicity, harm toand its brand, reduced travel demand and potential tort liabilitysubsidiaries had approximately 92,000 active employees, of whom approximately 83% were represented by various U.S. labor organizations.
There is a risk that unions or individual employees might pursue judicial or arbitral claims arising out of changes implemented as a result of
an accident, catastrophe, or incident involving its aircraft, the aircraft of its regional carriers or the aircraft of its codeshare partners, which may result in a material adverse effect on the Company’s results of operations or financial position.An accident, catastrophe, or incident involving an aircraft that the Company operates,entering into collective bargaining agreements with its represented employee groups. There is also a possibility that employees or unions could engage in job actions such as slowdowns, work-to-rule campaigns, sick-outs or other actions designed to disrupt the Company's normal operations, in an aircraft that is operated byattempt to pressure the Company in collective bargaining negotiations. Although the RLA makes such actions unlawful until the parties have been lawfully released to self-help, and the Company can seek injunctive relief against premature self-help, such actions can cause significant harm even if ultimately enjoined. In addition, collective bargaining agreements with the Company's represented employee groups increase the Company's labor costs, which increase could be material for any applicable reporting period.
An outbreak of a codeshare partnerdisease or one of the Company’s regional carriers,similar public health threat could have a material adverse effectimpact on the Company if such accident, catastrophe,Company's business, operating results and financial condition.
An outbreak of a disease or
incident created asimilar public
perceptionhealth threat that
the Company’s operations, or the operations of its codeshare partners or regional carriers, are not safe or reliable, or are less safe or reliable than other airlines. Such public perception could in turn result in adverse publicity for the Company, cause harm to the Company’s brand and reduceaffects travel demand,
on the Company’s flights,travel behavior, or
the flights of its codeshare partners or regional carriers.In addition, any such accident, catastrophe, or incidenttravel restrictions could expose the Company to significant tort liability. Although the Company currently maintains liability insurance in amounts and of the type the Company believes to be consistent with industry practice to cover damages arising from any such accident or catastrophe, and the Company’s codeshare partners and regional carriers carry similar insurance and generally indemnify the
Company for their operations, if the Company’s liability exceeds the applicable policy limits or the ability of another carrier to indemnify it, the Company could incur substantial losses from an accident, catastrophe or incident which may result inhave a material adverse effectimpact on the Company’s results of operations orCompany's business, financial position.
condition and operating results.
If we experience changes in, or are unable to retain, our senior management team or other key employees, our operating results could be adversely affected.
Much of our future success depends on the continued availability of skilled personnel with industry experience and knowledge, including our senior management team and other key employees. If we are unable to attract and retain talented, highly qualified senior management and other key employees, or if we are unable to effectively provide for the succession of senior management, our business may be adversely affected.
High and/
Extended interruptions or volatile fuel prices or significant disruptions in the supply of aircraft fuelservice at major airports where we operate could have a material adverse impact on our operations.
The airline industry is heavily dependent on business models that concentrate operations in major airports in the
Company’s strategic plans, operating results, financial positionUnited States and
liquidity.Aircraft fuel is critical to the Company’s operations and is one of its single largest operating expenses. The timely and adequate supply of fuel to meet operational demand depends on the continued availability of reliable fuel supply sources, as well as related service and delivery infrastructure. Although the Company has some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations, it can neither predict nor guarantee the continued timely availability of aircraft fuel throughout the Company’s system. The Company generally sources fuelworld. An extended interruption or disruption at prevailing market prices.
Aircraft fuel has historically been the Company’s most volatile operating expense due to the highly unpredictable nature of market prices for fuel. Market prices for aircraft fuelan airport where we have historically fluctuated substantially in short periods of time and continue to be highly volatile due a dependence on a multitude of unpredictable factors beyond the Company’s control. These factors include changes in global crude oil prices, the balance between aircraft fuel supply and demand, natural disasters, prevailing inventory levels and fuel production and transportation infrastructure. Prices of fuel are also impacted by indirect factors that may potentially impact fuel supply or demand balance, such as geopolitical events, economic growth indicators, fiscal/monetary policies, fuel tax policies, environmental concerns and financial investments in energy markets. Both actual changes in these factors, as well as changes in market expectations of these factors can potentially drive rapid changes in fuel price levels in short periods of time.
Given the highly competitive nature of the airline industry, the Company may not be able to increase its fares and fees sufficiently to offset the full impact of increases in fuel prices, especially if these increases are significant rapid and sustained. Further, such fare and fee increases may not be sustainable, may reduce the general demand for air travel and may also eventually impact the Company’s strategic growth and investment plans for the future. In addition, decreases in fuel prices for an extended period of time may result in increased industry capacity, increased competitive actions for market share and lower fares or surcharges in general. If fuel prices were to then subsequently rise quickly, there may be a lag between the rise in fuel prices and any improvement of the revenue environment.
To protect against increases in the market prices of fuel, the Company may hedge a portion of its future fuel requirements. However, the Company’s hedging program may not be successful in mitigating higher fuel costs, and any price protection provided may be limited due to choice of hedging instruments and market conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge counterparties. To the extent that the Company decides to hedge a portion of its future fuel requirements and uses hedge contracts that have the potential to create an obligation to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit the Company’s ability to benefit fully from lower fuel costs in the future. If fuel prices decline significantly from the levels existing at the time the Company enters into a hedge contract, the Company may be required to post collateral (margin) beyond certain thresholds. There can be no assurance that the Company’s hedging arrangements will provide any particular level of protection against
rises in fuel prices or that its counterparties will be able to perform under the Company’s hedging arrangements. Additionally, deterioration in the Company’s financial condition could negatively affect its ability to enter into new hedge contracts in the future.
See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on the Company’s hedging activities.
Union disputes, employee strikes or slowdowns, and other labor-related disruptions could adversely affect the Company’s operations and could result in increased costs that impair its financial performance.
United is a highly unionized company. As of December 31, 2016, the Company and its subsidiaries had approximately 88,000 active employees, of whom approximately 80% were represented by various U.S. labor organizations.
There is a risk that unions or individual employees might pursue judicial or arbitral claims arising out of changes implemented as a result of the Company entering into collective bargaining agreements with its represented employee groups. There is also a possibility that employees or unions could engage in job actions such as slowdowns,work-to-rule campaigns, sick-outs or other actions designed to disrupt the Company’s normal operations, in an attempt to pressure the Company in collective bargaining negotiations. Although the RLA makes such actions unlawful until the parties have been lawfully released to self-help, and the Company can seek injunctive relief against premature self-help, such actions can cause significant harm even if ultimately enjoined. In addition, collective bargaining agreements with the Company’s represented employee groups increase the Company’s labor costs, which increase could be material for any applicable reporting period.
See Notes 15 and 16 to the financial statements included in Part II, Item 8 of this report for additional information on labor negotiations and costs.
An outbreak of a disease or similar public health threat could have a material adverse impact on the Company’s business, financial position and results of operations.
An outbreak of a disease or similar public health threat that affects travel demand or travel behavior, or travel restrictions or reduction in the demand for air travel caused by an outbreak of a disease or similar public health threat in the future, could have a material adverse impact on the Company’sour business, financial condition and results of operations.
Extensiveoperation.
We operate principally through our domestic hubs in at Newark, Chicago O'Hare, Denver, Houston Bush, LAX, Guam, SFO and Washington Dulles. Substantially all of our flights either originate in or fly into one of these locations. A significant interruption or disruption in service at one of our hubs or other airports where we have a significant presence resulting from ATC delays, weather conditions, natural disasters, growth constraints, relations with third-party service providers, failure of computer systems, disruptions to government agencies or personnel, disruptions at airport facilities or other key facilities used by us to manage our operations, labor relations, power supplies, fuel supplies, terrorist activities, international hostilities or otherwise could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a material impact on our business, operating results and financial condition. We have minimal control over the operation, quality or maintenance of these services or whether vendors will improve or continue to provide services that are essential to our business.
The airline industry is subject to extensive government regulation,
could increase the Company’s operatingwhich imposes significant costs and
restrict its ability to conduct its business.may adversely impact our business, operating results and financial condition.
Airlines are subject to extensive regulatory and legal oversight. Compliance with U.S. and international regulations imposes significant costs and may have adverse effects on the Company. Laws, regulations, taxes and airport rates and charges, both domestically and internationally, have been proposed from time to time that could significantly increase the cost of airline operations or reduce airline revenue.
United provides air transportation under certificates of public convenience and necessity issued by the DOT. If the DOT altered, amended, modified, suspended or revoked these certificates, it could have a material adverse effect on the
Company’sCompany's business. The FAA regulates the safety of
United’sUnited's operations. United operates pursuant to an air carrier operating certificate issued by the FAA.
In January 2014, the FAA’s moreThe FAA's regulations include stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations,
took effect, which has increased costs for all carriers. In July 2014,as well as minimum qualifications
took effect for air carrier first officers. These regulations
will continue to impact the industry and the Company for years to come, as they have caused mainline airlines to hire regional pilots, while simultaneously significantly reducing the pool of new pilots from which regional carriers themselves can hire. Although this is an industry issue, it directly affects the Company and
requireshas required it to reduce regional partner flying, as several regional partners have experienced difficulty flying their schedules due to reduced pilot availability. From time to time, the FAA also issues orders, airworthiness
directives and other regulations relating to the maintenance and operation of aircraft that require material expenditures or operational restrictions by the Company. These FAA orders and directives could include the temporary grounding of an entire aircraft type if the FAA identifies design, manufacturing, maintenance or other issues requiring immediate corrective action. These FAA directives or requirements could have a material adverse effect on the Company.
In addition,2018, the Company’sU.S. Congress approved a five-year reauthorization for the FAA, which encompasses significant aviation tax and policy-related issues. The law includes a range of policy changes related to airline customer service and aviation safety which, depending on how they are implemented, could impact our operations and costs. Additionally, the U.S. Congress may fail to continue to fund the operations of one or more federal government agencies which could negatively impact the Company and the airline industry.
The Company's operations may
also be adversely impacted due to the existing antiquated ATC system utilized by the U.S.
government.government and regulated by the FAA. During peak travel periods in certain markets, the current ATC
system’ssystem's inability to handle
ATC demand has led to short-term capacity constraints imposed by government agencies and resulted in delays and disruptions of air traffic. In addition, the current system will not be able to effectively handle projected future air traffic growth.
The outdated technologies also cause the ATC to be less resilient in the event of a failure, causing flight cancellations and delays. Imposition of these ATC constraints on a long-term basis may have a material adverse effect on the
Company’sCompany's operations. Failure to update the ATC system in a timely manner, and the substantial funding requirements of a modernized ATC system that may be imposed on air carriers may have an adverse impact on the
Company’sCompany's financial condition or
results of operations.operating results.
Access to landing andtake-off rights, or “slots,”"slots," at several major U.S. airports and many foreign airports served by the Company are, or recently have been, subject to government regulation. Certain of the Company’sCompany's major hubs are among the most congested airports in the United States and have been or could be the subject of regulatory action that might limit the number of flights and/or increase costs of operations at certain times or throughout the day. The FAA may limit the Company’s Company's
airport access by limiting the number of departure and arrival slots at high density traffic airports, which could affect the
Company’sCompany's ownership and transfer rights, and local airport authorities may have the ability to control access to certain facilities or the cost of access to their facilities, which could have an adverse effect on the
Company’sCompany's business. The FAA historically has taken actions with respect to
airlines’airlines' slot holdings that airlines have challenged; if the FAA were to take actions that adversely affect the
Company’sCompany's slot holdings, the Company could incur substantial costs to preserve its slots or may lose slots. If slots are eliminated at an airport, or if the number of hours of operation governed by slots is reduced at an airport, the lack of controls on takeoffs and landings could result in greater congestion both at the affected airport or in the regional airspace (e.g., the New York City metropolitan region airspace) and could significantly impact the
Company’sCompany's operations. Further, the
Company’sCompany's operating costs at airports, including the
Company’sCompany's major hubs, may increase significantly because of capital improvements at such airports that the Company may be required to fund, directly or indirectly. Such costs could be imposed by the relevant airport authority without the
Company’sCompany's approval and may have a material adverse effect on the
Company’sCompany's financial condition.
The ability of carriers to operate flights on international routes between the United States and other countries
may be subject to change.is highly regulated. Applicable arrangements between the United States and foreign governments may be amended from time to time, government policies with respect to airport operations may be revised, and the availability of appropriate slots or facilities may change. The Company currently operates a number of flights on international routes under government arrangements, regulations or policies that designate the number of carriers permitted to operate on such routes, the capacity of the carriers providing services on such routes, the airports at which carriers may operate international flights, or the number of carriers allowed access to particular airports. Any
further limitations, additions or modifications to such arrangements, regulations or policies could have a material adverse effect on the
Company’sCompany's financial
positioncondition and
results of operations.operating results. Additionally, a change in law, regulation or policy for any of the
Company’sCompany's international routes, such as Open Skies, could have a material adverse impact on the
Company’sCompany's financial
positioncondition and
operating results
of operations and could result in the impairment of material amounts of related tangible and intangible assets. In addition, competition from revenue-sharing
joint venturesJBAs and other alliance arrangements by and among other airlines could impair the value of the
Company’sCompany's business and assets on the Open Skies routes. The
Company’sCompany's plans to enter into or expand U.S. antitrust immunized alliances and
joint venturesJBAs on various international routes are subject to receipt of approvals from applicable U.S. federal authorities and obtaining other applicable foreign government clearances or satisfying the necessary applicable regulatory requirements. There can be no assurance that such approvals and clearances will be granted or will continue in effect upon further regulatory review or that changes in regulatory requirements or standards can be satisfied.
See Part I, Item 1, Business—Industry Regulation, of this report for additional information on government regulation impacting the Company.
We are subject to many forms of environmental regulation and liability and risks associated with climate change, and may incur substantial costs as a result.
Many aspects of the Company’sCompany's operations are also subject to increasingly stringent federal, state, local and international laws protecting the environment. Futureenvironment, including those relating to emissions to the air, water discharges, safe drinking water and the use and management of hazardous materials and wastes. Compliance with existing and future environmental regulatory developments,laws and regulations can require significant expenditures and violations can lead to significant fines and penalties. In addition, from time to time we are identified as a responsible party for environmental investigation and remediation costs under applicable environmental laws due to the disposal of hazardous substances generated by our operations. We could also be subject to environmental liability claims from various parties, including airport authorities, related to our operations at our leased premises or the off-site disposal of waste generated at our facilities.
We may incur substantial costs as a result of changes in weather patterns due to climate change. Increases in the frequency, severity or duration of severe weather events such as thunderstorms, hurricanes, flooding, typhoons, tornados and other severe weather events could result in increases in delays and cancellations, turbulence-related injuries and fuel consumption to avoid such weather, any of which could result in significant loss of revenue and higher costs.
To address climate change regulationsrisks, CORSIA has been developed by ICAO, a UN specialized agency. CORSIA is intended to create a single global market-based measure to achieve carbon-neutral growth for international aviation after 2020 through airline purchases of carbon offset credits. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the United Statesresults of the pilot phase of the program, and abroad could adversely affect operations andthus the impact of CORSIA cannot be fully predicted. However, CORSIA is expected to increase operating costs in the airline industry. for airlines that operate internationally.
In addition thereto CORSIA, the EPA had begun preliminary work to adopt its own aircraft engine GHG emission standards which were expected to be aligned with recent ICAO carbon dioxide emission standards. The timing of any U.S. EPA aircraft engine GHG emission standards is currently unknown, but some jurisdictions in which United operates have adopted or are considering GHG emission reduction initiatives, which could impact various aspects of the potential for additional regulatory actions in regard to the emission of GHGs by the aviation industry.Company's business. The precise
nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation industry would likely be adverse and could be significant.
In 2017, the U.S. Congress will continue to consider legislation to reauthorize the FAA, which encompasses all significant aviation tax and policy related issues. As with previous reauthorization legislation, the U.S. Congress may consider a range of policy changes that could impact the Company’s operations and costs.
See Part I, Item 1,
Business—IndustryBusiness-Industry Regulation-Environmental Regulation, of this report for additional information on
governmentenvironmental regulation impacting the Company.
The airline industryUnited Kingdom's withdrawal from the EU may undergo further change with respectadversely impact our operations in the United Kingdom and elsewhere.
In June 2016, United Kingdom ("UK") voters approved an advisory referendum for the UK to
alliances and joint ventures or dueexit the EU. The UK parliament voted in favor of allowing the government to
consolidations, any of which could have a material adverse effect oncommence negotiations to determine the
Company.The Company faces and may continue to face strong competition from other carriers due to the modification of alliances and formation of new joint ventures. Carriers may improve their competitive positions through airline alliances, slot swaps and/or joint ventures. Certain types of airline joint ventures further competition by allowing multiple airlines to coordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving manyfuture terms of the benefits of consolidation. “Open Skies” agreements,UK's relationship with the EU, including the agreementsterms of trade between the United StatesUK and the EU and other nations. The timing of the proposed exit is currently scheduled for March 29, 2019, with a transition period potentially running through December 2020. A withdrawal plan was presented to the UK parliament in January 2019 and rejected, creating further uncertainty in negotiations and the process of withdrawal.
Depending on the outcome of these negotiations, we could face new challenges in our operations, such as instability in global financial and foreign exchange markets. This instability could include volatility in the value of the British pound and European euro, additional travel restrictions on passengers traveling between the United StatesUK and Japan,other EU countries, changes to the legal status of EU-resident employees, legal uncertainty and potentially divergent national laws and regulations. At this time, we cannot predict the impact that an actual exit from the EU will have on our business generally and our UK and European operations more specifically, and no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result.
The Company's operating results fluctuate due to seasonality and other factors associated with the airline industry, many of which are beyond the Company's control.
Due to greater demand for air travel during the spring and summer months, revenues in the airline industry in the second and third quarters of the year are generally stronger than revenues in the first and fourth quarters of the year, which are periods of lower travel demand. The Company's operating results generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal, including, among others, extreme or severe weather, outbreaks of disease or pandemics, ATC congestion, geological events, political instability, terrorism, natural disasters, changes in the competitive environment due to industry consolidation, tax obligations, general economic conditions and other factors. As a result, the Company's quarterly operating results are not necessarily indicative of operating results for an entire year and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.
Increases in insurance costs or inadequate insurance coverage may also give risematerially and adversely impact our business, operating results and financial condition.
The Company could be exposed to better integration opportunities among international carriers. Movement of airlines between current global airline alliances could reduce joint network coverage for memberssignificant liability or loss if its property or operations were to be affected by a natural catastrophe or other event, including aircraft accidents. The Company maintains insurance policies, including, but not limited to, terrorism, aviation hull and liability, workers' compensation and property and business interruption insurance, but we are not fully insured against all potential hazards and risks incident to our business. If the Company is unable to obtain sufficient insurance with acceptable terms, the costs of such alliances while also creating opportunities for joint venturesinsurance increase materially, or if the coverage obtained is insufficient relative to actual liability or losses that the Company experiences, whether due to insurance market conditions, policy limitations and bilateral alliances that did not exist before such realignment. There is ongoing speculation that further airlineexclusions or otherwise, its operating results and airline alliance consolidations or reorganizationsfinancial condition could occur in the future, especially if new “Open Skies” agreements between Brazilbe materially and the United States are fully implemented. adversely affected.
The Company
routinely engages in analysishas a significant amount of financial leverage from fixed obligations, and
discussions regarding its own strategic position, including current and potential alliances, asset acquisitions and divestitures and may have future discussions with other airlines regarding strategic activities. If other airlines participate in such activities, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of the Company and potentially impairing the Company’s ability to realize expected benefits from its own strategic relationships.Insufficientinsufficient liquidity may have a material adverse effect on the Company’sCompany's financial positioncondition and business.
The Company has a significant amount of financial leverage from fixed obligations, including aircraft lease and debt financings, leases of airport property and other facilities, and other material cash obligations. In addition, the Company has substantial noncancelable commitments for capital expenditures, including for the acquisition of new aircraft and related spare engines.
Although the
Company’sCompany's cash flows from operations and its available capital, including the proceeds from financing transactions, have been sufficient to meet these obligations and commitments to date, the
Company’sCompany's future liquidity could be negatively affected by the risk factors discussed in this
Item 1A., including, but not limited to, substantial volatility in the price of fuel, adverse economic conditions, disruptions in the global capital markets and catastrophic external events.report. If the Company’sCompany's liquidity is materially diminished, due to the various risk factors noted in this Item 1A. or otherwise, the Company might not be able to timely pay its leases and debts or comply with certain operating and financial covenants under its financing and credit card processing agreements or with other material provisions of its contractual obligations. Certain of these covenants require the Company or United, as applicable, to maintain minimum liquidity and/or minimum collateral coverage ratios.
The
Company’s or United’s ability to comply with these covenants may be affected by events beyond its control, including the overall industry revenue environment, the level of fuel costs and the appraised value of the collateral.If the Company does not timely pay its leases and debts or comply with such covenants, a variety of adverse consequences could result. These potential adverse consequences include an increase of required reserves under credit card processing agreements, withholding of credit card sale proceeds by its credit card service providers, loss of undrawn lines of credit, the occurrence of one or more events of default under the relevant agreements, the acceleration of the maturity of debt and/or the exercise of other remedies by its creditors and equipment lessors that could result in a material adverse effect on the Company’s financial position and results of operations. The Company cannot provide assurance that it would have sufficient liquidity to repay or refinance such debt if it were accelerated. In addition, an event of default or acceleration of debt under certain of its financing agreements could result in one or more events of default under certain of the Company’s other financing agreements due to cross default and cross acceleration provisions.
Furthermore, insufficient liquidity may limit the Company’s ability to withstand competitive pressures and downturns in the travel business and the economy in general.
The Company’sCompany's substantial level of indebtedness andnon-investment grade credit rating, as well as market conditions and the availability of assets as collateral for loans or other indebtedness, may make it difficult for the Company to raise additional capital if needed to meet its liquidity needs on acceptable terms, or at all.
In addition, our variable rate indebtedness may use
London interbank offered rates ("LIBOR") as a benchmark for establishing the rate. As announced in July 2017, LIBOR is expected to be phased out by the end of 2021. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely impact the availability and cost of borrowings.
See Part II, Item 7,
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations, of this report for additional information regarding the
Company’sCompany's liquidity.
Increases
Agreements governing our debt include financial and other covenants. Failure to comply with these covenants could result in insurance costsevents of default.
Our financing agreements include various financial and other covenants. Certain of these covenants require UAL or
reductions in insuranceUnited, as applicable, to maintain minimum liquidity and/or minimum collateral coverage
may materially and adversely impact the Company’s results of operations and financial condition.The Company could be exposedratios. UAL's or United's ability to significant liability or loss if its property or operations were tocomply with these covenants may be affected by a natural catastrophe orevents beyond its control, including the overall industry revenue environment, the level of fuel costs and the appraised value of the collateral. In addition, our financing agreements contain other event, including aircraft accidents.negative covenants customary for such financings. These covenants are subject to important exceptions and qualifications. If the Company iswe fail to comply with these covenants and are unable to remedy or obtain sufficient insurance (including but not limiteda waiver or amendment, an event of default would result.
If an event of default were to
terrorism, aviation hulloccur, the lenders could, among other things, declare outstanding amounts due and
liability, workers’ compensation and property and business interruption insurance) with acceptable termspayable. In addition, an event of default or
if the coverage obtained is insufficient relative to actual liability or losses that the Company experiences, whetherdeclaration of acceleration under one financing agreement could also result in an event of default under other of our financing agreements due to
insurance market conditionscross-default and cross-acceleration provisions. The acceleration of significant amounts of debt could require us to renegotiate, repay or
otherwise, its results of operations and financial condition could be materially and adversely affected.The Company’s results of operations fluctuate due to seasonality and other factors associated withrefinance the airline industry.
Due to greater demand for air travel during the spring and summer months, revenues in the airline industry in the second and third quarters of the year are generally stronger than revenues in the first and fourth quarters of the year, which are periods of lower travel demand. The Company’s results of operations generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal including, among others, the imposition of excise and similar taxes, extreme or severe weather, ATC congestion, geological events, natural disasters, changes in the competitive environment due to industry consolidation, general economic conditions and other factors. As a result, the Company’s quarterly operating results are not necessarily indicative of operating results for an entire year and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.
obligations under our financing arrangements.
The Company may never realize the full value of its intangible assets or its long-lived assets causing it to record impairments that may negatively affect its financial
positioncondition and
results of operations.operating results.
In accordance with applicable accounting standards, the Company is required to test its indefinite-lived intangible assets for impairment on an annual basis, or more frequently
if conditions indicate thatwhere there is an
impairment may have occurred.indication of impairment. In addition, the Company is required to test certain of its other assets for impairment
if conditions indicatewhere there is any indication that an
impairmentasset may
have occurred.be impaired.
The Company may be required to recognize
impairmentslosses in the future due to, among other factors, extreme fuel price volatility, tight credit markets,
agovernment regulatory changes, decline in the fair
valuevalues of certain tangible or intangible assets,
such as aircraft, route authorities, airport slots and frequent flyer database, unfavorable trends in historical or forecasted results of operations and cash flows and an uncertain economic environment, as well as other uncertainties. The Company can provide no assurance that a material impairment chargeloss of tangible or intangible assets will not occur in a future period. The value of the Company’sCompany's aircraft could be impacted in future periods by changes in supply and demand for these aircraft. Such changes in supply and demand for certain aircraft types could result from grounding of aircraft by the Company or other carriers. An impairment chargeloss could have a material adverse effect on the Company’sCompany's financial positioncondition and results of operations.
The Company’s ability to use its net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of UAL common stock, or if taxable income does not reach sufficient levels.
As of December 31, 2016, UAL reported consolidated federal net operating loss (“NOL”) carryforwards of approximately $4.4 billion.
The Company’s ability to use its NOL carryforwards may be limited if it experiences an “ownership change” as defined in Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended. An ownership change generally occurs if certain stockholders increase their aggregate percentage ownership of a corporation’s stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-year period preceding any potential ownership change.
There is no assurance that the Company will not experience a future ownership change under Section 382 that may significantly limit or possibly eliminate its ability to use its NOL carryforwards. Potential future transactions involving the sale or issuance of UAL common stock, including the exercise of conversion options under the terms of any convertible debt that UAL may issue in the future, the repurchase of such debt with UAL common stock, any issuance of UAL common stock for cash, and the acquisition or disposition of such stock by a stockholder owning 5% or more of UAL common stock, or a combination of such transactions, may increase the possibility that the Company will experience a future ownership change under Section 382.
Under Section 382, a future ownership change would subject the Company to additional annual limitations that apply to the amount ofpre-ownership change NOLs that may be used to offset post-ownership change taxable income. This limitation is generally determined by multiplying the value of a corporation’s stock immediately before the ownership change by the applicable long-termtax-exempt rate. Any unused annual limitation may, subject to certain limits, be carried over to later years, and the limitation may under certain circumstances be increased bybuilt-in gains in the assets held by such corporation at the time of the ownership change. This limitation could cause the Company’s U.S. federal income taxes to be greater, or to be paid earlier, than they otherwise would be, and could cause all or a portion of the Company’s NOL carryforwards to expire unused. Similar rules and limitations may apply for state income tax purposes. The Company’s ability to use its NOL carryforwards will also depend on the amount of taxable income it generates in future periods. Its NOL carryforwards may expire before the Company can generate sufficient taxable income to use them in full.
Our significant investments in airlines in other parts of the world and the commercial relationships that we have with those carriers may not produce the returns or results we expect.
An important part of our strategy to expand our global network includes making significant investments in airlines in other parts of the world and expanding our commercial relationships with these carriers. In 2015, we made a $100 million investment in Azul Linhas Aéreas Brasileiras S.A. (“Azul”) and enhanced our commercial arrangements with Azul. We expect to continue exploring similarnon-controlling investments in, and entering into joint ventures, commercial agreements, loan transactions and strategic alliances with, other carriers as part of our global business strategy. These transactions and relationships (including our strategic partnership with, and investment in, Azul) involve significant challenges and risks, including that we may not realize a satisfactory return on our investment, that we may not receive repayment of invested funds, that they may distract
management from our operations or that they may not generate the expected revenue synergies. These events could have a material adverse effect on our operating results or financial condition.
In addition, we are dependent on these other carriers for significant aspects of our network in the regions in which they operate. While we work closely with these carriers, we do not have control over their operations or business methods. We may be subject to consequences from any improper behavior of joint venture partners, including for failure to comply with anti-corruption laws such as the United States Foreign Corrupt Practices Act. Furthermore, our relationships with these carriers may be subject to the laws and regulations ofnon-U.S. jurisdictions in which these carriers are located or conduct business. Any political or regulatory change in these jurisdictions that negatively impact or prohibit our arrangements with these carriers could have an adverse effect on our results of operations or financial condition. To the extent that the operations of any of these carriers are disrupted over an extended period of time or their actions subject us to the consequences of failure to comply with laws and regulations, our results of operations may be adversely affected.
results.
| |
| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
Fleet
FleetIncluding aircraft operated by United’sUnited's regional carriers, United’sUnited's fleet consisted of 1,2311,329 aircraft as of December 31, 2016,2018, the details of which are presented in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | | |
Aircraft Type | | Total | | | Owned | | | Leased | | | | | | Seats in Standard
Configuration | | | Average Age (In
Years) | |
Mainline: | | | | | | | | | | | | | | | | | | | | | | | | |
747-400 | | | 20 | | | | 15 | | | | 5 | | | | | | | | 374 | | | | 20.9 | |
777-300ER | | | 2 | | | | 2 | | | | — | | | | | | | | 366 | | | | — | |
777-200ER | | | 55 | | | | 38 | | | | 17 | | | | | | | | 267-269 | | | | 16.8 | |
777-200 | | | 19 | | | | 19 | | | | — | | | | | | | | 266-364 | | | | 19.5 | |
787-9 | | | 18 | | | | 18 | | | | — | | | | | | | | 252 | | | | 1.4 | |
787-8 | | | 12 | | | | 12 | | | | — | | | | | | | | 219 | | | | 3.5 | |
767-400ER | | | 16 | | | | 14 | | | | 2 | | | | | | | | 242 | | | | 15.3 | |
767-300ER | | | 35 | | | | 22 | | | | 13 | | | | | | | | 183-214 | | | | 21.5 | |
757-300 | | | 21 | | | | 9 | | | | 12 | | | | | | | | 213 | | | | 14.3 | |
757-200 | | | 56 | | | | 47 | | | | 9 | | | | | | | | 142-169 | | | | 19.9 | |
737-900ER | | | 136 | | | | 136 | | | | — | | | | | | | | 167-179 | | | | 4.0 | |
737-900 | | | 12 | | | | 8 | | | | 4 | | | | | | | | 167-179 | | | | 15.3 | |
737-800 | | | 137 | | | | 64 | | | | 73 | | | | | | | | 154-166 | | | | 13.2 | |
737-700 | | | 40 | | | | 14 | | | | 26 | | | | | | | | 118-126 | | | | 17.8 | |
A320-200 | | | 97 | | | | 57 | | | | 40 | | | | | | | | 150 | | | | 18.5 | |
A319-100 | | | 61 | | | | 47 | | | | 14 | | | | | | | | 128 | | | | 16.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total mainline | | | 737 | | | | 522 | | | | 215 | | | | | | | | | | | | 13.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Aircraft Type | | Capacity
Purchase
Agreement
Total | | | Owned | | | Leased | | | Owned or
Leased by
Regional
Carrier | | | Regional Carrier
Operator and
Number of
Aircraft | | | Seats in Standard
Configuration | |
Regional: | | | | | | | | | | | | | | | | | | | | | | | | |
Embraer E175 | | | 118 | | | | 30 | | | | — | | | | 88 | | |
| SkyWest: 54
Mesa: 48
Republic: 16 |
| | | 76 | |
Embraer 170 | | | 38 | | | | — | | | | — | | | | 38 | | |
| Republic: 34
Shuttle: 4 |
| | | 70 | |
CRJ700 | | | 79 | | | | — | | | | — | | | | 79 | | |
| SkyWest: 34
GoJet: 25
Mesa: 20 |
| | | 70 | |
CRJ200 | | | 50 | | | | — | | | | 29 | | | | 21 | | | | SkyWest: 50 | | | | 50 | |
Embraer ERJ 145 (XR/LR/ER) | | | 183 | | | | 16 | | | | 167 | | | | — | | |
| ExpressJet: 139
Trans States: 34
CommutAir: 10 |
| | | 50 | |
Q300 | | | 5 | | | | — | | | | — | | | | 5 | | | | CommutAir: 5 | | | | 50 | |
Embraer ERJ 135 | | | 5 | | | | — | | | | 5 | | | | — | | | | ExpressJet: 5 | | | | 37 | |
Q200 | | | 16 | | | | — | | | | — | | | | 16 | | | | CommutAir: 16 | | | | 37 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total regional | | | 494 | | | | 46 | | | | 201 | | | | 247 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,231 | | | | 568 | | | | 416 | | | | 247 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Aircraft Type | | Total | | Owned | | Leased | | | | Seats in Standard Configuration | | Average Age (In Years) |
| Mainline: | | | | | | | | | | | | | |
| 777-300ER | | 18 |
| | 18 |
| | — |
| | | | 350-366 | | | 1.5 |
|
| 777-200ER | | 55 |
| | 46 |
| | 9 |
| | | | 269-274 | | | 18.8 |
|
| 777-200 | | 19 |
| | 19 |
| | — |
| | | | 364 | | | 21.5 |
|
| 787-10 | | 3 |
| | 3 |
| | — |
| | | | 318 | | | 0.1 |
|
| 787-9 | | 25 |
| | 25 |
| | — |
| | | | 252 | | | 2.8 |
|
| 787-8 | | 12 |
| | 12 |
| | — |
| | | | 219 | | | 5.5 |
|
| 767-400ER | | 16 |
| | 14 |
| | 2 |
| | | | 242 | | | 17.3 |
|
| 767-300ER | | 38 |
| | 25 |
| | 13 |
| | | | 167-214 | | | 22.9 |
|
| 757-300 | | 21 |
| | 9 |
| | 12 |
| | | | 213-234 | | | 16.3 |
|
| 757-200 | | 56 |
| | 50 |
| | 6 |
| | | | 142-169 | | | 22.8 |
|
| 737 MAX 9 | | 9 |
| | 9 |
| | — |
| | | | 179 | | | 0.4 |
|
| 737-900ER | | 136 |
| | 136 |
| | — |
| | | | 179 | | | 6.0 |
|
| 737-900 | | 12 |
| | 8 |
| | 4 |
| | | | 179 | | | 17.3 |
|
| 737-800 | | 141 |
| | 90 |
| | 51 |
| | | | 166 | | | 14.8 |
|
| 737-700 | | 40 |
| | 25 |
| | 15 |
| | | | 126 | | | 19.8 |
|
| A320-200 | | 99 |
| | 70 |
| | 29 |
| | | | 150 | | | 20.3 |
|
| A319-100 | | 70 |
| | 55 |
| | 15 |
| | | | 128 | | | 17.6 |
|
| Total mainline | | 770 |
| | 614 |
| | 156 |
| | | | | | | 15.1 |
|
| Aircraft Type | | Capacity Purchase Agreement Total | | Owned | | Leased | | Owned or Leased by Regional Carrier | | Regional Carrier Operator and Number of Aircraft | | Seats in Standard Configuration |
| Regional: | | |
| | |
| | |
| | | | | | | |
| Embraer E175 | | 153 |
| | 54 |
| | — |
| | 99 |
| | SkyWest: Mesa: Republic: | 65 60 28 |
| | 76 |
|
| Embraer 170 | | 38 |
| | — |
| | — |
| | 38 |
| | Republic: | 38 |
| | 70 |
|
| CRJ700 | | 64 |
| | — |
| | — |
| | 64 |
| | SkyWest: GoJet: Mesa: | 19 25 20 |
| | 70 |
|
| CRJ200 | | 128 |
| | — |
| | — |
| | 128 |
| | SkyWest: Air Wisconsin: ExpressJet: | 60 56 12 |
| | 50 |
|
| Embraer ERJ 145 (XR/LR/ER) | | 176 |
| | 82 |
| | 90 |
| | 4 |
| | ExpressJet: Trans States: CommutAir: | 105 40 31 |
| | 50 |
|
| Total regional | | 559 |
| | 136 |
| | 90 |
| | 333 |
| | | | | |
| Total | | 1,329 |
| | 750 |
| | 246 |
| | 333 |
| | | | | |
In addition to the aircraft presented in the tables above, United
owns or leasesowned the following aircraft listed below as of December 31,
2016:2018:One owned Boeing 737 MAX 9 and one Airbus 319-100, which were delivered in December 2018 but were awaiting operating certificates as of December 31, 2018;
One Boeing 767-200, which is being subleased to another airline;
FourNine Boeing757-200s, which are owned and being held for disposition;
Ten leased Embraer ERJ 135s, 747s, which are permanently grounded; and
Three owned Embraer ERJ 145s, which are temporarily grounded.
Firm Order and Option Aircraft
As of December 31,
2016,2018, United had firm commitments and options to purchase
new aircraft from Boeing,
Airbus and Embraer
and Airbusas presented in the table below:
|
| | |
Aircraft Type | | Number of Firm
Commitments (a) |
Airbus A350-1000 A350 | | 35 45 |
Boeing 737NG/737MAX 737 MAX | | 165 175 |
Boeing777-300ER | | 12 4 |
Boeing787-8/-9/-10 | | 21 |
Embraer E175
787 | | 24 |
| Embraer E175 | | 25 |
| (a) United also has options and purchase rights for additional aircraft. |
In 2016, United announced a modification to its then-existing narrow body order book by converting its original order for 65 Boeing737-700 aircraft into four737-800s to be delivered in 2017 and 61 Boeing 737MAX aircraft with delivery dates to be determined.
The aircraft listed in the table above are scheduled for delivery from
20172019 through 2027.
In 2017, United expects to take delivery of four Boeing 737NG aircraft, three Boeing787-9 aircraft, 12 Boeing777-300ER aircraft, 24 Embraer aircraft and six used Airbus A319s. In addition, up to 14 additional used Airbus A319s may be delivered between 2018 and 2021, subject to certain conditions. 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’sCompany's future capital commitments could change.
In 2019, United expects to take delivery of 25 Embraer E175 aircraft, 20 Boeing 737 MAX aircraft, 8 Boeing 787 aircraft and 2 Boeing 777-300ER aircraft. United also has agreements to purchase 20 used Airbus A319 aircraft with expected delivery dates through 2022. See Notes
1110 and
1513 to the financial statements included in Part II, Item 8 of this report for additional information.
United's principal facilities relate to leases of airport facilities, gates, hangar sites, terminal buildings and other facilities in the municipalities it serves. United has major terminal facility leases at SFO, Washington Dulles, Chicago
O’Hare,O'Hare, LAX, Denver, Newark, Houston Bush
Hopkins International Airport and Guam with expiration dates ranging from
2018 to 2041.2019 through 2055. Substantially all of these facilities are leased on a
net-rental basis, resulting in the
Company’sCompany's responsibility for maintenance, insurance and other facility-related expenses and services.
United also maintains administrative offices, catering, cargo, training facilities, maintenance facilities and other facilities to support operations in the cities served.
In addition, United
also has multiple leases, which expire from
20172019 through 2029, for its principal executive office and operations center in downtown Chicago and
certain administrative offices in downtown Houston.
| |
| ITEM 3. | LEGAL PROCEEDINGS. |
On June 30, 2015, UAL received a Civil Investigative Demand
(“CID”("CID") from the Antitrust Division of the DOJ seeking documents and information from the Company in connection with a DOJ investigation related to statements and decisions about airline capacity. The Company is working with the DOJ and has completed its response to the CID. The Company is not able to predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of the investigation. Beginning on July 1, 2015, subsequent to the announcement of the CID, UAL and United were named as defendants in multiple class action lawsuits that
asserted claims under the Sherman Antitrust Act, which have been consolidated in the United States District Court for the District of Columbia. The complaints generally allege collusion among U.S. airlines on capacity impacting airfares and seek treble damages. The Company intends to vigorously defend against the class action lawsuits.
On October 13, 2015, United received a CID from the Civil Division of the DOJ. The CID requested documents and oral testimony from United in connection with an industry-wide DOJ investigation related to delivery scan and other data purportedly required for payment for the carriage of mail under
United’sUnited's International Commercial Air Contracts with the
United StatesU.S. Postal Service. The Company has been responding to the
DOJ’sDOJ's request and cooperating in the investigation since that time. On November 8, 2016, the DOJ Criminal Division met with representatives from the Company and advised they are conducting an industry-wide investigation into the same matter. The Company is also cooperating with the government in this aspect of their investigation and, on December 21, 2016, representatives from the Company met with both the Civil and Criminal Divisions to provide additional information. The Company cannot predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of these investigations.
As disclosed in the Company’s prior two Annual Reports on Form10-K for fiscal years 2014 and 2015, the Company and certain of its current and former executive officers and employees received federal grand jury subpoenas requesting records and testimony related to certain individuals formerly associated with the Port Authority of New York and New Jersey and related operations of the Company. As announced on September 8, 2015, certain of the Company’s executives stepped down in connection with its related internal investigation. The Company cooperated with the investigation by the USAO in respect of the Port Authority matter and, as announced on July 14, 2016, the Company reached a resolution in the form of aNon-Prosecution Agreement with the USAO. As announced on December 2, 2016, the Company also resolved the previously disclosed related investigation by the SEC in respect of the Port Authority matter.
The Company is involved in various other claims and legal actions involving passengers, customers, suppliers, employees and government agencies arising in the ordinary course of business. Additionally, from time to time, the Company becomes aware of potential
non-compliance with applicable environmental regulations, which have either been identified by the Company (through internal compliance programs such as its environmental compliance audits) or through notice from a governmental entity. In some instances, these matters could potentially become the subject of an administrative or judicial proceeding and could potentially involve monetary sanctions. After considering a number of factors, including (but not limited to) the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, management believes that the ultimate disposition of these other claims and legal actions will not materially affect its consolidated financial position or results of operations. However, the ultimate resolutions of these matters are inherently unpredictable. As such, the
Company’sCompany's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these matters.
| |
| ITEM 4. | MINE SAFETY DISCLOSURES. |
| |
| ITEM 5. | MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
UAL’s
Since September 7, 2018, UAL's common stock
is listedhas traded on the Nasdaq Global Select Market ("Nasdaq") under the symbol "UAL." Previously, UAL's common stock was traded on the New York Stock Exchange
(“NYSE”("NYSE")
under the symbol “UAL.” The following table sets forth the ranges of high and low sales prices per share of UAL common stock during the last two fiscal years, as reported by the NYSE: | | | | | | | | | | | | | | | | |
| | | UAL | |
| | | 2016 | | | 2015 | |
| | | High | | | Low | | | High | | | Low | |
1st quarter | | $ | 61.41 | | | $ | 42.17 | | | $ | 74.52 | | | $ | 62.37 | |
2nd quarter | | | 58.90 | | | | 37.41 | | | | 65.85 | | | | 49.85 | |
3rd quarter | | | 54.53 | | | | 37.64 | | | | 62.21 | | | | 49.20 | |
4th quarter | | | 76.80 | | | | 51.34 | | | | 61.87 | | | | 49.76 | |
Based on reports by the Company’s transfer agent for UAL common stock, as. As of February 13, 2017,22, 2019, there were 8,0495,615 holders of record of UAL common stock.
UAL did not pay any dividends in 2016 or 2015. Under the restricted payment provisions of the Company’s Credit and Guaranty Agreement, dated as of March 27, 2013 (the “Credit Agreement”), and certain indentures, UAL’s ability to pay dividends on or repurchase UAL’s common stock is subject to limits on the amount of such payments and to certain conditions, including that no default or event of default exists under those instruments and that after giving effect to the making of any such payments, UAL would be in compliance with a minimum fixed charge coverage ratio. Any future determination regarding dividend or distribution payments will be at the discretion of the UAL Board of Directors, subject to the foregoing limits and applicable limitations under Delaware law.
United paid dividends of $2.6 billion and $1.2 billion to UAL in 2016 and 2015, respectively.
The following graph shows the cumulative total stockholder return for
UAL’sUAL's common stock during the period from December 31,
20112013 to December 31,
2016.2018. The graph also shows the cumulative returns of the Standard and
Poor’s (“S&P”)Poor's 500 Index
("SPX") and the NYSE Arca Airline Index
(“AAI”("XAL") of 15 investor-owned
airlines.airlines over the same five-year period. The comparison assumes $100 was invested on December 31,
20112013 in
each of UAL common
stock.
stock, the SPX and the XAL.
Note: The stock price performance shown in the graph above should not be considered indicative of potential future stock price performance. The foregoing performance graph is being furnished as part of this report solely in accordance with the requirement under Rule14a-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or the Exchange Act.
The following table presents repurchases of UAL common stock made in the fourth quarter of 2016: | | | | | | | | | | | | | | | | | | |
| Period | | | | Total number of
shares
purchased (a)(b) | | | Average price
paid per share (b)(c) | | | Total number of
shares purchased
as part of publicly
announced plans or
programs (a) | | | Approximate dollar value
of shares that may yet be
purchased under the
plans or programs (in millions) (a) | |
| October 1, 2016 through October 31, 2016 | | | | | 1,282,714 | | | $ | 54.19 | | | | 1,282,714 | | | $ | 1,930 | |
| November 1, 2016 through November 30, 2016 | | | | | 1,368,204 | | | | 62.96 | | | | 1,368,204 | | | | 1,844 | |
| December 1, 2016 through December 31, 2016 | | | | | — | | | | — | | | | — | | | | 1,844 | |
| | | | | | | | | | | | | | | | | | |
Total | | | | | 2,650,918 | | | | | | | | 2,650,918 | | | | | |
| | | | | | | | | | | | | | | | | | |
2018:
|
| | | | | | | | | | | | | | |
| Period | | Total number of shares purchased (a) (b) | | Average price paid per share (b)(c) | | Total number of shares purchased as part of publicly announced plans or programs (a) | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (a) |
| October 2018 | | 572,349 |
| | $ | 85.76 |
| | 572,349 |
| | $ | 1,941 |
|
| November 2018 | | 927,969 |
| | 91.76 |
| | 927,969 |
| | 1,856 |
|
| December 2018 | | 1,228,339 |
| | 85.87 |
| | 1,228,339 |
| | 1,750 |
|
| Total | | 2,728,657 |
| | | | 2,728,657 |
| | |
(a) In
2016,2018, UAL repurchased approximately
5017.5 million shares of UAL common stock for
$2.6$1.2 billion. In
July 2016, UAL’sDecember 2017, UAL's Board of Directors authorized a
$2$3.0 billion share repurchase program to acquire
UAL’sUAL's common stock. As of December 31,
2016,2018, the Company had approximately $1.8 billion remaining to purchase shares under its share repurchase program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws.
(b) The table does not include shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted
stock units.stock. The
United Continental Holdings, Inc. 2017 Incentive Compensation Plan and the United Continental Holdings, Inc. 2008 Incentive Compensation Plan,
provideseach provide for the withholding of shares to satisfy tax obligations due upon the vesting of restricted
stock units.stock. However,
this plan doesthese plans do not specify a maximum number of shares that may be withheld for this purpose. A total of
5021,368 shares were withheld under
this planthe plans in the fourth quarter of
20162018 at an average
share price of
$62.50.$91.79 per share. These shares of common stock withheld to satisfy tax withholding obligations may be deemed to be
“issuer purchases”"issuer purchases" of shares that are required to be disclosed pursuant to this Item.
(c) Average price paid per share is calculated on a settlement basis and excludes commission.
| |
| ITEM 6. | SELECTED FINANCIAL DATA. |
UAL’s
UAL's consolidated financial statements and statistical data are provided in the tables below:
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
Income Statement Data (in millions, except per share amounts): | | | | | | | | | | | | | | | | | | | | |
Operating revenue | | $ | 36,556 | | | $ | 37,864 | | | $ | 38,901 | | | $ | 38,279 | | | $ | 37,152 | |
Operating expense | | | 32,218 | | | | 32,698 | | | | 36,528 | | | | 37,030 | | | | 37,113 | |
Operating income | | | 4,338 | | | | 5,166 | | | | 2,373 | | | | 1,249 | | | | 39 | |
Net income (loss) | | | 2,263 | | | | 7,340 | | | | 1,132 | | | | 571 | | | | (723) | |
Basic earnings (loss) per share | | | 6.86 | | | | 19.52 | | | | 3.05 | | | | 1.64 | | | | (2.18) | |
Diluted earnings (loss) per share | | | 6.85 | | | | 19.47 | | | | 2.93 | | | | 1.53 | | | | (2.18) | |
Balance Sheet Data at December 31 (in millions): | | | | | | | | | | | | | | | | | | | | |
Unrestricted cash, cash equivalents and short-term investments | | $ | 4,428 | | | $ | 5,196 | | | $ | 4,384 | | | $ | 5,121 | | | $ | 6,543 | |
| Total assets | | | 40,140 | | | | 40,861 | | | | 36,595 | | | | 36,021 | | | | 36,963 | |
Debt and capital lease obligations | | | 11,705 | | | | 11,759 | | | | 11,947 | | | | 12,293 | | | | 13,043 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | | |
| Mainline | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
Passengers (thousands) (a) | | | 101,007 | | | | 96,327 | | | | 91,475 | | | | 91,329 | | | | 93,595 | |
Revenue passenger miles (“RPMs”) (millions) (b) | | | 186,181 | | | | 183,642 | | | | 179,015 | | | | 178,578 | | | | 179,416 | |
Available seat miles (“ASMs”) (millions) (c) | | | 224,692 | | | | 219,989 | | | | 214,105 | | | | 213,007 | | | | 216,330 | |
Cargo ton miles (millions) | | | 2,805 | | | | 2,614 | | | | 2,487 | | | | 2,213 | | | | 2,460 | |
Passenger load factor (d) | | | 82.9% | | | | 83.5% | | | | 83.6% | | | | 83.8% | | | | 82.9% | |
Passenger revenue per available seat mile (“PRASM”) (cents) | | | 11.31 | | | | 11.97 | | | | 12.51 | | | | 12.20 | | | | 11.93 | |
Total revenue per available seat mile (cents) | | | 13.50 | | | | 14.19 | | | | 14.81 | | | | 14.51 | | | | 13.92 | |
Average yield per revenue passenger mile (“Yield”) (cents) (e) | | | 13.65 | | | | 14.34 | | | | 14.96 | | | | 14.56 | | | | 14.38 | |
Cost per available seat mile (“CASM”) (cents) | | | 12.22 | | | | 12.42 | | | | 14.03 | | | | 14.31 | | | | 14.12 | |
Average price per gallon of fuel, including fuel taxes | | $ | 1.49 | | | $ | 1.96 | | | $ | 2.98 | | | $ | 3.12 | | | $ | 3.27 | |
Fuel gallons consumed (millions) | | | 3,261 | | | | 3,216 | | | | 3,183 | | | | 3,204 | | | | 3,275 | |
Average stage length (miles) (f) | | | 1,859 | | | | 1,922 | | | | 1,958 | | | | 1,934 | | | | 1,895 | |
Average daily utilization of each aircraft (hours) (g) | | | 10:06 | | | | 10:24 | | | | 10:26 | | | | 10:28 | | | | 10:38 | |
Consolidated | | | | | | | | | | | | | | | | | | | | |
Passengers (thousands) (a) | | | 143,177 | | | | 140,369 | | | | 138,029 | | | | 139,209 | | | | 140,441 | |
RPMs (millions) (b) | | | 210,309 | | | | 208,611 | | | | 205,559 | | | | 205,167 | | | | 205,485 | |
ASMs (millions) (c) | | | 253,590 | | | | 250,003 | | | | 246,021 | | | | 245,354 | | | | 248,860 | |
Passenger load factor (d) | | | 82.9% | | | | 83.4% | | | | 83.6% | | | | 83.6% | | | | 82.6% | |
PRASM (cents) | | | 12.40 | | | | 13.11 | | | | 13.72 | | | | 13.50 | | | | 13.09 | |
Total revenue per available seat mile (cents) | | | 14.42 | | | | 15.15 | | | | 15.81 | | | | 15.60 | | | | 14.93 | |
Yield (cents) (e) | | | 14.96 | | | | 15.72 | | | | 16.42 | | | | 16.14 | | | | 15.86 | |
CASM (cents) | | | 12.70 | | | | 13.08 | | | | 14.85 | | | | 15.09 | | | | 14.91 | |
Average price per gallon of fuel, including fuel taxes | | $ | 1.49 | | | $ | 1.94 | | | $ | 2.99 | | | $ | 3.13 | | | $ | 3.27 | |
Fuel gallons consumed (millions) | | | 3,904 | | | | 3,886 | | | | 3,905 | | | | 3,947 | | | | 4,016 | |
Average stage length (miles) (f) | | | 1,473 | | | | 1,487 | | | | 1,480 | | | | 1,445 | | | | 1,429 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 (a) | | 2016 (a) | | 2015 | | 2014 |
| Income Statement Data (in millions, except per share amounts): | | | | | | | | | | |
| Operating revenue | | $ | 41,303 |
| | $ | 37,784 |
| | $ | 36,558 |
| | $ | 37,864 |
| | $ | 38,901 |
|
| Operating expense | | 38,011 |
| | 34,113 |
| | 32,214 |
| | 32,698 |
| | 36,528 |
|
| Operating income | | 3,292 |
| | 3,671 |
| | 4,344 |
| | 5,166 |
| | 2,373 |
|
| Net income | | 2,129 |
| | 2,144 |
| | 2,234 |
| | 7,340 |
| | 1,132 |
|
| Basic earnings per share | | 7.73 |
| | 7.08 |
| | 6.77 |
| | 19.52 |
| | 3.05 |
|
| Diluted earnings per share | | 7.70 |
| | 7.06 |
| | 6.76 |
| | 19.47 |
| | 2.93 |
|
| | | | | | | | | | | |
| Balance Sheet Data at December 31 (in millions): | | | | | | | | | | |
| Unrestricted cash, cash equivalents and short-term investments | | $ | 3,950 |
| | $ | 3,798 |
| | $ | 4,428 |
| | $ | 5,196 |
| | $ | 4,384 |
|
| Total assets | | 44,792 |
| | 42,346 |
| | 40,208 |
| | 40,861 |
| | 36,595 |
|
| Debt and capital lease obligations | | 14,728 |
| | 14,392 |
| | 11,705 |
| | 11,759 |
| | 11,947 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09,��Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 (a) | | 2015 | | 2014 |
| Consolidated (b) | | | | | | | | | |
| Passengers (thousands) (c) | 158,330 |
| | 148,067 |
| | 143,177 |
| | 140,369 |
| | 138,029 |
|
| Revenue passenger miles ("RPMs") (millions) (d) | 230,155 |
| | 216,261 |
| | 210,309 |
| | 208,611 |
| | 205,559 |
|
| Available seat miles ("ASMs") (millions) (e) | 275,262 |
| | 262,386 |
| | 253,590 |
| | 250,003 |
| | 246,021 |
|
| Cargo revenue ton miles (millions) (f) | 3,425 |
| | 3,316 |
| | 2,805 |
| | 2,614 |
| | 2,487 |
|
| Passenger load factor (g) | 83.6 | % | | 82.4 | % | | 82.9 | % | | 83.4 | % | | 83.6 | % |
| Passenger revenue per available seat mile ("PRASM") (cents) | 13.70 |
| | 13.13 |
| | 13.18 |
| | 13.11 |
| | 13.72 |
|
| Total revenue per available seat mile ("TRASM") (cents) | 15.00 |
| | 14.40 |
| | 14.42 |
| | 15.15 |
| | 15.81 |
|
| Average yield per revenue passenger mile ("Yield") (cents) (h) | 16.38 |
| | 15.93 |
| | 15.90 |
| | 15.72 |
| | 16.42 |
|
| Cost per available seat mile ("CASM") (cents) | 13.81 |
| | 13.00 |
| | 12.70 |
| | 13.08 |
| | 14.85 |
|
| Average price per gallon of fuel, including fuel taxes | $ | 2.25 |
| | $ | 1.74 |
| | $ | 1.49 |
| | $ | 1.94 |
| | $ | 2.99 |
|
| Fuel gallons consumed (millions) | 4,137 |
| | 3,978 |
| | 3,904 |
| | 3,886 |
| | 3,905 |
|
| Average stage length (miles) (i) | 1,446 |
| | 1,460 |
| | 1,473 |
| | 1,487 |
| | 1,480 |
|
| Average daily utilization of each mainline aircraft (hours:minutes) (j) | 10:45 |
| | 10:27 |
| | 10:06 |
| | 10:24 |
| | 10:26 |
|
(a) PRASM, TRASM, Yield, and CASM are adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
(b) Includes data from our regional carriers operating under CPAs.
(c) The number of revenue passengers measured by each flight segment flown.
(b)
(d) The number of scheduled miles flown by revenue passengers.
(c)
(e) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(d)
(f) The number of cargo revenue tons transported multiplied by the number of miles flown.
(g) RPM divided by ASM.
(e)
(h) The average passenger revenue received for each revenue passenger mile flown.
(f)
(i) Average stage length equals the average distance a flight travels weighted for size of aircraft.
(g)
(j) The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).
| |
| ITEM 7. | MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
United Continental Holdings, Inc. (together with its consolidated subsidiaries,
“UAL”"UAL" or the
“Company”"Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries,
“United”"United"). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted.
United’sUnited's operating revenues and operating expenses comprise nearly 100% of
UAL’sUAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of
UAL’sUAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words
“we,” “our,” “us,”"we," "our," "us," and the
“Company”"Company" in this report for disclosures that relate to all of UAL and United.
2016
2018 Financial Highlights
20162018 net income was $2.3$2.1 billion, or $6.85$7.70 diluted earnings per share.
United’s consolidated PRASM decreased 5.4% in 2016share, as compared to 2015.
$2.1 billion, or $7.06 diluted earnings per share, in 2017.Revenue for 2018 increased $3.5 billion over 2017 due to a 4.9% growth in ASMs and a PRASM increase of 4.3% in 2018 compared to 2017.
Aircraft fuel cost decreased 23% year-over-yearfor 2018 increased 34.6% over 2017 mainly due mainly to lowerhigher fuel prices.
2016 CASM decreased 2.9% year-over-year on a consolidated capacity increase of 1.4%.
In 2016,2018, UAL repurchased approximately 5017.5 million shares of UALits common stock for $2.6$1.2 billion. As of December 31, 2016,2018, the Company had approximately $1.8 billion remaining to purchase shares under its share repurchase program.
UAL ended the year2018 with $5.8$6.0 billion in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short-term investments and available capacity under the revolving credit facility of its Amended and Restated Credit and Guaranty Agreement (as amended, the Company’s Credit Agreement.
"Credit Agreement").20162018 Operational Highlights
Consolidated RPMs for 20162018 increased 0.8%6.4% as compared to 2015,2017, and consolidated ASMs increased 1.4%4.9% from the prior year, resulting in a consolidated load factor of 82.9%83.6% in 20162018 versus 83.4%82.4% in 2015.
2017.For 20162018 and 2015,2017, the Company recorded a DOTU.S. Department of Transportation on-time arrival raterates of 81.3%79.8% and 78.1%81.9%, respectively, and a systemmainline completion factorfactors of 99.0%99.2% and 98.7%99.0%, respectively.
The Company took delivery of five new Boeing787-9 Dreamliners, eight new Boeing737-900ERs, seven new Boeing737-800s, two new Boeing777-300ERs and six used Airbus A319s. United exited from scheduled service four Boeing757-200s, 16 Embraer ERJ 145s and two Boeing747-400s. The Company took delivery of the first Boeing777-300ER in the Company’s fleet, named the “New Spirit of United,” featuring theall-new United Polaris business class seat.
OutlookThe Company introduced new products to its industry-leading existing portfolio of products such as United Polaris service and announced Basic Economy fares which will expand its customers’ options.
During 2016, the Company reached new agreements with every domestic unionized work group.
Outlook
Set forth below is a discussion of the principal matters that we believe could impact our financial and operating performance and cause our results of operations in future periods to differ materially from our historical
operating results and/or from our anticipated results of operations described in the forward-looking statements in this report. See Part I, Item 1A., Risk Factors, of this report and the factors described under “Forward-Looking Information”"Forward-Looking Information" below for additional discussion of these and other factors that could affect us.
The
Growth Strategy. In 2018, the Company is committed to improvingcompleted the efficiency and quality of all aspectsfirst year of its businessmulti-year growth strategy, increasing ASMs 4.9% compared to 2017. Our priorities for 2019 are delivering top-tier operational reliability and customer service while continuing to execute on our growth plan by strengthening our domestic network through strategic and efficient growth and investing in 2017. In order to continue improving operational performance in 2017, our top focus will be on further improvements in completion factor, departure performancepeople and baggage handling.product.
As outlined at our 2016 Investor Day presentation, the Company expects to drive significant incremental value by 2020 relative to 2015. United anticipates capturing this value through a variety of initiatives including aFuel. re-fleeting and upgauge program, additional customer choice through segmentation, improvements to the revenue management systems, ongoing sensible cost management, realizing our full network potential through improved schedule quality and enhancements to the MileagePlus program. In addition, the Company will continue to focus on improving reliability while increasing the efficiency of the operation.Economic Conditions.The economic outlook for the aviation industry in 2017 is characterized by moderate U.S. and global economic growth. In such conditions, we expect a moderate increase in the demand for air travel. Continuing economic uncertainty, along with the strengthening U.S. dollar, is providing uncertainty in key Asian, South American and European markets, and continued political and socioeconomic tensions may result in diminished demand for air travel.
Capacity. In 2017, the Company expects consolidated ASMs to grow between 1% and 2% year-over-year.
Fuel.The Company’sCompany's average aircraft fuel price per gallon including related taxes was $1.49$2.25 in 20162018 as compared to $1.94$1.74 in 2015. Since 2014,2017. Based on the price of jet fuel has declined and remains volatile. Based onCompany's projected fuel consumption in 2017,2019, a one dollarone-dollar change in the price of a barrel of crude oil would change the Company’s annualCompany's projected fuel expense by approximately $95$104 million.
Labor.As of December 31, 2016, United had approximately 80% of employees represented by unions. In 2016, United reached contract extensions with its pilots and dispatchers, amended collective bargaining agreements with its IAM represented employees, reached a five-year contract with the AFA covering all of its flight attendants and reached asix-year contract with the IBT covering its technicians and related employees. Additionally, the Company will be increasing pay for its pilots in order to align with a recently implemented contract of another airline. The costs associated with all these agreements is expected to add approximately $900 million of costs for full-year 2017. The Company cannot predict the outcome of future negotiations with its unionized employee groups. Increases in the pay and benefits resulting from new collective bargaining agreements could have a material financial impact on the Company.
Results of Operations
In this section, we compare results of operations for the year ended December 31, 2016 with results of operations for the year ended December 31, 2015, and results of operations for the year ended December 31, 2015 with results of operations for the year ended December 31, 2014.
2016 compared2018 Compared to 20152017
The table below illustrates the year-over-year percentage change in the Company’sCompany's operating revenues for the years ended December 31 (in millions, except percentage changes): | | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | Increase
(Decrease) | | | % Change | |
Passenger—Mainline | | $ | 25,414 | | | $ | 26,333 | | | $ | (919) | | | | (3.5) | |
Passenger—Regional | | | 6,043 | | | | 6,452 | | | | (409) | | | | (6.3) | |
| | | | | | | | | | | | | | | | |
Total passenger revenue | | | 31,457 | | | | 32,785 | | | | (1,328) | | | | (4.1) | |
Cargo | | | 876 | | | | 937 | | | | (61) | | | | (6.5) | |
Other operating revenue | | | 4,223 | | | | 4,142 | | | | 81 | | | | 2.0 | |
| | | | | | | | | | | | | | | | |
| | $ | 36,556 | | | $ | 37,864 | | | $ | (1,308) | | | | (3.5) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | 2018 | | 2017 | | Increase (Decrease) | | % Change |
| Passenger revenue | $ | 37,706 |
| | $ | 34,460 |
| | $ | 3,246 |
| | 9.4 |
| Cargo | 1,237 |
| | 1,114 |
| | 123 |
| | 11.0 |
| Other operating revenue | 2,360 |
| | 2,210 |
| | 150 |
| | 6.8 |
| Total operating revenue | $ | 41,303 |
| | $ | 37,784 |
| | $ | 3,519 |
| | 9.3 |
The table below presents the Company’s selected passenger revenue and selected operating data based onof the Company, broken out by geographic region, (regional flights consist primarily of domestic routes): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Increase (decrease) in 2016 from 2015 (a): | |
| | | Domestic | | | Atlantic | | | Pacific | | | Latin | | | Total
Mainline | | | Regional | | | Consolidated | |
Passenger revenue (in millions) | | $ | (118) | | | $ | (512) | | | $ | (215) | | | $ | (74) | | | $ | (919) | | | $ | (409) | | | $ | (1,328) | |
Passenger revenue | | | (0.9)% | | | | (8.6)% | | | | (4.9)% | | | | (2.7)% | | | | (3.5)% | | | | (6.3)% | | | | (4.1)% | |
| Average fare per passenger | | | (6.6)% | | | | (5.2)% | | | | (5.6)% | | | | (8.0)% | | | | (8.0)% | | | | (2.2)% | | | | (5.9)% | |
Yield | | | (3.2)% | | | | (4.6)% | | | | (7.4)% | | | | (7.8)% | | | | (4.8)% | | | | (3.1)% | | | | (4.8)% | |
PRASM | | | (3.8)% | | | | (8.4)% | | | | (6.7)% | | | | (5.5)% | | | | (5.5)% | | | | (2.7)% | | | | (5.4)% | |
Passengers | | | 6.1 % | | | | (3.7)% | | | | 0.7 % | | | | 5.8 % | | | | 4.9 % | | | | (4.3)% | | | | 2.0 % | |
RPMs (traffic) | | | 2.3 % | | | | (4.3)% | | | | 2.7 % | | | | 5.5 % | | | | 1.4 % | | | | (3.4)% | | | | 0.8 % | |
ASMs (capacity) | | | 3.1 % | | | | (0.2)% | | | | 2.0 % | | | | 2.8 % | | | | 2.1 % | | | | (3.7)% | | | | 1.4 % | |
Passenger load factor (points) | | | (0.6) | | | | (3.3) | | | | 0.6 | | | | 2.2 | | | | (0.6) | | | | 0.3 | | | | (0.5) | |
(a) See Part II, Item 6 of this report for the definition of these statistics.
Consolidated passengerexpressed as year-over-year changes:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Increase (decrease) from 2017 (a): |
| | | Domestic | | Atlantic | | Pacific | | Latin | | Total |
| Passenger revenue (in millions) | | $ | 2,340 |
| | $ | 688 |
| | $ | 185 |
| | $ | 33 |
| | $ | 3,246 |
|
| Passenger revenue | | 11.1 | % | | 11.7 | % | | 4.3 | % | | 1.0 | % | | 9.4 | % |
| Average fare per passenger | | 2.8 | % | | 0.2 | % | | 8.5 | % | | 2.5 | % | | 2.3 | % |
| Yield | | 3.8 | % | | (0.4 | )% | | 2.7 | % | | (0.3 | )% | | 2.8 | % |
| PRASM | | 4.1 | % | | 6.3 | % | | 3.0 | % | | 0.8 | % | | 4.3 | % |
| Passengers | | 8.1 | % | | 11.5 | % | | (3.9 | )% | | (1.4 | )% | | 6.9 | % |
| RPMs (traffic) | | 7.0 | % | | 12.1 | % | | 1.5 | % | | 1.3 | % | | 6.4 | % |
| ASMs (capacity) | | 6.7 | % | | 5.1 | % | | 1.3 | % | | 0.3 | % | | 4.9 | % |
| Passenger load factor (points) | | 0.2 |
| | 5.1 |
| | 0.2 |
| | 0.8 |
| | 1.2 |
|
| (a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics. | | | | | | |
Passenger revenue
decreased $1.3increased $3.2 billion, or
4.1%9.4%, in
20162018 as compared to
2015. Consolidated2017, primarily due to a 6.4% increase in traffic. PRASM
decreased 5.4%increased 4.3% in
20162018 as compared to
2015.2017. The
declineincrease in PRASM was driven by
factors including a competitiveimprovements in scheduling, higher corporate demand, increases in close-in bookings in the domestic
fare environment, lower surcharges, a strong U.S. dollarmarkets and
reductions from energy-related corporate travel.premium cabin demand improvements in the Atlantic and Pacific markets.
Cargo revenue
decreased $61increased $123 million, or
6.5%11.0%, in
20162018 as compared to
20152017, primarily due to
lower freight
yieldsvolume and
lower mail volumes year-over-year, partially offset by an increase in freight volumes. Freight yields were negatively impacted as air freighter competitors increased capacity in response to lower fuel prices. Another contributing factor to the year-over-year decrease was a U.S. West Coast port labor dispute that resulted in an increase in air freight resultshigher yield in the
first quarter of 2015. The labor dispute was resolved during the first quarter of 2015.Atlantic and Pacific markets.
Other operating revenue increased $150 million, or 6.8%, in 2018 as compared to 2017, primarily due to increased revenue related to MileagePlus miles sales.
The table below includes data related to the Company’sCompany's operating expense for the yearyears ended December 31 (in millions, except percentage changes): | | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | Increase
(Decrease) | | | % Change | |
Salaries and related costs | | $ | 10,275 | | | $ | 9,713 | | | $ | 562 | | | | 5.8 | |
Aircraft fuel | | | 5,813 | | | | 7,522 | | | | (1,709) | | | | (22.7) | |
Regional capacity purchase | | | 2,197 | | | | 2,290 | | | | (93) | | | | (4.1) | |
Landing fees and other rent | | | 2,165 | | | | 2,203 | | | | (38) | | | | (1.7) | |
Depreciation and amortization | | | 1,977 | | | | 1,819 | | | | 158 | | | | 8.7 | |
Aircraft maintenance materials and outside repairs | | | 1,749 | | | | 1,651 | | | | 98 | | | | 5.9 | |
Distribution expenses | | | 1,303 | | | | 1,342 | | | | (39) | | | | (2.9) | |
Aircraft rent | | | 680 | | | | 754 | | | | (74) | | | | (9.8) | |
Special charges | | | 638 | | | | 326 | | | | 312 | | | | NM | |
Other operating expenses | | | 5,421 | | | | 5,078 | | | | 343 | | | | 6.8 | |
| | | | | | | | | | | | | | | | |
| | $ | 32,218 | | | $ | 32,698 | | | $ | (480) | | | | (1.5) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | 2018 | | 2017 | | Increase (Decrease) | | % Change |
| Salaries and related costs | $ | 11,458 |
| | $ | 10,941 |
| | $ | 517 |
| | 4.7 |
|
| Aircraft fuel | 9,307 |
| | 6,913 |
| | 2,394 |
| | 34.6 |
|
| Regional capacity purchase | 2,601 |
| | 2,232 |
| | 369 |
| | 16.5 |
|
| Landing fees and other rent | 2,359 |
| | 2,240 |
| | 119 |
| | 5.3 |
|
| Depreciation and amortization | 2,240 |
| | 2,149 |
| | 91 |
| | 4.2 |
|
| Aircraft maintenance materials and outside repairs | 1,767 |
| | 1,856 |
| | (89 | ) | | (4.8 | ) |
| Distribution expenses | 1,558 |
| | 1,435 |
| | 123 |
| | 8.6 |
|
| Aircraft rent | 433 |
| | 621 |
| | (188 | ) | | (30.3 | ) |
| Special charges | 487 |
| | 176 |
| | 311 |
| | NM |
|
| Other operating expenses | 5,801 |
| | 5,550 |
| | 251 |
| | 4.5 |
|
| Total operating expenses | $ | 38,011 |
| | $ | 34,113 |
| | $ | 3,898 |
| | 11.4 |
|
Salaries and related costs increased $562$517 million, or 5.8%4.7%, in 20162018 as compared to 20152017, primarily due to higher pay rates, andhigher benefit expenses driven by new(primarily health and extended collective bargaining agreements, an increase in employee incentive expenses due to improvements in operational performancepension costs), and a 2.2%0.7% increase in average full-time equivalent employees, partially offset by a reductionemployees.
Aircraft fuel expense increased $2.4 billion, or 34.6%, in profit sharing expense in 20162018 as compared to 2015, a reduction in medical and dental costs and the results of certain costs savings initiatives in 2016.The decrease in aircraft fuel expense was2017, primarily attributabledue to decreasedincreased fuel prices and a reduction in fuel hedge losses, partially offset by the impact of a 1.4%4.9% increase in capacity. 2016 fuel expense includes the benefit of a $20 million fuel tax refund. The table below presents the significant changes in aircraft fuel cost per gallon for the yearyears ended December 31 (in millions, except percentage changes)changes and per gallon data):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | (In millions) | | | %
Change | | | Average price per gallon | |
| | | 2016 | | | 2015 | | | | 2016 | | | 2015 | | | %
Change | |
| Total aircraft fuel purchase cost excluding fuel hedge impacts | | $ | 5,596 | | | $ | 6,918 | | | | (19.1) | | | $ | 1.43 | | | $ | 1.78 | | | | (19.7) | |
| Hedge losses reported in fuel expense | | | (217) | | | | (604) | | | | NM | | | | (0.06) | | | | (0.16) | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fuel expense | | | 5,813 | | | | 7,522 | | | | (22.7) | | | | 1.49 | | | | 1.94 | | | | (23.2) | |
| Total fuel consumption (gallons) | | | 3,904 | | | | 3,886 | | | | 0.5 | | | | | | | | | | | | | |
|
| | | | | | | | | | |
| | | 2018 | | 2017 | | % Change |
| Fuel expense | | $ | 9,307 |
| | $ | 6,913 |
| | 34.6 |
| Total fuel consumption (gallons) | | 4,137 |
| | 3,978 |
| | 4.0 |
| Average price per gallon | | $ | 2.25 |
| | $ | 1.74 |
| | 29.3 |
Regional capacity purchase costs increased $369 million, or 16.5%, in 2018 as compared to 2017, primarily due to increased flying related to the Company's initiative to improve connectivity at its domestic hubs, as well as rate increases under various capacity purchase agreements ("CPAs") with regional carriers.
Landing fees and other rent increased $119 million, or 5.3%, in 2018 as compared to 2017, primarily due to increased rates and our capacity growth.
Depreciation and amortization increased
$158$91 million, or
8.7%4.2%, in
20162018 as compared to
20152017, primarily due to additions of new
and used aircraft,
conversions of operating leases to capital leases, aircraft improvements
accelerated depreciation of certain assets related to several fleet types and increases in information technology
assets.infrastructure and application development projects.
Aircraft maintenance materials and outside repairs increased $98decreased $89 million, or 5.9%4.8%, in 20162018 as compared to 20152017, primarily due to a year-over-year increaseoptimization of fleet retirement schedules and related maintenance costs for those aircraft and timing of certain maintenance events.
Distribution expenses increased $123 million, or 8.6%, in airframe maintenance visits2018 as compared to 2017, primarily due to higher credit card and travel agency booking fees as a result of the cyclical timing of these visits and volume-driven increasesoverall increase in component costs, partially offset by a reductionpassenger revenue.
Aircraft rent decreased $188 million, or 30.3%, in
costs2018 as compared to 2017, primarily due to the
timingpurchase of
maintenance on certain engines.Aircraft rent decreased $74 million, or 9.8%, in 2016 as compared to 2015 primarily due to lease expirations, the purchase or capital leaseleased aircraft, conversion of severalcertain operating leased aircraftleases to capital leases and lower lease renewal rates for certain aircraft.
term expirations.
The table below presents special charges incurred by the Company during the years ended December 31 (in millions):
| | | | | | | | |
| | | 2016 | | | 2015 | |
Impairment of assets | | $ | 412 | | | $ | 79 | |
Cleveland airport lease restructuring | | | 74 | | | | — | |
Labor agreement costs | | | 64 | | | | 18 | |
Severance and benefit costs | | | 37 | | | | 107 | |
(Gains) losses on sale of assets and other special charges | | | 51 | | | | 122 | |
| | | | | | | | |
Total special charges | | $ | 638 | | | $ | 326 | |
| | | | | | | | |
|
| | | | | | | |
| | 2018 | | 2017 |
| Impairment of assets | $ | 377 |
| | $ | 25 |
|
| Termination of an engine maintenance service agreement | 64 |
| | — |
|
| Severance and benefit costs | 41 |
| | 116 |
|
| (Gains) losses on sale of assets and other special charges | 5 |
| | 35 |
|
| Total special charges | $ | 487 |
| | $ | 176 |
|
See Note
1614 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased
$343$251 million, or
6.8%4.5%, in
20162018 as compared to
20152017, primarily due to
increasesan increase in
ground handling costs, food and technology costs associated with the Company’s enhanced customer experience initiatives, rate-driven increases in hotel expenses for crews, increases in marketing expensespurchased services related to
the 2016 Summer Olympicsour airport operations resulting from capacity growth, technology initiatives, facility projects, crew-related lodging and
volume-driven increases intrucking and handling of cargo
costs.shipments.
Nonoperating Income (Expense)
The following table illustrates the year-over-year dollar and percentage changes in the
Company’sCompany's nonoperating income (expense)
for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | Increase
(Decrease) | | | % Change | |
Interest expense | | $ | (614) | | | $ | (669) | | | $ | (55) | | | | (8.2) | |
Interest capitalized | | | 72 | | | | 49 | | | | 23 | | | | 46.9 | |
Interest income | | | 42 | | | | 25 | | | | 17 | | | | 68.0 | |
Miscellaneous, net | | | (19) | | | | (352) | | | | (333) | | | | (94.6) | |
| | | | | | | | | | | | | | | | |
Total | | $ | (519) | | | $ | (947) | | | $ | (428) | | | | (45.2) | |
| | | | | | | | | | | | | | | | |
The decrease in interest
|
| | | | | | | | | | | | | | |
| | 2018 | | 2017 | | Increase (Decrease) | | % Change |
| Interest expense | $ | (729 | ) | | $ | (671 | ) | | $ | 58 |
| | 8.6 |
|
| Interest capitalized | 70 |
| | 84 |
| | (14 | ) | | (16.7 | ) |
| Interest income | 101 |
| | 57 |
| | 44 |
| | 77.2 |
|
| Miscellaneous, net | (76 | ) | | (101 | ) | | (25 | ) | | (24.8 | ) |
| Total nonoperating expense, net | $ | (634 | ) | | $ | (631 | ) | | $ | 3 |
| | 0.5 |
|
Interest expense of $55increased $58 million, or 8.2%8.6%, in 20162018 as compared to 2015 was2017, primarily due to the prepayment of certain debt issuances in 2015 and declining balances of other debt, partially offset by interest expense on debt issued for the acquisition of new aircraft and the conversion of certain operating leases to capital leases and certain constructed airport assets accounted forleases.
Interest income increased $44 million, or 77.2%, in 2018 as
capital leases.In 2015, compared to 2017, primarily due to increased interest rates.
Miscellaneous, net included losses of $80decreased $25 million, from fuel derivatives not qualifying for hedge accounting. Foreign currency losses were approximately $43 million and $129 millionor 24.8%, in 2016 and 2015, respectively. Foreign currency results included $8 million and $61 million of2018 as compared to 2017, primarily due to a decrease in pension benefit costs that was partially offset by an increase in foreign exchange losses forand an increase in equity earnings from affiliates.
2017 Compared to 2016 and 2015, respectively, related to the Company’s cash holdings in Venezuela. Miscellaneous, net for 2015 also includes a $134 million special charge related to thewrite-off of unamortizednon-cash debt discounts for the early redemption of the 6% Notes due 2026 (the “2026 Notes”) and the 6% Notes due 2028 (the “2028 Notes”).2015 compared to 2014
The table below illustrates the year-over-year percentage change in the
Company’sCompany's operating revenues for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2015 | | | 2014 | | | Increase
(Decrease) | | | % Change | |
Passenger—Mainline | | $ | 26,333 | | | $ | 26,785 | | | $ | (452) | | | | (1.7) | |
Passenger—Regional | | | 6,452 | | | | 6,977 | | | | (525) | | | | (7.5) | |
| | | | | | | | | | | | | | | | |
Total passenger revenue | | | 32,785 | | | | 33,762 | | | | (977) | | | | (2.9) | |
Cargo | | | 937 | | | | 938 | | | | (1) | | | | (0.1) | |
Other operating revenue | | | 4,142 | | | | 4,201 | | | | (59) | | | | (1.4) | |
| | | | | | | | | | | | | | | | |
| | $ | 37,864 | | | $ | 38,901 | | | $ | (1,037) | | | | (2.7) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | 2017 | | 2016 | | Increase (Decrease) | | % Change |
| Passenger revenue | $ | 34,460 |
| | $ | 33,429 |
| | $ | 1,031 |
| | 3.1 |
|
| Cargo | 1,114 |
| | 934 |
| | 180 |
| | 19.3 |
|
| Other operating revenue | 2,210 |
| | 2,195 |
| | 15 |
| | 0.7 |
|
| Total operating revenue | $ | 37,784 |
| | $ | 36,558 |
| | $ | 1,226 |
| | 3.4 |
|
The table below presents
the Company’s selected passenger revenue and
selected operating data
based onof the Company, broken out by geographic region,
(regional flights consist primarily of domestic routes): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Increase (decrease) in 2015 from 2014 (a): | |
| | | Domestic | | | Pacific | | | Atlantic | | | Latin | | | Total
Mainline | | | Regional | | | Consolidated | |
Passenger revenue (in millions) | | $ | 132 | | | $ | (331) | | | $ | (159) | | | $ | (94) | | | $ | (452) | | | $ | (525) | | | $ | (977) | |
Passenger revenue | | | 1.0 % | | | | (7.0)% | | | | (2.6)% | | | | (3.4)% | | | | (1.7)% | | | | (7.5)% | | | | (2.9)% | |
Average fare per passenger | | | (5.0)% | | | | (7.5)% | | | | (1.2)% | | | | (10.2)% | | | | (6.6)% | | | | (2.2)% | | | | (4.5)% | |
Yield | | | (1.9)% | | | | (9.4)% | | | | (1.7)% | | | | (10.3)% | | | | (4.1)% | | | | (1.7)% | | | | (4.3)% | |
PRASM | | | (1.6)% | | | | (9.2)% | | | | (3.1)% | | | | (11.3)% | | | | (4.3)% | | | | (1.6)% | | | | (4.4)% | |
Passengers | | | 6.3 % | | | | 0.5 % | | | | (1.4)% | | | | 7.6 % | | | | 5.3 % | | | | (5.4)% | | | | 1.7 % | |
RPMs (traffic) | | | 3.0 % | | | | 2.7 % | | | | (0.9)% | | | | 7.7 % | | | | 2.6 % | | | | (5.9)% | | | | 1.5 % | |
ASMs (capacity) | | | 2.6 % | | | | 2.4 % | | | | 0.5 % | | | | 8.9 % | | | | 2.7 % | | | | (6.0)% | | | | 1.6 % | |
Passenger load factor (points) | | | 0.3 | | | | 0.2 | | | | (1.0) | | | | (1.0) | | | | (0.1) | | | | — | | | | (0.2) | |
(a) See Part II, Item 6 of this report for the definition of these statistics.
Consolidated passengerexpressed as year-over-year changes:
|
| | | | | | | | | | | | | | | | | | | |
| | Increase (decrease) in 2017 from 2016 (a): |
| | Domestic | | Atlantic | | Pacific | | Latin | | Total |
| Passenger revenue (in millions) | $ | 885 |
| | $ | 117 |
| | $ | (144 | ) | | $ | 173 |
| | $ | 1,031 |
|
| Passenger revenue | 4.4 | % | | 2.0 | % | | (3.2 | )% | | 5.8 | % | | 3.1 | % |
| Average fare per passenger | 0.2 | % | | 1.5 | % | | (0.1 | )% | | 4.0 | % | | (0.3 | )% |
| Yield | (0.3 | )% | | 1.1 | % | | (2.4 | )% | | 4.1 | % | | 0.2 | % |
| PRASM | (0.5 | )% | | 1.6 | % | | (6.0 | )% | | 3.3 | % | | (0.4 | )% |
| Passengers | 4.2 | % | | 0.5 | % | | (3.1 | )% | | 1.7 | % | | 3.4 | % |
| RPMs (traffic) | 4.7 | % | | 0.9 | % | | (0.9 | )% | | 1.6 | % | | 2.8 | % |
| ASMs (capacity) | 4.9 | % | | 0.4 | % | | 2.9 | % | | 2.4 | % | | 3.5 | % |
| Passenger load factor (points) | (0.2 | ) | | 0.4 |
| | (3.0 | ) | | (0.7 | ) | | (0.5 | ) |
| (a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics. |
Passenger revenue increased $1.0 billion, or 3.1%, in 2015 decreased $977 million, or 2.9%,2017 as compared to 20142016, primarily due to a decrease2.8% increase in consolidated yield of 4.3% year-over-year. Yields were impacted by a competitive domestic fare environment, unfavorable foreign currency results duetraffic. PRASM decreased 0.4% in 2017 as compared to the strengthening of the U.S. dollar, international surcharge declines, travel reductions from corporate customers in the energy sector and increased industry capacity in certain regions.2016. The decline in yieldsPRASM was partially offsetdriven by a 1.5%factors including more aggressive low-cost carrier pricing in our hub markets, temporary share loss during roll-out of our Basic Economy pricing, and softer demand in China and Guam. Our revenue in 2017 was negatively impacted by severe storms during the third quarter.
Cargo revenue increased $180 million, or 19.3%, in 2017 as compared to 2016 due to higher year-over-year
increase in traffic.international freight volume and yield.
The table below includes data related to the
Company’sCompany's operating expense for the
yearyears ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2015 | | | 2014 | | | Increase
(Decrease) | | | % Change | |
Salaries and related costs | | $ | 9,713 | | | $ | 8,935 | | | $ | 778 | | | | 8.7 | |
Aircraft fuel | | | 7,522 | | | | 11,675 | | | | (4,153) | | | | (35.6) | |
Regional capacity purchase | | | 2,290 | | | | 2,344 | | | | (54) | | | | (2.3) | |
Landing fees and other rent | | | 2,203 | | | | 2,274 | | | | (71) | | | | (3.1) | |
Depreciation and amortization | | | 1,819 | | | | 1,679 | | | | 140 | | | | 8.3 | |
Aircraft maintenance materials and outside repairs | | | 1,651 | | | | 1,779 | | | | (128) | | | | (7.2) | |
Distribution expenses | | | 1,342 | | | | 1,373 | | | | (31) | | | | (2.3) | |
Aircraft rent | | | 754 | | | | 883 | | | | (129) | | | | (14.6) | |
Special charges | | | 326 | | | | 443 | | | | (117) | | | | NM | |
Other operating expenses | | | 5,078 | | | | 5,143 | | | | (65) | | | | (1.3) | |
| | | | | | | | | | | | | | | | |
| | $ | 32,698 | | | $ | 36,528 | | | $ | (3,830) | | | | (10.5) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | 2017 | | 2016 | | Increase (Decrease) | | % Change |
| Salaries and related costs | $ | 10,941 |
| | $ | 10,176 |
| | $ | 765 |
| | 7.5 |
|
| Aircraft fuel | 6,913 |
| | 5,813 |
| | 1,100 |
| | 18.9 |
|
| Landing fees and other rent | 2,240 |
| | 2,165 |
| | 75 |
| | 3.5 |
|
| Regional capacity purchase | 2,232 |
| | 2,197 |
| | 35 |
| | 1.6 |
|
| Depreciation and amortization | 2,149 |
| | 1,977 |
| | 172 |
| | 8.7 |
|
| Aircraft maintenance materials and outside repairs | 1,856 |
| | 1,749 |
| | 107 |
| | 6.1 |
|
| Distribution expenses | 1,435 |
| | 1,395 |
| | 40 |
| | 2.9 |
|
| Aircraft rent | 621 |
| | 680 |
| | (59 | ) | | (8.7 | ) |
| Special charges | 176 |
| | 745 |
| | (569 | ) | | NM |
|
| Other operating expenses | 5,550 |
| | 5,317 |
| | 233 |
| | 4.4 |
|
| Total operating expenses | $ | 34,113 |
| | $ | 32,214 |
| | $ | 1,899 |
| | 5.9 |
|
Salaries and related costs increased
$778$765 million, or
8.7%7.5%, in
20152017 as compared to
20142016, primarily due to
higher pay rates and benefit expenses driven by collective bargaining agreements finalized in 2016, and a
$463 million2.5% increase
in average full-time equivalent employees, partially offset by a decrease in profit sharing
costs as a result of improved profitability, higher pay rates driven by new collective bargaining agreements, an increase in medical and
dental costs and an increase in pension expense resulting from changes in actuarial assumptions.The decrease in aircraftother employee incentives.
Aircraft fuel expense wasincreased $1.1 billion, or 18.9%, in 2017 as compared to 2016, primarily attributabledue to decreasedincreased fuel prices partially offset by losses from fuel hedging activity and a 1.6%3.5% increase in capacity. The table below presents the significant changes in aircraft fuel cost per gallon for the yearyears ended December 31 (in millions, except percentage changes)changes and per gallon data): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (In millions) | | | %
Change | | | Average price per gallon | |
| | | 2015 | | | 2014 | | | | 2015 | | | 2014 | | | %
Change | |
| Total aircraft fuel purchase cost excluding fuel hedge impacts | | $ | 6,918 | | | $ | 11,586 | | | | (40.3) | | | $ | 1.78 | | | $ | 2.97 | | | | (40.1) | |
| Hedge losses reported in fuel expense | | | (604) | | | | (89) | | | | NM | | | | (0.16) | | | | (0.02) | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fuel expense as reported | | | 7,522 | | | | 11,675 | | | | (35.6) | | | | 1.94 | | | | 2.99 | | | | (35.1) | |
| Total fuel consumption (gallons) | | | 3,886 | | | | 3,905 | | | | (0.5) | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | (In millions) | | | | Average price per gallon |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| Total aircraft fuel purchase cost excluding fuel hedge impacts | $ | 6,911 |
| | $ | 5,596 |
| | 23.5 | | $ | 1.74 |
| | $ | 1.43 |
| | 21.7 |
| Hedge losses reported in fuel expense | 2 |
| | 217 |
| | NM | | — |
| | 0.06 |
| | NM |
| Fuel expense | $ | 6,913 |
|
| $ | 5,813 |
| | 18.9 | | $ | 1.74 |
| | $ | 1.49 |
| | 16.8 |
| Total fuel consumption (gallons) | 3,978 |
| | 3,904 |
| | 1.9 | | | | | | |
Landing fees and other rent increased $75 million, or 3.5%, in 2017 as compared to the year-ago period due to higher rental and landing fee rates.
Regional capacity purchase costs increased $35 million, or 1.6%, in 2017 as compared to the year-ago period despite regional capacity being down 3.8% in 2017 as compared to 2016 due to increases in annual rates, maintenance cycle-related costs and lease return costs.
Depreciation and amortization increased
$140$172 million, or
8.3%8.7%, in
20152017 as compared to
20142016, primarily due to additions
in owned propertyof new and
equipment, specifically related to newused aircraft,
aircraft improvements and increases in information technology
assetsinfrastructure and
several aircraft capital lease conversions from operating leases.application development projects.
Aircraft maintenance materials and outside repairs
decreased $128increased $107 million, or
7.2%6.1%, in
20152017 as compared to
20142016, primarily due to
a year-over-year decreasean increase in
significant airframe
and engine maintenance visits
as a result of the cyclical timing of these visits, improvements in the efficiency ofin-house maintenance programs, a reduced volume of seat and
landing gear maintenanceadditional repairs to wireless and
a reduction of flying hours under certainpower-by-the-hour engine maintenance agreements, partially offset by increases in expenses related to aircraft reliability projects andWi-Fi systems maintenance.inflight entertainment equipment.
Aircraft rent decreased
$129$59 million, or
14.6%8.7%, in
20152017 as compared to
20142016, primarily due to
lease expirations, the purchase
or capital lease conversion of
several operating leased aircraft and lower lease renewal
rates for certain aircraft.rates.
The table below presents special charges incurred by the Company during the years ended December 31 (in millions):
| | | | | | | | |
| | | 2015 | | | 2014 | |
Severance and benefit costs | | $ | 107 | | | $ | 199 | |
Impairment of assets | | | 79 | | | | 49 | |
Labor agreement costs | | | 18 | | | | — | |
(Gains) losses on sale of assets and other miscellaneous (gains) losses, net | | | 122 | | | | 195 | |
| | | | | | | | |
Total special charges | | $ | 326 | | | $ | 443 | |
| | | | | | | | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Severance and benefit costs | $ | 116 |
| | $ | 37 |
|
| Impairment of assets | 25 |
| | 412 |
|
| Cleveland airport lease restructuring | — |
| | 74 |
|
| Labor agreement costs | — |
| | 171 |
|
| (Gains) losses on sale of assets and other special charges | 35 |
| | 51 |
|
| Total special charges | $ | 176 |
| | $ | 745 |
|
See Note
1614 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased $233 million, or 4.4%, in 2017 as compared to 2016, primarily due to increased costs in food, marketing and technology associated with the Company's enhanced customer experience initiatives, and due to volume-driven increases in cargo trucking and handling costs.
Nonoperating Income (Expense)
The following table illustrates the year-over-year dollar and percentage changes in
UAL’sthe Company's nonoperating income (expense)
for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2015 | | | 2014 | | | Increase
(Decrease) | | | % Change | |
Interest expense | | $ | (669) | | | $ | (735) | | | $ | (66) | | | | (9.0) | |
Interest capitalized | | | 49 | | | | 52 | | | | (3) | | | | (5.8) | |
Interest income | | | 25 | | | | 22 | | | | 3 | | | | 13.6 | |
Miscellaneous, net | | | (352) | | | | (584) | | | | (232) | | | | (39.7) | |
| | | | | | | | | | | | | | | | |
Total | | $ | (947) | | | $ | (1,245) | | | $ | (298) | | | | (23.9) | |
| | | | | | | | | | | | | | | | |
The decrease
|
| | | | | | | | | | | | | | |
| | 2017 | | 2016 | | Increase (Decrease) | | % Change |
| Interest expense | $ | (671 | ) | | $ | (674 | ) | | $ | (3 | ) | | (0.4 | ) |
| Interest capitalized | 84 |
| | 72 |
| | 12 |
| | 16.7 |
|
| Interest income | 57 |
| | 42 |
| | 15 |
| | 35.7 |
|
| Miscellaneous, net | (101 | ) | | (11 | ) | | 90 |
| | NM |
|
| Total nonoperating expense, net | $ | (631 | ) | | $ | (571 | ) | | $ | 60 |
| | 10.5 |
|
Miscellaneous, net increased $90 million in
interest expense of $66 million, or 9.0%, in 20152017 as compared to
2014 was2016 primarily due to
the prepayment of certain debt issuances and declining balances of other debt, partially offset by interest expense on debt issued for the acquisition of new aircraft.Miscellaneous, net included losses of $80 million and $462 million from fuel derivatives not qualifying for hedge accounting in 2015 and 2014, respectively. Foreign currency losses were approximately $129 million and $41 million in 2015 and 2014, respectively. Foreign currency results included $61 million and $10 million of foreign exchange losses for 2015 and 2014, respectively,2016 curtailments gains related to changes in the Company’s cash holdings in Venezuela. Miscellaneous, net for 2015 includes a $134 million special charge relatednew labor agreements. See Note 14 to thewrite-off financial statements included in Part II, Item 8 of unamortizednon-cash debt discountsthis report for the early redemption of the 2026 Notes and the 2028 Notes. 2014 Miscellaneous, net includes a $64 million debt extinguishment charge related to the retirement of the $248 million 6% Convertible Junior Subordinated Debentures due 2030.
additional information.
Liquidity and Capital Resources
As of December 31,
2016,2018, the Company had
$4.4$4.0 billion in unrestricted cash, cash equivalents and short-term investments,
a decreasean increase of
$0.8$0.2 billion from December 31,
2015.2017. The Company had its entire commitment capacity of
$1.35$2.0 billion under
the revolving credit facility of the Credit Agreement available for
letters of credit or borrowings as of December 31,
2016. As of December 31, 2016, the Company had $124 million of restricted cash and cash equivalents, which is primarily collateral for letters of credit and estimated future workers’ compensation claims. We may be required to post significant additional cash collateral to provide security for obligations. Restricted cash and cash equivalents at December 31, 2015 totaled $206 million.2018.
We have a significant amount of fixed obligations, including debt, aircraft leases and financings, leases of airport property and other facilities and pension funding obligations. At December 31,
2016,2018, the Company had
approximately $11.7$14.7 billion of debt and capital lease obligations, including $1.0$1.4 billion that are due within the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare engines. As of
December 31,
2016,2018, our current liabilities exceeded our current assets by approximately
$5.0$6.0 billion. However, approximately
$5.9$6.7 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not
actual cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.
The Company made principal payments of debt and capital lease obligations totaling $1.4 billion in 2016.The Company will continue to evaluate opportunities to prepay its debt, including open market repurchases, to reduce its indebtedness and related interest.
For
2017,2019, the Company expects
between $4.2 billion and $4.4approximately $4.7 billion of gross capital expenditures. See
Notes 11 and 15Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments.
As of December 31,
2016,2018, a substantial portion of the
Company’sCompany's assets, principally aircraft, route authorities
and airport slots,
and loyalty program intangible assets, was pledged under various loan and other agreements.
Collateral pledged under these loans continues to be sufficient to satisfy the loan covenants. We must sustain our profitability and/or access the capital markets to meet our significant long-term debt and capital lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines. See Note
1110 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company.
The following is a discussion of the
Company’sCompany's sources and uses of cash from
20142016 through
2016.Cash Flows from 2018.
2016 compared2018 Compared to 20152017Cash flow provided by operations for the year ended December 31,
20162018 was
$5.5$6.2 billion compared to
$6.0$3.4 billion in the same period in
2015. Working capital changes reduced cash flow from operations by $0.5 billion year-over-year in 2016 as compared to 2015.2017. The following were significant working capital items in
2016:2018:Frequent flyer and advance purchase ofMileagePlus sales. In 2018, we received $1.3 billion more for MileagePlus miles decreased $0.6 billionsales to our partners as compared to 2017, mainly due to increased utilization ofpre-purchased miles.
Other assets, including spare parts, increased by $0.3our domestic co-branded credit card partner fully utilizing the $0.9 billion as part of the Company’s effortsremaining balance in its pre-purchased miles in 2017.
Advance ticket sales and deferred revenue. Our 2018 traffic growth and yield improvements contributed to improve fleet reliability.
Accounts payable increased $0.2a $0.7 billion driven by the timing of payments.
increase in advance ticket sales and frequent flyer deferred revenue.2015 compared
2017 Compared to
20142016
Cash flow provided by operations for the year ended December 31,
20152017 was
$6.0$3.4 billion compared to
$2.6$5.5 billion in the same period in
2014. The $3.42016, the decrease resulting from lower operating income and reduced cash flows from certain changes in working capital items. Excluding the non-cash impairment of the Newark slots, operating income for 2017 was approximately $1.2 billion
increase is primarily attributable to an increase of $3.1 billion in income before income taxes and a $0.4 billion increase innon-cash items for the year ended December 31, 2015 as compared to the same period in 2014.lower than 2016. Working capital changes reduced cash flow from operations by
$0.1an additional $1.2 billion year-over-year in
20152017 as compared to
2014.2016. The following were significant working capital items in
2015:2017:Cash flow increased by $0.2$0.9 billion from the return of hedge collateral net of the impact of changesdecrease in fuel derivative positions.
Other liabilities, including accrued wages, decreased $0.2 billion, which included $0.8 billion in pension contributions offset by $0.7 billion in profit sharing accruals.
Frequent flyer deferred revenue and advanced purchase of miles decreased $0.2 billion.
due to increased utilization of pre-purchased miles.
Cash Flows from $0.4 billion increase in prepayments for maintenance contracts.
2016 compared2018 Compared to 20152017The Company’sCompany's capital expenditures were $3.2$4.2 billion and $2.7$4.0 billion in 2016and 2015,2018and 2017, respectively. The Company’sCompany's capital expenditures for both years were primarily attributable to the purchase of aircraft, aircraft improvements, facility and fleet-related costs and the purchase of information technology assets.2015 compared
On November 29, 2018, United, as lender, entered into a Term Loan Agreement (the "Synergy Loan Agreement") with affiliates of Synergy Aerospace Corporation ("Synergy"), as borrower and guarantor, respectively, and on November 30, 2018, pursuant to
2014the Synergy Loan Agreement, United provided a secured $456 million term loan to Synergy. Synergy is the majority shareholder of Avianca Holdings S.A. ("AVH"), the parent company of Avianca. The Company’sloan was made in conjunction with a revenue-sharing joint business agreement among United, Avianca and Copa Airlines as described in Part 1, Item 1 of this report. For additional information regarding the Synergy Loan Agreement and related agreements, see Notes 9 and 13 to the financial statements included in Part II, Item 8 of this report.
In April 2018, through a wholly-owned subsidiary, the Company invested $138 million in Azul Linhas Aéreas Brasileiras S.A. ("Azul") thus increasing its preferred equity stake in Azul to approximately 8% (representing approximately 2% of the total capital stock of Azul).
2017 Compared to 2016
The Company's capital expenditures were $2.7$4.0 billion and $2.0$3.2 billion in 2015and 2014,2017and 2016, respectively. The Company’sCompany's capital expenditures for both years were primarily attributable to the purchase of aircraft, aircraft improvements, facility and fleet-related costs. In 2015,costs and the purchase of information technology assets.
Financing Activities
Significant financing events in 2018 were as follows:
Share Repurchases
The Company used $1.2 billion of cash to purchase approximately 17.5 million shares of its common stock during 2018. As of December 31, 2018, the Company announced a strategic partnership with Azul. Through a wholly-owned subsidiary,had approximately $1.8 billion remaining to purchase shares under its share repurchase program.
Debt Issuances
During 2018, United received and recorded $1.2 billion of proceeds as debt related to enhanced equipment trust certificate ("EETC") offerings created in 2018 to finance the purchase of aircraft.
During 2018, United borrowed approximately $424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2018.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2018, the Company invested $100made debt and capital lease principal payments of $1.9 billion.
Significant financing events in 2017 were as follows:
Share Repurchases
The Company used $1.8 billion of cash to purchase approximately 27.8 million for an economic stakeshares of its common stock during 2017, completing its July 2016 repurchase authorization. In December 2017, UAL's Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL's common stock. As of December 31, 2017, the Company had approximately five percent$3.0 billion remaining to purchase shares under its share repurchase program.
Debt Issuances
During 2017, United received and recorded $1.8 billion of proceeds as debt related to enhanced equipment trust certificate ("EETC") offerings created in Azul, Brazil’s largest carrier2016 and 2017 to finance the purchase of aircraft.
In 2017, UAL issued, and United guaranteed, (i) $400 million aggregate principal amount of unsecured 4.25% Senior Notes due October 1, 2022, and (ii) $300 million aggregate principal amount of unsecured 5% Senior Notes due February 1, 2024.
In 2017, United and UAL, as borrower and guarantor, respectively, increased the term loan under the Credit Agreement by cities served, which provides a rangeapproximately $440 million.
During 2017, United borrowed approximately $497 million aggregate principal amount from various financial institutions to finance the purchase of customer benefits including codesharingseveral aircraft delivered in 2017.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2017, the Company made debt and capital lease principal payments of
flights, joint loyalty program participation and expanded connection opportunities on routes between the U.S. and Brazil, a key market for United, in addition to other points in North and South America.Cash Flows from Financing Activities
$1.0 billion.
Significant financing events in 2016 were as follows:
The Company used $2.6 billion of cash to purchase
5050.3 million shares of its common stock during 2016 under its share repurchase programs.
As of December 31, 2016, the Company has $1.8 billion remaining to spend under its share repurchase program.
In 2016, United completed two
enhanced equipment trust certificate (“EETC”)EETC offerings for a total principal amount of $2.0 billion. Of the $2.0 billion, United received and recorded $708 million of proceeds as debt as of December 31, 2016 to finance the purchase of 17 aircraft.
United expects to receive all proceeds from the pass-through trusts by the end of the second quarter of 2017.In 2016, United borrowed approximately $369 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2016.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2016, the Company made debt and capital lease principal payments of $1.4 billion.
Significant financing events in 2015 were as follows:
Share Repurchases
The Company used $1.2 billion of cash to purchase 21 million shares of its common stock during 2015 under its share repurchase programs.
Debt Issuances
During 2015, United issued $1.4 billion of debt related to EETC offerings to finance aircraft.
In 2015, United borrowed approximately $590 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2015.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2015, the Company made debt and capital lease principal payments of $2.3 billion, including the following prepayments:
UAL used cash to repurchase all $321 million par value 2026 Notes.
UAL used cash to repurchase all $311 million par value 2028 Notes.
UAL used cash to prepay, at par, $300 million principal amount of its $500 million term loan due September 2021 under the Credit Agreement.
Financing Activities Not Affecting Cash
The holders of substantially all of the remaining $202 million principal amount of United’s 4.5% Convertible Notes due 2015 exercised their conversion option resulting in the issuance of 11 million shares of UAL common stock.
Significant financing events in 2014 were as follows:
Share Repurchases
The Company used $320 million of cash to purchase approximately 7 million shares of its common stock under the 2014 Program.
Debt Issuances
During 2014, United issued $1.8 billion of debt related to EETC offerings to finance aircraft.
United borrowed a $500 million term loan under the Credit Agreement.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2014, the Company made debt and capital lease principal payments of $2.6 billion, including the following prepayments:
UAL retired, at par, $400 million principal balance of its 8% Notes due 2024.
United used cash to purchase approximately $276 million principal amount of convertible notes and retired the notes.
United retired, at par, the entire $800 million principal balance of its 6.75% Senior Secured Notes.
Financing Activities Not Affecting Cash
UAL amended its revolving credit facility under the Credit Agreement, increasing the capacity from $1.0 billion to $1.35 billion and establishing the maturity date for $1.315 billion in lender commitments as January 2, 2019.
UAL issued approximately 17 million shares in exchange for, or conversion of, $260 million of convertible notes and retired the notes.
For additional information regarding these Liquidity and Capital Resource matters, see Notes 3, 10, 11 13 and 14 12to the financial statements included in Part II, Item 8 of this report. For information regardingnon-cash investing and financing activities, see the Company’sCompany's statements of consolidated cash flows.
Other significant financing event was as follows:
Debt IssuanceIn January 2017, United issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024. See Note 11 to the financial statements included in Part II, Item 8 of this report for additional information.
Credit Ratings. As of the filing date of this report, UAL and United had the following corporate credit ratings:
| | | | |
| | | | | |
| | | | | S&P | | Moody’sMoody's | | Fitch | | |
| | UAL | | BB-BB | | Ba2 | | BB | | |
| | United | | BB-BB | | * | | BB | | |
| | *The credit agency does not issue corporate credit ratings for subsidiary entities. | | |
These credit ratings are below investment grade levels. Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company.
Below is a summary of additional liquidity matters. See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments.
|
| |
Pension and other postretirement plans | | Note 8 |
Hedging activities
| Long-term debt and debt covenants | Note 10 |
Long-term debtLeases and debt covenants
| capacity purchase agreements | Note 11 |
LeasesCommitments and capacity purchase agreements
| contingencies | Note 13 |
Commitments and contingencies
| | Note 15 |
Contractual Obligations. The Company’sCompany's business is capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft. In the past, the Company has funded the acquisition of aircraft through outright purchase,with cash, by issuing debt,using EETC financing, by entering into capital or operating leases, or through vendorother financings. The Company also often enters into long-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities. The table below provides a summary of the
Company’sCompany's material contractual obligations as of December 31,
20162018 (in billions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | After
2021 | | | Total | |
Long-term debt (a) | | $ | 0.8 | | | $ | 1.4 | | | $ | 1.9 | | | $ | 1.0 | | | $ | 1.2 | | | $ | 4.6 | | | $ | 10.9 | |
Capital lease obligations—principal portion | | | 0.1 | | | | 0.1 | | | | 0.1 | | | | — | | | | — | | | | 0.6 | | | | 0.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt and capital lease obligations | | | 0.9 | | | | 1.5 | | | | 2.0 | | | | 1.0 | | | | 1.2 | | | | 5.2 | | | | 11.8 | |
Interest on debt and capital lease obligations (b) | | | 0.5 | | | | 0.5 | | | | 0.4 | | | | 0.3 | | | | 0.3 | | | | 0.9 | | | | 2.9 | |
Aircraft operating lease obligations | | | 1.3 | | | | 1.1 | | | | 0.9 | | | | 0.7 | | | | 0.5 | | | | 2.0 | | | | 6.5 | |
Regional CPAs (c) | | | 1.9 | | | | 1.9 | | | | 1.3 | | | | 1.0 | | | | 1.0 | | | | 4.3 | | | | 11.4 | |
Other operating lease obligations | | | 1.2 | | | | 1.1 | | | | 1.0 | | | | 1.1 | | | | 0.9 | | | | 6.7 | | | | 12.0 | |
Postretirement obligations (d) | | | 0.1 | | | | 0.1 | | | | 0.1 | | | | 0.1 | | | | 0.1 | | | | 0.7 | | | | 1.2 | |
Pension obligations (e) | | | — | | | | — | | | | — | | | | 0.4 | | | | 0.3 | | | | 1.1 | | | | 1.8 | |
Capital purchase obligations (f) | | | 4.5 | | | | 3.2 | | | | 3.1 | | | | 2.5 | | | | 2.2 | | | | 7.8 | | | | 23.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 10.4 | | | $ | 9.4 | | | $ | 8.8 | | | $ | 7.1 | | | $ | 6.5 | | | $ | 28.7 | | | $ | 70.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Long-term debt presented in the Company’s financial statements is net of $124 million of debt discount, premiums and debt issuance costs which are being amortized over the debt terms. Contractual payments are not net of the debt discount, premiums and debt issuance costs. |
(b) | Includes interest portion of capital lease obligations of $67 million in 2017, $57 million in 2018, $50 million in 2019, $47 million in 2020, $44 million in 2021 and $339 million thereafter. Future interest payments on variable rate debt are estimated using estimated future variable rates based on a yield curve. |
(c) | Represents our estimates of future minimum noncancelable commitments under our CPAs and does not include the portion of the underlying obligations for aircraft and facility rent that is disclosed as part of aircraft and nonaircraft operating leases. Amounts also exclude a portion of United’s capital lease obligation recorded for certain of its CPAs. See Note 13 to the financial statements included in Part II, Item 8 of this report for the significant assumptions used to estimate the payments. |
(d) | Amounts represent postretirement benefit payments, net of subsidy receipts, through 2026. Benefit payments approximate plan contributions as plans are substantially unfunded. |
(e) | Represents estimate of the minimum funding requirements as determined by government regulations for United’s material pension plans. Amounts are subject to change based on numerous assumptions, including the performance of assets in the plan and bond rates. See Critical Accounting Policies, below, for a discussion of our current year assumptions regarding United’s pension plans. |
(f) | Represents contractual commitments for firm order aircraft, spare engines and other capital purchase commitments. See Note 15 to the financial statements included in Part II, Item 8 of this report for a discussion of our purchase commitments. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | After 2023 | | Total |
| Long-term debt (a) | | $ | 1.2 |
| | $ | 1.3 |
| | $ | 1.3 |
| | $ | 1.7 |
| | $ | 0.7 |
| | $ | 7.4 |
| | $ | 13.6 |
|
| Capital lease obligations—principal portion | | 0.2 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | — |
| | 0.9 |
| | 1.3 |
|
| Total debt and capital lease obligations | | 1.4 |
| | 1.4 |
| | 1.4 |
| | 1.8 |
| | 0.7 |
| | 8.3 |
| | 14.9 |
|
| Interest on debt and capital lease obligations (b) | | 0.7 |
| | 0.6 |
| | 0.5 |
| | 0.4 |
| | 0.4 |
| | 1.1 |
| | 3.6 |
|
| Aircraft operating lease obligations | | 0.8 |
| | 0.7 |
| | 0.6 |
| | 0.4 |
| | 0.4 |
| | 1.2 |
| | 4.1 |
|
| Regional CPAs (c) | | 2.2 |
| | 2.0 |
| | 1.8 |
| | 1.4 |
| | 0.8 |
| | 3.1 |
| | 11.3 |
|
| Other operating lease obligations | | 1.3 |
| | 1.4 |
| | 1.1 |
| | 1.0 |
| | 1.0 |
| | 7.0 |
| | 12.8 |
|
| Postretirement obligations (d) | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.5 |
| | 1.0 |
|
| Pension obligations (e) | | — |
| | — |
| | — |
| | 0.3 |
| | 0.2 |
| | 0.5 |
| | 1.0 |
|
| Capital purchase obligations (f) | | 4.2 |
| | 5.3 |
| | 3.5 |
| | 2.8 |
| | 1.9 |
| | 7.0 |
| | 24.7 |
|
| Total contractual obligations | | $ | 10.7 |
| | $ | 11.5 |
| | $ | 9.0 |
| | $ | 8.2 |
| | $ | 5.5 |
| | $ | 28.7 |
| | $ | 73.4 |
|
(a) Long-term debt presented in the Company's financial statements is net of $191 million of debt discount, premiums and debt issuance costs which are being amortized over the debt terms. Contractual payments do not include the debt discount, premiums and debt issuance costs.
(b) Includes interest portion of capital lease obligations of $124 million in 2019, $104 million in 2020, $80 million in 2021, $63 million in 2022, $57 million in 2023 and $410 million thereafter. Interest payments on variable interest rate debt were calculated using London interbank offered rates ("LIBOR") applicable at December 31, 2018.
(c) Represents our estimates of future minimum noncancelable commitments under our CPAs and does not include the portion of the underlying obligations for aircraft and facility rent that is disclosed as part of aircraft and nonaircraft operating leases. Amounts also exclude a portion of United's capital lease obligation recorded for certain of its CPAs. See Note 11 to the financial statements included in Part II, Item 8 of this report for the significant assumptions used to estimate the payments.
(d) Amounts represent postretirement benefit payments, net of subsidy receipts, through 2028. Benefit payments approximate plan contributions as plans are substantially unfunded.
(e) Represents an estimate of the minimum funding requirements as determined by government regulations for United's U.S. pension plans. Amounts are subject to change based on numerous assumptions, including the performance of assets in the plans and bond rates. See Critical Accounting Policies, below, for a discussion of our current year assumptions regarding United's pension plans.
(f) Represents contractual commitments for firm order aircraft, spare engines and other capital purchase commitments. See Note 13 to the financial statements included in Part II, Item 8 of this report for a discussion of our purchase commitments.
Off-Balance Sheet Arrangements.
Anoff-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support, or that engages in leasing, hedging or research and development arrangements. The Company’sCompany's primaryoff-balance sheet arrangements include operating leases, which are summarized in the contractual obligations table inunder Contractual Obligations,above,and certain municipal bond obligations, as discussed below. As of December 31, 2016,2018, United had cash collateralized $72$73 million of letters of credit. United also had $383 million of surety bonds securing various obligations at December 31, 2016. Most of the letters of credit, which generally have evergreen clauses and are expected to be renewed on an annual basis and thebasis. As of December 31, 2018, United also had $418 million of surety bonds havesecuring various obligations with expiration dates through 2021.2022.
As of December 31, 2016,2018, United is the guarantor of approximately $1.9 billion in aggregate principal amount oftax-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 a majority of these obligations are accounted for as operating leases. The leasing arrangements associated with a portion of these obligations are accounted for as capital leases. The annual lease payments for those obligations accounted for as operating leases are included in the operating lease payments in the contractual obligations table under Contractual Obligations, above. In connection with funding the Synergy Loan Agreement, the Company entered into an agreement with AVH's significant minority shareholder, Kingsland Holdings Limited ("Kingsland"), pursuant to which, in return for Kingsland's pledge of its 144.8 million shares of AVH common stock (equivalent to 18.1 million American Depositary Receipts ("ADRs")) and its consent to Synergy's pledge of its AVH common stock to United under the Synergy Loan Agreement, United (1) granted to Kingsland the right to put its shares of AVH common stock to United at market price on the fifth anniversary of the Synergy Loan Agreement, and (2) guaranteed Synergy's obligation to pay Kingsland (which amount, if paid by United, will increase United's secured loan to Synergy by such amount) if the market price of AVH common stock on the fifth anniversary 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 $217.2 million. Accordingly, the Company recorded a liability of $31 million for the fair value of its guarantee to loan additional funds to Synergy if required. Any additional loans to Synergy would be collateralized by Synergy's shares of AVH stock and other collateral.
As of December 31, 2016,2018, United is the guarantor of $168$145 million of aircraft mortgage debt issued by one of United’sUnited's regional carriers. The aircraft mortgage debt is subject to increased cost provisions and the Company would potentially be responsible for those costs under the guarantees. The increased cost provisions in the $168$145 million of aircraft mortgage debt are similar to those in certain of the Company’sCompany's debt agreements. See discussion under Increased Cost Provisions,below, for additional information on increased cost provisions related to the Company's debt.
EETCs. As of December 31, 2018, United had $8.8 billion principal amount of equipment notes outstanding issued under EETC financings. Generally, the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which
are issued by United and secured by its aircraft. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United's consolidated balance sheet because the proceeds held by the depositary are not United's assets. In February 2019, United completed a $1.0 billion EETC offering to finance certain 2018 and 2019 aircraft deliveries. See Note 1510 to the financial statements included in Part II, Item 8 of this report for additional informationinformation.
Increased Cost Provisions. In United's financing transactions that include loans, 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 in which the interest rate is based on 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 December 31, 2018, the Company had $3.5 billion of floating rate debt and $27 million of fixed rate debt, with remaining terms of up to 12 years, that are subject to these increased cost provisions relatedprovisions. 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 $3.2 billion, the Company’s debt.EETCs. In June 2016 and September 2016, United completed two separate EETC offerings for a total principal amountCompany bears the risk of $2.0 billion. United has received and recorded $708 million of the proceeds from these offerings as debt as of December 31, 2016. See Notes 11 and 14any change in tax laws that would subject loan or lease payments thereunder to the financial statements included in Part II, Item 8 of this report for additional information on EETC pass-through trusts and variable interest entity consideration.
Increased Cost Provisions.See Note 15non-U.S. entities to the financial statements included in Part II, Item 8 of this report for additional information on increased cost provisions relatedwithholding taxes, subject to the Company’s debt.customary exclusions.
Fuel Consortia.United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed throughtax-exempt bonds, (eithereither special facilities lease revenue bonds or general airport revenue bonds),bonds, issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficientto pay the maturing principal and interest payments on the bonds. As of December 31, 2016,2018, approximately $1.5$1.7 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2016,2018, the Company’sCompany's contingent exposure was approximately $234$164 million principal amount of such bonds based on its recent consortia participation. The Company’sCompany's contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when thetax-exempt bonds are paid in full, which ranges from 20172022 to 2049.2051. The Company did not record a liability at the time these indirect guarantees were made. See Note 15 to the financial statements included in Part II, Item 8 of this report for additional information related to the Company’s fuel consortia.
Critical Accounting Policies
Critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions. The Company has prepared the financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”("GAAP"), which requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates under different assumptions or conditions. The Company has identified the following critical accounting policies that impact the preparation of the financial statements.
Revenue Recognition. The Company records passenger ticket salesFrequent Flyer Accounting. United's MileagePlus loyalty program builds customer loyalty by offering awards, benefits and tickets sold by other airlinesservices to program participants. Members in this program earn miles for usetravel on United, as passenger revenue when the transportation is provided or upon estimated breakage. The value of unused passenger tickets is included in current liabilities as Advance ticket sales. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its interline billings and payables if historical experience indicates that these amounts are different.Non-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date.Fees charged in association with changes or extensions tonon-refundable tickets are recorded as other revenue at the time the fee is incurred. The fare on the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue recognition policy at the time the transportation is provided. Change fees related tonon-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company’s additional service to modify a previous sale. Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes.
The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results and forecasted trends. Refundable tickets expire after one year from the date of issuance.
The Financial Accounting Standards Board (“FASB”) amended the FASB Accounting Standards Codification and created a new Topic 606,Revenue from Contracts with Customers. This amendment prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedes the revenue recognition requirements in Topic 605,Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Accounting Standards Codification. The Company currently plans to use the full-retrospective approach in adopting this standard on January 1, 2018. Under the new standard, certain airline ancillary fees directly related to passenger revenue tickets, such as ticket change fees and baggage fees, are likely to no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change fees which were previously recognized when received and booking fees when paid, will likely be recognized when transportation is provided. The Company
has previously recorded ancillary fees and change fees in other operating revenue but will record these in passenger revenue under the new standard. The Company is evaluating other possible impacts from the new standard on its consolidated financial statements.
Frequent Flyer Accounting.The Company’s MileagePlus program is designed to increase customer loyalty. Program participants earn miles by flying on United Express, Star Alliance members and certain other participating airlines. Program participantsairlines that participate in the program. Members can also earn miles through purchases from othernon-airline partners that participate inby purchasing the Company’s loyalty program.goods and services of our network of non-airline partners. We have contracts to sell miles to these partners whichwith the terms extending from one to eight years. These partners include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air travel andnon-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.Miles expire after 18 months of member account inactivity.
Miles Earned in Conjunction with Travel.When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the air transportationtravel occurs and defers a portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement.separate performance obligation. The Company determines the estimated selling price of air transportationtravel and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro ratapro-rata basis. TheAt the time of travel, the Company records the portion allocated to the miles are recorded into Frequent flyer deferred revenue on the Company’sCompany's consolidated balance sheet and recognizedsubsequently recognizes it into revenue when the transportation is provided.miles are redeemed for air travel and non-air travel awards.
The Company’sCompany's estimated selling price of miles is based on an equivalent ticket value less fulfillment discount,breakage, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months’months' weighted average equivalent ticket value of similar fares as those used to settle award redemptions while
taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region. The estimated selling price of miles is adjusted by a fulfillment discountbreakage that considers a number of factors, including redemption patterns of various customer groups. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. The Company's estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the program. For the portion of the outstanding miles that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining miles are redeemed.
Co-Brand Agreement. United has a significant contract (the "Co-Brand Agreement") to sell MileagePlus miles to itsco-branded credit card partner Chase.Chase Bank USA, N.A. ("Chase"). Chase awards miles to MileagePlus members based on their credit card activity. United identified the following significant separately identifiable performance obligations in the Co-Brand Agreement:
MileagePlus miles awarded – United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel and non-travel award redemptions. The Company records Passenger revenue elementsrelated to the travel awards when the transportation is provided and records Other revenue related to the non-travel awards when the goods or services are delivered. The Company records the cost associated with non-travel awards in Other operating revenue.
Marketing – United has a performance obligation to provide Chase access to its Second Amendedcustomer list and RestatedCo-Branded Cardthe use of its brand. Marketing Services Agreement (therevenue is recorded to Other operating revenue as miles are delivered to Chase.
“Co-Brand Agreement”): the air transportation element represented by the valueAdvertising – United has a performance obligation to provide advertising in support of the mile (generally resulting from its redemption for future air transportationMileagePlus card in various customer contact points such as United's website, email promotions, direct mail campaigns, airport advertising and whose fair valuein-flight advertising. Advertising revenue is described above);recorded to Other operating revenue as miles are delivered to Chase.
Other travel-related benefits – United's performance obligations are comprised of various items such as waived bag fees, seat upgrades and lounge passes. Lounge passes are recorded to Other operating revenue as customers use the lounge passes. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the United brandassociated travel.
We account for all the payments received (including monthly and
accessone-time payments) under the Co-Brand Agreement by allocating them to
MileagePlus member lists; advertising; and other travel related benefits.the separately identifiable performance obligations. The fair value of the elementsseparately identifiable performance obligations is determined using management’smanagement's estimated selling price of each element.component. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of theCo-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elementscomponents to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated selling priceconsideration from the Co-Brand Agreement on a prospective basis.
Frequent flyer deferred revenue.The Company records passenger revenue related to Miles in MileagePlus members' accounts are combined into one homogeneous pool and are thus not separately identifiable, for award redemption purposes, between miles earned in the air transportation element whencurrent period and those in their beginning balance. Of the transportation is delivered. The other elements are generally recognized as Other operating revenue when earned.
The Company accounts for miles sold and awarded that will neverexpected to be redeemed, by program members, which we referthe Company expects the majority of these miles to as breakage. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of member account inactivity. The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the programs.
be redeemed within two years.
The following table summarizes information related to the Company’sCompany's Frequent flyer deferred revenue liability: | | | | |
Frequent flyer deferred revenue at December 31, 2016 (in millions)
| | $ | 4,883 | |
% of miles earned expected to expire
| | | 16% | |
Impact of 1% change in outstanding miles or weighted average ticket value on deferred revenue (in millions)
| | $ | 54 | |
|
| | | | |
| Frequent flyer deferred revenue at December 31, 2018 (in millions) | | $ | 5,005 |
|
| Percentage of miles earned expected to expire | | 14.5 | % |
| Impact of 1% change in outstanding miles expected to be redeemed or weighted average ticket value on deferred revenue (in millions) | | $ | 50 |
|
Revenue Recognition. The Company presents Passenger revenue, Cargo revenue and Other operating revenue on its income statement. Passenger revenue is recognized when transportation is provided and Cargo revenue is recognized when shipments arrive at their destination. Other operating revenue is recognized as the related performance obligations are satisfied.
Passenger tickets and related ancillary services sold by the Company for mainline and regional flights are purchased primarily via credit card transactions, with payments collected by the Company in advance of the performance of related services. The Company initially records ticket sales in its Advance ticket sales liability, deferring revenue recognition until the travel occurs. For travel that has more than one flight segment, the Company deems each segment as a separate performance obligation and recognizes revenue for each segment as travel occurs. Tickets sold by other airlines where the Company provides the
transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its billings and payables with other airlines based on historical experience.
The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners. For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are responsible for their portion of the contract (i.e. transportation of the passenger). The Company, as the agent, recognizes revenue within Other operating revenue at the time of the travel for the net amount representing commission to be retained by the Company for any segments flown by other airlines.
Refundable tickets expire after one year from the date of issuance. Non-refundable tickets generally expire on the date of the intended travel, unless the date is extended by notification from the customer on or before the intended travel date. 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. Fees charged in association with changes or extensions to non-refundable tickets are considered part of the Company's passenger travel obligation. As such, those fees are deferred at the time of collection and recognized at the time the travel is provided.
United initially capitalizes the costs of selling airline travel tickets and then recognizes those costs as Distribution expense at the time of travel. Passenger ticket costs include credit card fees, travel agency and other commissions paid, as well as global distribution systems booking fees.
Long-Lived Assets.The net book value of operating property and equipment for the Company was $23$28 billion and $22$26 billion at December 31, 20162018 and 2015,2017, respectively. The assets’assets' recorded value is impacted by a number of accounting policy elections, including the estimation of useful lives and residual values and, when necessary, the recognition of asset impairment charges. The Company records assets acquired, including aircraft, at acquisition cost. Depreciable life is determined through economic analysis, such as reviewing existing fleet plans, obtaining appraisals and comparing estimated lives to other airlines that operate similar fleets.
As aircraft technology has improved, useful life has increased and theThe Company has generally estimated the lives of those aircraft to be
between 25 and 30 years. Residual values are estimated based on historical experience with regard to the sale of both aircraft and spare parts and are established in conjunction with the estimated useful lives of the related fleets. Residual values are based on when the aircraft are acquired and typically reflect asset values that have not reached the end of their physical life. Both depreciable lives and residual values are revised periodically as facts and circumstances arise to recognize changes in the
Company’sCompany's fleet plan and other relevant information. A
one-year increase in the average depreciable life of the
Company’sCompany's flight equipment would reduce annual depreciation expense on flight equipment by approximately
$57$85 million.
The Company evaluates the carrying value of long-lived assets and intangible assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows for purposes of testing aircraft for impairment. An impairment charge is recognized when the
asset’sasset's carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the
asset’sasset's carrying value and fair market value.
In 2016, the Company determined that the FAA’s action impaired the entire value of its Newark slots because the slots no longer were the mechanism that governedtake-off and landing rights, and the Company recorded a special charge to write off the intangible asset.
See Notes 16Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Indefinite-lived intangible assets. The Company has indefinite-lived intangible assets, including goodwill. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. An impairment occurs when the fair value of an intangible asset is less than its carrying value.
See Note 2 to the financial statements included in Part II, Item 8 of this report for additional information.
Defined Benefit Plan Accounting.We sponsor defined benefit pension plans for eligible employees and retirees. The most critical assumptions impacting our defined benefit pension plan obligations and expenses are the weighted average discount rate and the expected long-term rate of return on the plan assets.United’s
United's pension
plans’plans' under-funded status was
$1.9$1.6 billion at December 31,
2016.2018. Funding requirements for
tax-qualified defined benefit pension plans are determined by government regulations. In
2017,2019, we anticipate contributing at least
$400$318 million to our pension plans. The fair value of the
plans’plans' assets was
$3.4$3.8 billion at December 31,
2016.2018.
When calculating pension expense for 2017,2019, the Company assumed that its plans’plans' assets would generate a long-term rate of return of approximately 7.0%7.4%. The expected long-term rate of return assumption was developed based on historical experience and input from the trustee managing the plans’plans' assets.The expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on a goal of earning the highest rate of return while maintaining risk at acceptable levels. Our projected long-term rate of return reflects the active management of our plans’plans' assets. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review actual asset allocation and the pension plans’plans' investments are periodically rebalanced to the targeted allocation when considered appropriate. The defined benefit pension plans’plans' assets consist of return generating investments and risk mitigating investments which are held through direct ownership or through interests in common collective trusts. Return generating investments include primarily equity securities, fixed-income securities and alternative investments (e.g. private equity and hedge funds). Risk mitigating investments include primarily U.S. government and investment grade corporate fixed-income securities. The allocation of assets was as follows at December 31, 2016: | | | | | | | | |
| | | Percent of Total | | | Expected Long-Term
Rate of Return | |
Equity securities | | | 35 % | | | | 9.5 % | |
Fixed-income securities | | | 39 | | | | 5.0 | |
Alternatives | | | 17 | | | | 7.3 | |
Other | | | 9 | | | | 7.0 | |
2018:
|
| | | | | |
| | Percent of Total | | Expected Long-Term Rate of Return |
| Equity securities | 36 | % | | 9.5 | % |
| Fixed-income securities | 37 | | | 5.8 | |
| Alternatives | 16 | | | 7.3 | |
| Other | 11 | | | 7.8 | |
Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return on plan assets by 50 basis points (from 7.0%7.4% to 6.5%6.9%) would increase estimated 20172019 pension expense by approximately $17$20 million. Future pension obligations for United’sUnited's plans were discounted using a weighted average rate of 4.18%4.2% at December 31, 2016.2018. The Company selected the discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 20162018 that would provide the necessary cash flows to match the projected benefit payments. The pension liability and future pension expense both increase as the discount rate is reduced. Lowering the discount rate by 50 basis points (from 4.18%4.2% to 3.68%3.7%) would increase the pension liability at December 31, 20162018 by approximately $575 $585million and increase the estimated 20172019 pension expense by approximately $73$69 million. Future changes in plan asset returns, plan provisions, assumed discount rates, pension funding law and various other factors related to the participants in our pension plans will impact our future pension expense and liabilities. We cannot predict with certainty what these factors will be in the future. Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions. Under the applicable accounting standards for defined benefit pension plans, those gains and losses are not required to be recognized currently as pension benefit expense, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees. All gains and losses in accumulated other comprehensive income are amortized to expense over the remaining years of service of the covered active employees. At December 31,
20162018 and
2015,2017, the Company had unrecognized actuarial losses for pension benefit plans of
$1.5$1.4 billion and
$844 million,$1.6 billion, respectively, recorded in accumulated other comprehensive income.
Other Postretirement Benefit Plan Accounting.United’sUnited's postretirement plan provides certain health care benefits, primarily in the United States, to retirees and eligible dependents, as well as certain life insurance benefits to certain retirees reflected as “Other"Other Benefits.”" United also has retiree medical programs that permit retirees who meet certain age and service requirements to continue medical coverage between retirement and Medicare eligibility. Eligible employees are required to pay a portion of the costs of their retiree medical benefits, which in some cases may be offset by accumulated unused sick time at the time of their retirement. Plan benefits are subject toco-payments, deductibles and other limits as described in the plans. The Company accounts for other postretirement benefits by recognizing the difference between plan assets and obligations, or the
plan’splan's funded status, in its financial statements. Other postretirement benefit expense is recognized on an accrual basis over
employees’employees' approximate service periods and is generally calculated independently of funding decisions or requirements. United has not been required to
pre-fund its plan obligations, which has resulted in a significant net obligation, as discussed below. The
Company’sCompany's benefit obligation was
$1.7$1.4 billion and
$2.0$1.7 billion for the other postretirement benefit plans at December 31,
20162018 and
2015,2017, respectively.
The calculation of other postretirement benefit expense and obligations requires the use of a number of assumptions, including the assumed discount rate for measuring future payment obligations and the health care cost trend rate. The Company determines the appropriate discount rate for each of the plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The Company’sCompany's weighted average discount rate to determine its
benefit obligations as of December 31,
20162018 was
4.07%4.30%, as compared to
4.49%3.63% for December 31,
2015.2017. The health care cost trend rate assumed for
20162018 was
6.75%6.25%, declining to 5.0% in 2023, as compared to assumed trend rate for
20172019 of
6.50%6.0%, declining to 5.0% in 2023. A 1% increase in assumed health care trend rates would increase the
Company’sCompany's total service and interest cost for the year ended December 31,
20162018 by
$13$9 million; whereas, a 1% decrease in assumed health care trend rates would decrease the
Company’sCompany's total service and interest cost for the year ended December 31,
20162018 by
$11$7 million. A one percentage point decrease in the weighted average discount rate would increase the
Company’sCompany's postretirement benefit liability by approximately
$181$139 million and increase the estimated
20162018 benefits expense by approximately
$11$10 million.
Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions and prior service credits result from a retroactive reduction in benefits due under the plans. Under the applicable accounting standards for postretirement welfare benefit plans, actuarial gains and losses and prior service credits are not required to be recognized currently, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees or the average life expectancy of inactive participants. At December 31,
20162018 and
2015,2017, the Company had unrecognized actuarial gains for postretirement welfare benefit plans of
$384$554 million and
$236$301 million, respectively, recorded in accumulated other comprehensive income.
Income Taxes.The Company has a net deferred tax asset totaling $655 million as of December 31, 2016, including $1.6 billion of federal and state NOL carryforwards and $108 million of alternative minimum tax credit carryforwards, net of a $8 million valuation allowance, which do not expire. The federal NOL carryforwards will expire beginning in 2026 if unused. In addition, the majority of tax benefits of the state net operating losses of $56 million, net of a $36 million valuation allowance, will expire over a five to20-year period. At the end of 2016, the Company maintained a valuation allowance of $68 million against certain state and local NOLs and credit carryforwards which will expire unused due to limited carryforward periods.
The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets. The Company establishes valuation allowances if it is not likely it will realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, the Company’s historical financial results and tax planning strategies. In evaluating the likelihood of utilizing the Company’s net deferred income tax assets, the significant factors that the Company considers include (1) the Company’s recent history and forecasted profitability; (2) growth in the U.S. and global economies; and (3) future impact of taxable temporary differences. During 2015, after considering all positive and negative evidence and the four sources of taxable income, the Company concluded that its deferred income tax assets were more likely than not to be realized. Therefore, the Company released almost all of its valuation allowance in 2015, resulting in a $3.1 billion benefit in its provision for income taxes.
Forward-Looking Information
Certain statements throughout Part II, Item 7,
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report are forward-looking and thus reflect the
Company’sCompany's current expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to the
Company’sCompany's operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as
“expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook,” “goals”"expects," "will," "plans," "anticipates," "indicates," "believes," "estimates," "forecast," "guidance," "outlook," "goals" and similar expressions are intended to identify forward-looking statements.
Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to
the Companyus on the date of this report.
The Company undertakesWe undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.
Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: our ability to
comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our
operational plansstrategic operating plan, including our growth, revenue-generating and
revenue-generating initiatives, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; costs associated with any modification or termination of our aircraft orders; our ability to utilize our net operating losses; our ability to attract and retain customers; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic and political conditions have on customer travel patterns; excessive taxation and the inability to offset future taxable income;cost-control initiatives; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets);
economic and political instability and other risks of doing business
globally;globally, including instability and political developments that may impact our operations in certain countries; demand for travel and the impact that global economic and political conditions have on customer travel patterns; our capacity decisions and the capacity decisions of our competitors; competitive pressures on pricing and on demand; changes in aircraft fuel prices; disruptions in our supply of aircraft fuel; our ability to cost-effectively hedge against increases in the price of aircraft fuel, if we decide to do so; the effects of any
technology failures or cybersecurity breaches; disruptions to services provided by third-party service providers; potential reputational or other impact from adverse events involving our aircraft or operations, the aircraft or operations of our regional carriers or our code share partners or the aircraft or operations of another airline; our ability to attract and retain customers; the effects of any terrorist attacks, international hostilities
actor other security events, or the fear of
warsuch events; disruptions to our regional network; the impact of regulatory, investigative and legal proceedings and legal compliance risks; the success of our investments in other airlines, including in other parts of the world; industry consolidation or
terrorist attack;changes in airline alliances; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers;
the effectscosts associated with any modification or termination of
any technology failures or cybersecurity breaches;our aircraft orders; disruptions
to our regional network;in the
costs and availability of
aviation and other insurance; industry consolidationaircraft, parts or
changes in airline alliances; the success ofsupport from our
investments in airlines in other parts of the world; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our competitors; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements and environmental regulations); the impact of regulatory, investigative and legal proceedings and legal compliance risks; the impact of any management changes; labor costs;suppliers; our ability to maintain satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups;
labor costs; an outbreak of a disease that affects travel demand or travel behavior; the impact of any management changes; extended interruptions or disruptions in service at major airports where we operate; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements, environmental regulations and the United Kingdom's withdrawal from the European Union); the seasonality of the airline industry; weather conditions;
the costs and availability of aviation and other insurance; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to comply with the terms of our various financing arrangements; our ability to realize the full value of our intangible assets and long-lived assets; and other risks and uncertainties set forth under Part I, Item 1A.,
“Risk Factors”Risk Factors, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.
| |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Interest Rates. Our net income (loss) is affected by fluctuations in interest rates (e.g. interest expense on variable rate debt and interest income earned on short-term investments). The Company’sCompany's policy is to manage interest rate risk through a combination of fixed and variable rate debt. The following table summarizes information related to the Company’sCompany's interest rate market risk at December 31 (in millions): | | | | | | | | |
| | | 2016 | | | 2015 | |
Variable rate debt | | | | | | | | |
Carrying value of variable rate debt at December 31 | | $ | 2,582 | | | $ | 2,345 | |
| Impact of 100 basis point increase on projected interest expense for the following year | | | 25 | | | | 23 | |
Fixed rate debt | | | | | | | | |
Carrying value of fixed rate debt at December 31 | | | 8,185 | | | | 8,552 | |
Fair value of fixed rate debt at December 31 | | | 8,469 | | | | 9,022 | |
Impact of 100 basis point increase in market rates on fair value | | | (340) | | | | (369) | |
|
| | | | | | | |
| | 2018 | | 2017 |
| Variable rate debt | | | |
| Carrying value of variable rate debt at December 31 | $ | 3,500 |
| | $ | 3,342 |
|
| Impact of 100 basis point increase on projected interest expense for the following year | 35 |
| | 33 |
|
| Fixed rate debt | | | |
| Carrying value of fixed rate debt at December 31 | 9,945 |
| | 9,926 |
|
| Fair value of fixed rate debt at December 31 | 9,901 |
| | 10,349 |
|
| Impact of 100 basis point increase in market rates on fair value | (378 | ) | | (403 | ) |
A change in market interest rates would also impact interest income earned on our cash, cash equivalents and short-term investments. Assuming our cash, cash equivalents and short-term investments remain at their average
2016 2018 levels, a 100 basis point increase in interest rates would result in a corresponding increase in the Company’sCompany's interest income of approximately $47$45 million during 2017.
2019.
Commodity Price Risk (Aircraft Fuel). The price level of aircraft fuel can significantly affect the Company’sCompany's operations, results of operations, financial position and liquidity. Since 2014, the price of jet fuel has declined but remains volatile. Our operational and financial results can be significantly impacted by changes in the price and availability of aircraft fuel. To provide adequate supplies of fuel, the Company routinely enters into purchase contracts that are customarily indexed to market prices for aircraft fuel, and the Company generally has some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations. The
price of aircraft fuel has fluctuated substantially in the past several years and in order to lower its exposure to unpredictable increases in the market prices of aircraft fuel, the Company has historically hedged a portion of its planned fuel requirements. As of December 31, 2016, the Company did not have any outstanding fuel hedging contracts. The Company’sCompany's current strategy is to not enter into transactions to hedge
its fuel
consumption,price volatility, although the Company regularly reviews its policy based on market conditions and other factors. The
Company’s 2017Company's 2019 forecasted fuel consumption is presently approximately
four4.3 billion gallons, and based on this forecast, a
one dollarone-dollar change in the price of a barrel of crude oil would change the
Company’sCompany's annual fuel expense by approximately
$95$104 million.
Foreign Currency.The Company generates revenues and incurs expenses in numerous foreign currencies. Changes in foreign currency exchange rates impact the Company’sCompany's results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses. Some of the Company’sCompany's more significant foreign currency exposures include the Canadian dollar, Chinese renminbi, European euro, British pound and Japanese yen. The Company’sCompany's current strategy is to not enter into transactions to hedge its foreign currency sales, although the Company regularly reviews its policy based on market conditions and other factors. As of December 31, 2016, the Company did not have any foreign currency derivative contracts outstanding. The last of the Company’s foreign currency derivatives expired in December 2016. The result of a uniform
10 percent1% strengthening in the value of the U.S. dollar from December 31,
20162018 levels relative to each of the currencies in which the Company has foreign currency exposure would result in a decrease in
pre-tax income of approximately
$239$24 million for the year ending December 31,
2017.2019. This sensitivity analysis was prepared based upon projected
20172019 foreign currency-denominated revenues and expenses as of December 31,
2016.2018.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
To the Stockholders and the Board of Directors
and Stockholdersof United Continental Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of United Continental Holdings, Inc. (the
“Company”"Company") as of December 31,
20162018 and
2015, and2017, the related statements of consolidated operations, comprehensive income (loss), cash flows, and
stockholders’stockholders' equity for each of the three years in the period ended December 31,
2016. Our audits also included2018, and the
related notes and financial statement schedule listed in the Index at Item 15(a)
(collectively referred to as the "consolidated financial statements").
TheseIn our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the
financial statement schedule are the responsibilityresults of its operations and its cash flows for each of the
Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We conducted our auditsalso have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2019, expressed an unqualified opinion thereon.
Adoption of ASU No. 2014-09
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2018, 2017 and 2016 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supportingregarding the amounts and disclosures in the financial statements.
An auditOur audits also
includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial
statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2009.
Chicago, Illinois
February 28, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of United Airlines, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of United Airlines, Inc. (the "Company") as of December 31, 2018 and 2017, and the related statements of consolidated operations, comprehensive income (loss), cash flows, and stockholder's equity, for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20162018 and 2015,2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,2018, in conformity with U.S. generally accepted accounting principles. Also,
Adoption of ASU No. 2014-09
As discussed in our opinion, the related financial statement schedule, when considered in relationNote 1 to the basic consolidated financial statements, taken as a whole, presents fairly,the Company changed its method of accounting for revenue in all material respects,2018, 2017 and 2016 due to the information set forth therein.We also have audited, in accordanceadoption of ASU No. 2014-09,
Revenue from Contracts with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 23, 2017, expressed an unqualified opinion thereon./s/ Ernst & Young LLP
Chicago, Illinois
February 23, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMCustomers (Topic 606).
The Board of Directors and Stockholder of
United Airlines, Inc.
We have audited the accompanying consolidated balance sheets of United Airlines, Inc. (the “Company”) as of December 31, 2016 and 2015, and the related statements of consolidated operations, comprehensive income (loss), cash flows, and stockholder’s equity
Basis for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15(a). Opinion
These financial statements
and financial statement schedule are the responsibility of the
Company’sCompany's management. Our responsibility is to express an opinion on
thesethe Company's financial statements
and financial statement schedule based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Wemisstatement, whether due to error or fraud. The Company is not required to have, nor were notwe engaged to perform an audit of the Company’sCompany's internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supportingregarding the amounts and disclosures in the financial
statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
andas well as evaluating the overall
presentation of the financial
statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have served as the Company's auditor since 2009.
February
23, 201728, 2019
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
(In millions, except per share amounts)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 (a) |
| Operating revenue: | | | | | |
| Passenger revenue | $ | 37,706 |
| | $ | 34,460 |
| | $ | 33,429 |
|
| Cargo | 1,237 |
| | 1,114 |
| | 934 |
|
| Other operating revenue | 2,360 |
| | 2,210 |
| | 2,195 |
|
| Total operating revenue | 41,303 |
| | 37,784 |
| | 36,558 |
|
| Operating expense: | | | | | |
| Salaries and related costs | 11,458 |
| | 10,941 |
| | 10,176 |
|
| Aircraft fuel | 9,307 |
| | 6,913 |
| | 5,813 |
|
| Regional capacity purchase | 2,601 |
| | 2,232 |
| | 2,197 |
|
| Landing fees and other rent | 2,359 |
| | 2,240 |
| | 2,165 |
|
| Depreciation and amortization | 2,240 |
| | 2,149 |
| | 1,977 |
|
| Aircraft maintenance materials and outside repairs | 1,767 |
| | 1,856 |
| | 1,749 |
|
| Distribution expenses | 1,558 |
| | 1,435 |
| | 1,395 |
|
| Aircraft rent | 433 |
| | 621 |
| | 680 |
|
| Special charges | 487 |
| | 176 |
| | 745 |
|
| Other operating expenses | 5,801 |
| | 5,550 |
| | 5,317 |
|
| Total operating expense | 38,011 |
| | 34,113 |
| | 32,214 |
|
| Operating income | 3,292 |
| | 3,671 |
| | 4,344 |
|
| | | | | | |
| Nonoperating income (expense): | | | | | |
| Interest expense | (729 | ) | | (671 | ) | | (674 | ) |
| Interest capitalized | 70 |
| | 84 |
| | 72 |
|
| Interest income | 101 |
| | 57 |
| | 42 |
|
| Miscellaneous, net | (76 | ) | | (101 | ) | | (11 | ) |
| Total nonoperating expense, net | (634 | ) | | (631 | ) | | (571 | ) |
| Income before income taxes | 2,658 |
| | 3,040 |
| | 3,773 |
|
| Income tax expense | 529 |
| | 896 |
| | 1,539 |
|
| Net income | $ | 2,129 |
| | $ | 2,144 |
| | $ | 2,234 |
|
| Earnings per share, basic | $ | 7.73 |
| | $ | 7.08 |
| | $ | 6.77 |
|
| Earnings per share, diluted | $ | 7.70 |
| | $ | 7.06 |
| | $ | 6.76 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
Operating revenue: | | | | | | | | | | | | |
Passenger—Mainline | | $ | 25,414 | | | $ | 26,333 | | | $ | 26,785 | |
Passenger—Regional | | | 6,043 | | | | 6,452 | | | | 6,977 | |
| | | | | | | | | | | | |
Total passenger revenue | | | 31,457 | | | | 32,785 | | | | 33,762 | |
Cargo | | | 876 | | | | 937 | | | | 938 | |
Other operating revenue | | | 4,223 | | | | 4,142 | | | | 4,201 | |
| | | | | | | | | | | | |
| | | 36,556 | | | | 37,864 | | | | 38,901 | |
| | | | | | | | | | | | |
| Operating expense: | | | | | | | | | | | | |
Salaries and related costs | | | 10,275 | | | | 9,713 | | | | 8,935 | |
Aircraft fuel | | | 5,813 | | | | 7,522 | | | | 11,675 | |
Regional capacity purchase | | | 2,197 | | | | 2,290 | | | | 2,344 | |
Landing fees and other rent | | | 2,165 | | | | 2,203 | | | | 2,274 | |
Depreciation and amortization | | | 1,977 | | | | 1,819 | | | | 1,679 | |
Aircraft maintenance materials and outside repairs | | | 1,749 | | | | 1,651 | | | | 1,779 | |
Distribution expenses | | | 1,303 | | | | 1,342 | | | | 1,373 | |
Aircraft rent | | | 680 | | | | 754 | | | | 883 | |
Special charges (Note 16) | | | 638 | | | | 326 | | | | 443 | |
Other operating expenses | | | 5,421 | | | | 5,078 | | | | 5,143 | |
| | | | | | | | | | | | |
| | | 32,218 | | | | 32,698 | | | | 36,528 | |
| | | | | | | | | | | | |
| Operating income | | | 4,338 | | | | 5,166 | | | | 2,373 | |
| | | | | | | | | | | | |
Nonoperating income (expense): | | | | | | | | | | | | |
Interest expense | | | (614) | | | | (669) | | | | (735) | |
Interest capitalized | | | 72 | | | | 49 | | | | 52 | |
Interest income | | | 42 | | | | 25 | | | | 22 | |
Miscellaneous, net (Note 16) | | | (19) | | | | (352) | | | | (584) | |
| | | | | | | | | | | | |
| | | (519) | | | | (947) | | | | (1,245) | |
| | | | | | | | | | | | |
| Income before income taxes | | | 3,819 | | | | 4,219 | | | | 1,128 | |
Income tax expense (benefit) | | | 1,556 | | | | (3,121) | | | | (4) | |
| | | | | | | | | | | | |
Net income | | $ | 2,263 | | | $ | 7,340 | | | $ | 1,132 | |
| | | | | | | | | | | | |
Earnings per share, basic | | $ | 6.86 | | | $ | 19.52 | | | $ | 3.05 | |
| | | | | | | | | | | | |
Earnings per share, diluted | | $ | 6.85 | | | $ | 19.47 | | | $ | 2.93 | |
| | | | | | | | | | | | |
Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 (a) |
| | | | | | |
| Net income | $ | 2,129 |
| | $ | 2,144 |
| | $ | 2,234 |
|
| | | | | | |
| Other comprehensive income (loss), net change related to: | | | | | |
| Employee benefit plans, net of taxes | 342 |
| | (195 | ) | | (313 | ) |
| Fuel derivative financial instruments, net of taxes | — |
| | 1 |
| | 316 |
|
| Investments and other, net of taxes | (4 | ) | | (6 | ) | | (1 | ) |
| Total other comprehensive income (loss), net | 338 |
| | (200 | ) | | 2 |
|
| Total comprehensive income, net | $ | 2,467 |
| | $ | 1,944 |
| | $ | 2,236 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
Net income | | $ | 2,263 | | | $ | 7,340 | | | $ | 1,132 | |
| | | | | | | | | | | | |
Other comprehensive income (loss), net change related to: | | | | | | | | | | | | |
Employee benefit plans, net of taxes | | | (313) | | | | 70 | | | | (1,171) | |
Fuel derivative financial instruments, net of taxes | | | 316 | | | | 182 | | | | (510) | |
Investments and other, net of taxes | | | (1) | | | | (4) | | | | (6) | |
| | | | | | | | | | | | |
| | | 2 | | | | 248 | | | | (1,687) | |
| | | | | | | | | | | | |
Total comprehensive income (loss), net | | $ | 2,265 | | | $ | 7,588 | | | $ | (555) | |
| | | | | | | | | | | | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
| | | | | | | | |
| | | At December 31, | |
| | | | | | | | |
| ASSETS | | 2016 | | | 2015 | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 2,179 | | | $ | 3,006 | |
Short-term investments | | | 2,249 | | | | 2,190 | |
Receivables, less allowance for doubtful accounts (2016—$10; 2015—$18) | | | 1,176 | | | | 1,128 | |
Fuel hedge collateral deposits | | | — | | | | 26 | |
Aircraft fuel, spare parts and supplies, less obsolescence allowance
(2016—$295; 2015—$235) | | | 873 | | | | 738 | |
Prepaid expenses and other | | | 832 | | | | 740 | |
| | | | | | | | |
| | | 7,309 | | | | 7,828 | |
| | | | | | | | |
Operating property and equipment: | | | | | | | | |
Owned— | | | | | | | | |
Flight equipment | | | 25,873 | | | | 23,728 | |
Other property and equipment | | | 5,652 | | | | 4,542 | |
| | | | | | | | |
| | | 31,525 | | | | 28,270 | |
Less—Accumulated depreciation and amortization | | | (9,975) | | | | (8,339) | |
| | | | | | | | |
| | | 21,550 | | | | 19,931 | |
| | | | | | | | |
| | | | | | | | |
Purchase deposits for flight equipment | | | 1,059 | | | | 788 | |
| | | | | | | | |
Capital leases— | | | | | | | | |
Flight equipment | | | 1,319 | | | | 1,527 | |
Other property and equipment | | | 331 | | | | 332 | |
| | | | | | | | |
| | | 1,650 | | | | 1,859 | |
Less—Accumulated amortization | | | (941) | | | | (998) | |
| | | | | | | | |
| | | 709 | | | | 861 | |
| | | | | | | | |
| | | 23,318 | | | | 21,580 | |
| | | | | | | | |
Other assets: | | | | | | | | |
Goodwill | | | 4,523 | | | | 4,523 | |
Intangibles, less accumulated amortization (2016—$1,234; 2015—$1,144) | | | 3,632 | | | | 4,136 | |
Deferred income taxes | | | 655 | | | | 2,037 | |
Restricted cash | | | 124 | | | | 204 | |
Other, net | | | 579 | | | | 553 | |
| | | | | | | | |
| | | 9,513 | | | | 11,453 | |
| | | | | | | | |
| | $ | 40,140 | | | $ | 40,861 | |
| | | | | | | | |
|
| | | | | | | |
| | At December 31, |
| ASSETS | 2018 | | 2017 (a) |
| Current assets: | | | |
| Cash and cash equivalents | $ | 1,694 |
| | $ | 1,482 |
|
| Short-term investments | 2,256 |
| | 2,316 |
|
| Receivables, less allowance for doubtful accounts (2018—$8; 2017—$7) | 1,346 |
| | 1,340 |
|
| Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018—$412; 2017—$354) | 985 |
| | 924 |
|
| Prepaid expenses and other | 913 |
| | 1,071 |
|
| Total current assets | 7,194 |
| | 7,133 |
|
| Operating property and equipment: | | | |
| Owned— | | | |
| Flight equipment | 31,607 |
| | 28,692 |
|
| Other property and equipment | 7,919 |
| | 6,946 |
|
| Total owned property and equipment | 39,526 |
| | 35,638 |
|
| Less—Accumulated depreciation and amortization | (12,760 | ) | | (11,159 | ) |
| Total owned property and equipment, net | 26,766 |
| | 24,479 |
|
| | | | |
| Purchase deposits for flight equipment | 1,177 |
| | 1,344 |
|
| | | | |
| Capital leases— | | | |
| Flight equipment | 1,029 |
| | 1,151 |
|
| Other property and equipment | 11 |
| | 11 |
|
| Total capital leases | 1,040 |
| | 1,162 |
|
| Less—Accumulated amortization | (654 | ) | | (777 | ) |
| Total capital leases, net | 386 |
| | 385 |
|
| Total operating property and equipment, net | 28,329 |
| | 26,208 |
|
| Other assets: | | | |
| Goodwill | 4,523 |
| | 4,523 |
|
| Intangibles, less accumulated amortization (2018—$1,380; 2017—$1,313) | 3,159 |
| | 3,539 |
|
| Restricted cash | 105 |
| | 91 |
|
| Notes receivable, net | 516 |
| | 46 |
|
| Investments in affiliates and other, net | 966 |
| | 806 |
|
| Total other assets | 9,269 |
| | 9,005 |
|
| Total assets | $ | 44,792 |
| | $ | 42,346 |
|
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
|
| | | | | | | |
| | At December 31, |
| LIABILITIES AND STOCKHOLDERS' EQUITY | 2018 | | 2017 (a) |
| Current liabilities: | | | |
| Advance ticket sales | $ | 4,381 |
| | $ | 3,940 |
|
| Frequent flyer deferred revenue | 2,286 |
| | 2,192 |
|
| Accounts payable | 2,363 |
| | 2,196 |
|
| Accrued salaries and benefits | 2,184 |
| | 2,166 |
|
| Current maturities of long-term debt | 1,230 |
| | 1,565 |
|
| Current maturities of capital leases | 149 |
| | 128 |
|
| Other | 619 |
| | 576 |
|
| Total current liabilities | 13,212 |
| | 12,763 |
|
| | | | |
| Long-term debt | 12,215 |
| | 11,703 |
|
| Long-term obligations under capital leases | 1,134 |
| | 996 |
|
| | | | |
| Other liabilities and deferred credits: | | | |
| Frequent flyer deferred revenue | 2,719 |
| | 2,591 |
|
| Postretirement benefit liability | 1,295 |
| | 1,602 |
|
| Pension liability | 1,576 |
| | 1,921 |
|
| Deferred income taxes | 814 |
| | 204 |
|
| Other | 1,832 |
| | 1,832 |
|
| Total other liabilities and deferred credits | 8,236 |
| | 8,150 |
|
| Commitments and contingencies |
| |
|
| Stockholders' equity: | | | |
| Preferred stock | — |
| | — |
|
| Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 269,914,769 and 286,973,195 shares at December 31, 2018 and 2017, respectively | 3 |
| | 3 |
|
| Additional capital invested | 6,120 |
| | 6,098 |
|
| Retained earnings | 6,668 |
| | 4,549 |
|
| Stock held in treasury, at cost | (1,993 | ) | | (769 | ) |
| Accumulated other comprehensive loss | (803 | ) | | (1,147 | ) |
| Total stockholders' equity | 9,995 |
| | 8,734 |
|
| Total liabilities and stockholders' equity | $ | 44,792 |
| | $ | 42,346 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | |
| | | At December 31, | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | 2016 | | | 2015 | |
Current liabilities: | | | | | | | | |
Advance ticket sales | | $ | 3,730 | | | $ | 3,753 | |
Frequent flyer deferred revenue | | | 2,135 | | | | 2,117 | |
Accounts payable | | | 2,139 | | | | 1,869 | |
Accrued salaries and benefits | | | 2,307 | | | | 2,350 | |
Current maturities of long-term debt | | | 849 | | | | 1,224 | |
Current maturities of capital leases | | | 116 | | | | 135 | |
Fuel derivative instruments | | | — | | | | 124 | |
Other | | | 1,010 | | | | 842 | |
| | | | | | | | |
| | | 12,286 | | | | 12,414 | |
| | | | | | | | |
| | | | | | | | |
Long-term debt | | | 9,918 | | | | 9,673 | |
Long-term obligations under capital leases | | | 822 | | | | 727 | |
| | | | | | | | |
| Other liabilities and deferred credits: | | | | | | | | |
Frequent flyer deferred revenue | | | 2,748 | | | | 2,826 | |
Postretirement benefit liability | | | 1,581 | | | | 1,882 | |
Pension liability | | | 1,892 | | | | 1,488 | |
Advanced purchase of miles | | | 430 | | | | 1,010 | |
Lease fair value adjustment, net | | | 277 | | | | 359 | |
Other | | | 1,527 | | | | 1,516 | |
| | | | | | | | |
| | | 8,455 | | | | 9,081 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock | | | — | | | | — | |
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 314,612,744 and 364,609,108 shares at December 31, 2016 and 2015, respectively | | | 3 | | | | 4 | |
Additional capital invested | | | 6,569 | | | | 7,946 | |
Retained earnings | | | 3,427 | | | | 3,457 | |
Stock held in treasury, at cost | | | (511) | | | | (1,610) | |
Accumulated other comprehensive loss | | | (829) | | | | (831) | |
| | | | | | | | |
| | | 8,659 | | | | 8,966 | |
| | | | | | | | |
| | $ | 40,140 | | | $ | 40,861 | |
| | | | | | | | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 (a) |
| Operating Activities: | | | | | |
| Net income | $ | 2,129 |
| | $ | 2,144 |
| | $ | 2,234 |
|
| Adjustments to reconcile net income to net cash provided by operating activities - | | | | | |
| Deferred income taxes | 515 |
| | 973 |
| | 1,631 |
|
| Depreciation and amortization | 2,240 |
| | 2,149 |
| | 1,977 |
|
| Special charges, non-cash portion | 416 |
| | 35 |
| | 391 |
|
| Other operating activities | 170 |
| | 141 |
| | 109 |
|
| Changes in operating assets and liabilities - | | | | | |
| Increase in receivables | (29 | ) | | (183 | ) | | (16 | ) |
| (Increase) decrease in other assets | 29 |
| | (533 | ) | | (296 | ) |
| Increase (decrease) in advance ticket sales | 441 |
| | 145 |
| | (28 | ) |
| Increase (decrease) in frequent flyer deferred revenue | 222 |
| | (107 | ) | | (55 | ) |
| Increase in accounts payable | 130 |
| | 66 |
| | 239 |
|
| Decrease in advanced purchase of miles | — |
| | (942 | ) | | (206 | ) |
| Decrease in other liabilities | (82 | ) | | (475 | ) | | (438 | ) |
| Net cash provided by operating activities | 6,181 |
| | 3,413 |
| | 5,542 |
|
| Investing Activities: | | | | | |
| Capital expenditures | (4,177 | ) | | (3,998 | ) | | (3,223 | ) |
| Purchases of short-term and other investments | (2,552 | ) | | (3,241 | ) | | (2,768 | ) |
| Proceeds from sale of short-term and other investments | 2,616 |
| | 3,177 |
| | 2,712 |
|
| Loans made to others | (466 | ) | | (30 | ) | | (56 | ) |
| Investment in affiliates | (139 | ) | | (2 | ) | | (14 | ) |
| Other, net | 155 |
| | 164 |
| | 111 |
|
| Net cash used in investing activities | (4,563 | ) | | (3,930 | ) | | (3,238 | ) |
| Financing Activities: | | | | | |
| Proceeds from issuance of long-term debt and airport construction financing | 1,740 |
| | 2,765 |
| | 808 |
|
| Payments of long-term debt | (1,727 | ) | | (901 | ) | | (1,215 | ) |
| Repurchases of common stock | (1,235 | ) | | (1,844 | ) | | (2,614 | ) |
| Principal payments under capital leases | (134 | ) | | (124 | ) | | (136 | ) |
| Capitalized financing costs | (37 | ) | | (80 | ) | | (64 | ) |
| Other, net | (17 | ) | | (11 | ) | | 8 |
|
| Net cash used in financing activities | (1,410 | ) | | (195 | ) | | (3,213 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 208 |
| | (712 | ) | | (909 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 1,591 |
| | 2,303 |
| | 3,212 |
|
| Cash, cash equivalents and restricted cash at end of year | $ | 1,799 |
| | $ | 1,591 |
| | $ | 2,303 |
|
| | | | | | |
| Investing and Financing Activities Not Affecting Cash: | | | | | |
| Property and equipment acquired through the issuance of debt and capital leases | $ | 174 |
| | $ | 935 |
| | $ | 386 |
|
| Debt associated with termination of a maintenance service agreement | 163 |
| | — |
| | — |
|
| Investment in Republic Airways Holdings, Inc. received from bankruptcy claims | — |
| | 92 |
| | — |
|
| Airport construction financing | 12 |
| | 42 |
| | 91 |
|
| Operating lease conversions to capital lease | 52 |
| | — |
| | 12 |
|
| | | | | | |
| Cash Paid During the Period for: | | | | | |
| Interest | $ | 651 |
| | $ | 571 |
| | $ | 584 |
|
| Income taxes | 19 |
| | 20 |
| | 14 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
Cash Flows from Operating Activities: | | | | | | | | | | | | |
Net income | | $ | 2,263 | | | $ | 7,340 | | | $ | 1,132 | |
Adjustments to reconcile net income to net cash provided by operating activities - | | | | | | | | | | | | |
Deferred income taxes | | | 1,648 | | | | (3,177) | | | | 13 | |
Depreciation and amortization | | | 1,977 | | | | 1,819 | | | | 1,679 | |
Special charges,non-cash portion | | | 391 | | | | 247 | | | | 78 | |
Other operating activities | | | 109 | | | | 115 | | | | (21) | |
Changes in operating assets and liabilities - | | | | | | | | | | | | |
(Increase) decrease in fuel hedge collateral | | | 26 | | | | 551 | | | | (577) | |
(Decrease) increase in fuel derivatives | | | (20) | | | | (305) | | | | 436 | |
Decrease in other liabilities | | | (114) | | | | (198) | | | | (238) | |
Decrease in frequent flyer deferred revenue and advanced purchase of miles | | | (641) | | | | (200) | | | | (88) | |
Increase in other assets | | | (298) | | | | (160) | | | | (34) | |
Increase (decrease) in accounts payable | | | 239 | | | | (77) | | | | (251) | |
Increase (decrease) in advance ticket sales | | | (22) | | | | 52 | | | | 296 | |
(Increase) decrease in receivables | | | (16) | | | | (15) | | | | 209 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 5,542 | | | | 5,992 | | | | 2,634 | |
| | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
Capital expenditures | | | (3,223) | | | | (2,747) | | | | (2,005) | |
Purchases of short-term and other investments | | | (2,768) | | | | (2,517) | | | | (3,569) | |
Proceeds from sale of short-term and other investments | | | 2,712 | | | | 2,707 | | | | 3,112 | |
Proceeds from sale of property and equipment | | | 28 | | | | 86 | | | | 94 | |
Other, net | | | 13 | | | | (136) | | | | 37 | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (3,238) | | | | (2,607) | | | | (2,331) | |
| | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
Repurchases of common stock | | | (2,614) | | | | (1,233) | | | | (312) | |
Payments of long-term debt | | | (1,215) | | | | (2,178) | | | | (2,503) | |
Proceeds from issuance of long-term debt | | | 808 | | | | 1,073 | | | | 1,432 | |
Principal payments under capital leases | | | (136) | | | | (123) | | | | (127) | |
Capitalized financing costs | | | (64) | | | | (37) | | | | (104) | |
Proceeds from the exercise of stock options | | | 6 | | | | 16 | | | | 60 | |
Other, net | | | 2 | | | | (13) | | | | (42) | |
| | | | | | | | | | | | |
Net cash used in financing activities | | | (3,213) | | | | (2,495) | | | | (1,596) | |
| | | | | | | | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | (909) | | | | 890 | | | | (1,293) | |
Cash, cash equivalents and restricted cash at beginning of year | | | 3,212 | | | | 2,322 | | | | 3,615 | |
| | | | | | | | | | | | |
Cash, cash equivalents and restricted cash at end of year | | $ | 2,303 | | | $ | 3,212 | | | $ | 2,322 | |
| | | | | | | | | | | | |
Investing and Financing Activities Not Affecting Cash: | | | | | | | | | | | | |
Property and equipment acquired through the issuance of debt | | $ | 386 | | | $ | 866 | | | $ | 1,114 | |
Airport construction financing | | | 91 | | | | 17 | | | | 14 | |
Operating lease conversions to capital lease | | | 12 | | | | 285 | | | | — | |
Exchange of convertible notes for common stock | | | — | | | | 202 | | | | 260 | |
Cash Paid (Refunded) During the Period for: | | | | | | | | | | | | |
Interest | | $ | 584 | | | $ | 660 | | | $ | 748 | |
Income taxes | | | 14 | | | | 15 | | | | (16) | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED
STOCKHOLDERS’STOCKHOLDERS' EQUITY
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Capital Invested | | Treasury Stock | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | Shares | | Amount | | | | | |
| Balance at December 31, 2015 | 364.6 |
| | $ | 4 |
| | $ | 7,946 |
| | $ | (1,610 | ) | | $ | 3,457 |
| | $ | (831 | ) | | $ | 8,966 |
|
| Net income (a) | — |
| | — |
| | — |
| | — |
| | 2,234 |
| | — |
| | 2,234 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
| Stock-settled share-based compensation | — |
| | — |
| | 32 |
| | — |
| | — |
| | — |
| | 32 |
|
| Proceeds from exercise of stock options | 0.3 |
| | — |
| | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
| Repurchases of common stock | (50.3 | ) | | — |
| | — |
| | (2,607 | ) | | — |
| | — |
| | (2,607 | ) |
| Treasury stock retired | — |
| | (1 | ) | | (1,415 | ) | | 3,709 |
| | (2,293 | ) | | — |
| | — |
|
| Other (a) | — |
| | — |
| | — |
| | (3 | ) | | (56 | ) | | — |
| | (59 | ) |
| Balance at December 31, 2016 | 314.6 |
| | 3 |
| | 6,569 |
| | (511 | ) | | 3,342 |
| | (829 | ) | | 8,574 |
|
| Net income (a) | — |
| | — |
| | — |
| | — |
| | 2,144 |
| | — |
| | 2,144 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (200 | ) | | (200 | ) |
| Stock-settled share-based compensation | — |
| | — |
| | 56 |
| | — |
| | — |
| | — |
| | 56 |
|
| Proceeds from exercise of stock options | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
| Repurchases of common stock | (27.8 | ) | | — |
| | — |
| | (1,844 | ) | | — |
| | — |
| | (1,844 | ) |
| Treasury stock retired | — |
| | — |
| | (508 | ) | | 1,576 |
| | (1,068 | ) | | — |
| | — |
|
| Net treasury stock issued for share-based awards | 0.2 |
| | — |
| | (21 | ) | | 10 |
| | (1 | ) | | — |
| | (12 | ) |
| Excess tax benefits from share-based awards | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
| Reclassification of stranded tax effects | — |
| | — |
| | — |
| | — |
| | 118 |
| | (118 | ) | | — |
|
| Balance at December 31, 2017 | 287.0 |
| | 3 |
| | 6,098 |
| | (769 | ) | | 4,549 |
| | (1,147 | ) | | 8,734 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 2,129 |
| | — |
| | 2,129 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | 338 |
| | 338 |
|
| Stock-settled share-based compensation | — |
| | — |
| | 60 |
| | — |
| | — |
| | — |
| | 60 |
|
| Repurchases of common stock | (17.5 | ) | | — |
| | — |
| | (1,250 | ) | | — |
| | — |
| | (1,250 | ) |
| Net treasury stock issued for share-based awards | 0.4 |
| | — |
| | (38 | ) | | 26 |
| | (4 | ) | | — |
| | (16 | ) |
| Adoption of accounting standard related to equity investments | — |
| | — |
| | — |
| | — |
| | (6 | ) | | 6 |
| | — |
|
| Balance at December 31, 2018 | 269.9 |
| | $ | 3 |
| | $ | 6,120 |
| | $ | (1,993 | ) | | $ | 6,668 |
| | $ | (803 | ) | | $ | 9,995 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common
Stock | | | Additional
Capital
Invested | | | Treasury
Stock | | | Retained
Earnings
(Accumulated
Deficit) | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Total | |
| | | Shares | | | Amount | | | | | | |
Balance at December 31, 2013 | | | 362 | | | $ | 4 | | | $ | 7,425 | | | $ | (38) | | | $ | (5,015) | | | $ | 608 | | | $ | 2,984 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | 1,132 | | | | — | | | | 1,132 | |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,687) | | | | (1,687) | |
Convertible debt redemption | | | 17 | | | | — | | | | 260 | | | | — | | | | — | | | | — | | | | 260 | |
Repurchase of convertible debt | | | — | | | | — | | | | (34) | | | | — | | | | — | | | | — | | | | (34) | |
Share-based compensation | | | — | | | | — | | | | 10 | | | | — | | | | — | | | | — | | | | 10 | |
Proceeds from exercise of stock options | | | 2 | | | | — | | | | 60 | | | | — | | | | — | | | | — | | | | 60 | |
Repurchases of common stock | | | (6) | | | | — | | | | — | | | | (320) | | | | — | | | | — | | | | (320) | |
Other | | | — | | | | — | | | | — | | | | (9) | | | | — | | | | — | | | | (9) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 | | | 375 | | | | 4 | | | | 7,721 | | | | (367) | | | | (3,883) | | | | (1,079) | | | | 2,396 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | 7,340 | | | | — | | | | 7,340 | |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 248 | | | | 248 | |
Convertible debt redemptions | | | 11 | | | | — | | | | 202 | | | | — | | | | — | | | | — | | | | 202 | |
Share-based compensation | | | — | | | | — | | | | 7 | | | | — | | | | — | | | | — | | | | 7 | |
Proceeds from exercise of stock options | | | — | | | | — | | | | 16 | | | | — | | | | — | | | | — | | | | 16 | |
Repurchases of common stock | | | (21) | | | | — | | | | — | | | | (1,232) | | | | — | | | | — | | | | (1,232) | |
Other | | | — | | | | — | | | | — | | | | (11) | | | | — | | | | — | | | | (11) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 | | | 365 | | | | 4 | | | | 7,946 | | | | (1,610) | | | | 3,457 | | | | (831) | | | | 8,966 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | 2,263 | | | | — | | | | 2,263 | |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | 2 | |
Share-based compensation | | | — | | | | — | | | | 32 | | | | — | | | | — | | | | — | | | | 32 | |
Proceeds from exercise of stock options | | | — | | | | — | | | | 6 | | | | — | | | | — | | | | — | | | | 6 | |
Repurchases of common stock | | | (50) | | | | — | | | | — | | | | (2,607) | | | | — | | | | — | | | | (2,607) | |
Treasury stock retired | | | — | | | | (1) | | | | (1,415) | | | | 3,709 | | | | (2,293) | | | | — | | | | — | |
Other | | | — | | | | — | | | | — | | | | (3) | | | | — | | | | — | | | | (3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | | 315 | | | $ | 3 | | | $ | 6,569 | | | $ | (511) | | | $ | 3,427 | | | $ | (829) | | | $ | 8,659 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
STATEMENTS OF CONSOLIDATED OPERATIONS
(In millions)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 (a) |
| Operating revenue: | | | | | |
| Passenger revenue | $ | 37,706 |
| | $ | 34,460 |
| | $ | 33,429 |
|
| Cargo | 1,237 |
| | 1,114 |
| | 934 |
|
| Other operating revenue | 2,360 |
| | 2,210 |
| | 2,195 |
|
| Total operating revenue | 41,303 |
| | 37,784 |
| | 36,558 |
|
| Operating expense: | | | | | |
| Salaries and related costs | 11,458 |
| | 10,941 |
| | 10,176 |
|
| Aircraft fuel | 9,307 |
| | 6,913 |
| | 5,813 |
|
| Regional capacity purchase | 2,601 |
| | 2,232 |
| | 2,197 |
|
| Landing fees and other rent | 2,359 |
| | 2,240 |
| | 2,165 |
|
| Depreciation and amortization | 2,240 |
| | 2,149 |
| | 1,977 |
|
| Aircraft maintenance materials and outside repairs | 1,767 |
| | 1,856 |
| | 1,749 |
|
| Distribution expenses | 1,558 |
| | 1,435 |
| | 1,395 |
|
| Aircraft rent | 433 |
| | 621 |
| | 680 |
|
| Special charges | 487 |
| | 176 |
| | 745 |
|
| Other operating expenses | 5,799 |
| | 5,548 |
| | 5,315 |
|
| Total operating expense | 38,009 |
| | 34,111 |
| | 32,212 |
|
| Operating income | 3,294 |
| | 3,673 |
| | 4,346 |
|
| | | | | | |
| Nonoperating income (expense): | | | | | |
| Interest expense | (729 | ) | | (671 | ) | | (674 | ) |
| Interest capitalized | 70 |
| | 84 |
| | 72 |
|
| Interest income | 101 |
| | 57 |
| | 42 |
|
| Miscellaneous, net | (76 | ) | | (101 | ) | | (11 | ) |
| Total nonoperating expense, net | (634 | ) | | (631 | ) | | (571 | ) |
| Income before income taxes | 2,660 |
| | 3,042 |
| | 3,775 |
|
| Income tax expense | 529 |
| | 879 |
| | 1,541 |
|
| Net income | $ | 2,131 |
| | $ | 2,163 |
| | $ | 2,234 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
Operating revenue: | | | | | | | | | | | | |
Passenger—Mainline | | $ | 25,414 | | | $ | 26,333 | | | $ | 26,785 | |
Passenger—Regional | | | 6,043 | | | | 6,452 | | | | 6,977 | |
| | | | | | | | | | | | |
Total passenger revenue | | | 31,457 | | | | 32,785 | | | | 33,762 | |
Cargo | | | 876 | | | | 937 | | | | 938 | |
Other operating revenue | | | 4,223 | | | | 4,142 | | | | 4,201 | |
| | | | | | | | | | | | |
| | | 36,556 | | | | 37,864 | | | | 38,901 | |
| | | | | | | | | | | | |
| Operating expense: | | | | | | | | | | | | |
Salaries and related costs | | | 10,275 | | | | 9,713 | | | | 8,935 | |
Aircraft fuel | | | 5,813 | | | | 7,522 | | | | 11,675 | |
Regional capacity purchase | | | 2,197 | | | | 2,290 | | | | 2,344 | |
Landing fees and other rent | | | 2,165 | | | | 2,203 | | | | 2,274 | |
Depreciation and amortization | | | 1,977 | | | | 1,819 | | | | 1,679 | |
Aircraft maintenance materials and outside repairs | | | 1,749 | | | | 1,651 | | | | 1,779 | |
Distribution expenses | | | 1,303 | | | | 1,342 | | | | 1,373 | |
Aircraft rent | | | 680 | | | | 754 | | | | 883 | |
Special charges (Note 16) | | | 638 | | | | 326 | | | | 443 | |
Other operating expenses | | | 5,418 | | | | 5,076 | | | | 5,139 | |
| | | | | | | | | | | | |
| | | 32,215 | | | | 32,696 | | | | 36,524 | |
| | | | | | | | | | | | |
| Operating income | | | 4,341 | | | | 5,168 | | | | 2,377 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Nonoperating income (expense): | | | | | | | | | | | | |
Interest expense | | | (614) | | | | (670) | | | | (742) | |
Interest capitalized | | | 72 | | | | 49 | | | | 52 | |
Interest income | | | 42 | | | | 25 | | | | 22 | |
Miscellaneous, net (Note 16) | | | (19) | | | | (351) | | | | (599) | |
| | | | | | | | | | | | |
| | | (519) | | | | (947) | | | | (1,267) | |
| | | | | | | | | | | | |
| Income before income taxes | | | 3,822 | | | | 4,221 | | | | 1,110 | |
Income tax expense (benefit) | | | 1,558 | | | | (3,080) | | | | (4) | |
| | | | | | | | | | | | |
Net income | | $ | 2,264 | | | $ | 7,301 | | | $ | 1,114 | |
| | | | | | | | | | | | |
Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 (a) |
| | | | | | |
| Net income | $ | 2,131 |
| | $ | 2,163 |
| | $ | 2,234 |
|
| | | | | | |
| Other comprehensive income (loss), net change related to: | | | | | |
| Employee benefit plans, net of taxes | 342 |
| | (195 | ) | | (313 | ) |
| Fuel derivative financial instruments, net of taxes | — |
| | 1 |
| | 316 |
|
| Investments and other, net of taxes | (4 | ) | | (6 | ) | | (1 | ) |
| Total other comprehensive income (loss), net | 338 |
| | (200 | ) | | 2 |
|
| Total comprehensive income, net | $ | 2,469 |
| | $ | 1,963 |
| | $ | 2,236 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
Net income | | $ | 2,264 | | | $ | 7,301 | | | $ | 1,114 | |
| | | | | | | | | | | | |
Other comprehensive income (loss), net change related to: | | | | | | | | | | | | |
Employee benefit plans, net of taxes | | | (313) | | | | 70 | | | | (1,171) | |
Fuel derivative financial instruments, net of taxes | | | 316 | | | | 182 | | | | (510) | |
Investments and other, net of taxes | | | (1) | | | | (4) | | | | (6) | |
| | | | | | | | | | | | |
| | | 2 | | | | 248 | | | | (1,687) | |
| | | | | | | | | | | | |
Total comprehensive income (loss), net | | $ | 2,266 | | | $ | 7,549 | | | $ | (573) | |
| | | | | | | | | | | | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
| | | | | | | | |
| | | At December 31, | |
| | | | | | | | |
| ASSETS | | 2016 | | | 2015 | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 2,173 | | | $ | 3,000 | |
Short-term investments | | | 2,249 | | | | 2,190 | |
Receivables, less allowance for doubtful accounts (2016—$10; 2015—$18) | | | 1,176 | | | | 1,128 | |
Fuel hedge collateral deposits | | | — | | | | 26 | |
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2016—$295; 2015—$235) | | | 873 | | | | 738 | |
Prepaid expenses and other | | | 832 | | | | 787 | |
| | | | | | | | |
| | | 7,303 | | | | 7,869 | |
| | | | | | | | |
Operating property and equipment: | | | | | | | | |
Owned— | | | | | | | | |
Flight equipment | | | 25,873 | | | | 23,728 | |
Other property and equipment | | | 5,652 | | | | 4,542 | |
| | | | | | | | |
| | | 31,525 | | | | 28,270 | |
Less—Accumulated depreciation and amortization | | | (9,975) | | | | (8,339) | |
| | | | | | | | |
| | | 21,550 | | | | 19,931 | |
| | | | | | | | |
| | | | | | | | |
Purchase deposits for flight equipment | | | 1,059 | | | | 788 | |
| | | | | | | | |
Capital leases— | | | | | | | | |
Flight equipment | | | 1,319 | | | | 1,527 | |
Other property and equipment | | | 331 | | | | 332 | |
| | | | | | | | |
| | | 1,650 | | | | 1,859 | |
Less—Accumulated amortization | | | (941) | | | | (998) | |
| | | | | | | | |
| | | 709 | | | | 861 | |
| | | | | | | | |
| | | 23,318 | | | | 21,580 | |
| | | | | | | | |
Other assets: | | | | | | | | |
Goodwill | | | 4,523 | | | | 4,523 | |
Intangibles, less accumulated amortization (2016—$1,234; 2015—$1,144) | | | 3,632 | | | | 4,136 | |
Deferred income taxes | | | 612 | | | | 1,995 | |
Restricted cash | | | 124 | | | | 204 | |
Other, net | | | 579 | | | | 554 | |
| | | | | | | | |
| | | 9,470 | | | | 11,412 | |
| | | | | | | | |
| | $ | 40,091 | | | $ | 40,861 | |
| | | | | | | | |
58
|
| | | | | | | |
| | At December 31, |
| ASSETS | 2018 | | 2017 (a) |
| Current assets: | | | |
| Cash and cash equivalents | $ | 1,688 |
| | $ | 1,476 |
|
| Short-term investments | 2,256 |
| | 2,316 |
|
| Receivables, less allowance for doubtful accounts (2018—$8; 2017—$7) | 1,346 |
| | 1,340 |
|
| Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018—$412; 2017—$354) | 985 |
| | 924 |
|
| Prepaid expenses and other | 913 |
| | 1,071 |
|
| Total current assets | 7,188 |
| | 7,127 |
|
| Operating property and equipment: | | | |
| Owned— | | | |
| Flight equipment | 31,607 |
| | 28,692 |
|
| Other property and equipment | 7,919 |
| | 6,946 |
|
| Total owned property and equipment | 39,526 |
| | 35,638 |
|
| Less—Accumulated depreciation and amortization | (12,760 | ) | | (11,159 | ) |
| Total owned property and equipment, net | 26,766 |
| | 24,479 |
|
| | | | |
| Purchase deposits for flight equipment | 1,177 |
| | 1,344 |
|
| | | | |
| Capital leases— | | | |
| Flight equipment | 1,029 |
| | 1,151 |
|
| Other property and equipment | 11 |
| | 11 |
|
| Total capital leases | 1,040 |
| | 1,162 |
|
| Less—Accumulated amortization | (654 | ) | | (777 | ) |
| Total capital leases, net | 386 |
| | 385 |
|
| Total operating property and equipment, net | 28,329 |
| | 26,208 |
|
| Other assets: | | | |
| Goodwill | 4,523 |
| | 4,523 |
|
| Intangibles, less accumulated amortization (2018—$1,380; 2017—$1,313) | 3,159 |
| | 3,539 |
|
| Restricted cash | 105 |
| | 91 |
|
| Notes receivable, net | 516 |
| | 46 |
|
| Investments in affiliates and other, net | 966 |
| | 806 |
|
| Total other assets | 9,269 |
| | 9,005 |
|
| Total assets | $ | 44,786 |
| | $ | 42,340 |
|
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
|
| | | | | | | |
| | At December 31, |
| LIABILITIES AND STOCKHOLDER'S EQUITY | 2018 | | 2017 (a) |
| Current liabilities: | | | |
| Advance ticket sales | $ | 4,381 |
| | $ | 3,940 |
|
| Frequent flyer deferred revenue | 2,286 |
| | 2,192 |
|
| Accounts payable | 2,363 |
| | 2,196 |
|
| Accrued salaries and benefits | 2,184 |
| | 2,166 |
|
| Current maturities of long-term debt | 1,230 |
| | 1,565 |
|
| Current maturities of capital leases | 149 |
| | 128 |
|
| Other | 624 |
| | 581 |
|
| Total current liabilities | 13,217 |
| | 12,768 |
|
| | | | |
| Long-term debt | 12,215 |
| | 11,703 |
|
| Long-term obligations under capital leases | 1,134 |
| | 996 |
|
| | | | |
| Other liabilities and deferred credits: | | | |
| Frequent flyer deferred revenue | 2,719 |
| | 2,591 |
|
| Postretirement benefit liability | 1,295 |
| | 1,602 |
|
| Pension liability | 1,576 |
| | 1,921 |
|
| Deferred income taxes | 842 |
| | 231 |
|
| Other | 1,831 |
| | 1,832 |
|
| Total other liabilities and deferred credits | 8,263 |
| | 8,177 |
|
| Commitments and contingencies |
| |
|
| Stockholder's equity: | | | |
| Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at December 31, 2018 and 2017 | — |
| | — |
|
| Additional capital invested | 598 |
| | 1,787 |
|
| Retained earnings | 10,272 |
| | 8,146 |
|
| Accumulated other comprehensive loss | (803 | ) | | (1,147 | ) |
| Receivable from related parties | (110 | ) | | (90 | ) |
| Total stockholder's equity | 9,957 |
| | 8,696 |
|
| Total liabilities and stockholder's equity | $ | 44,786 |
| | $ | 42,340 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | |
| | | At December 31, | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDER’S EQUITY | | 2016 | | | 2015 | |
Current liabilities: | | | | | | | | |
Advance ticket sales | | $ | 3,730 | | | $ | 3,753 | |
Frequent flyer deferred revenue | | | 2,135 | | | | 2,117 | |
Accounts payable | | | 2,144 | | | | 1,874 | |
Accrued salaries and benefits | | | 2,307 | | | | 2,350 | |
Current maturities of long-term debt | | | 849 | | | | 1,224 | |
Current maturities of capital leases | | | 116 | | | | 135 | |
Fuel derivative instruments | | | — | | | | 124 | |
Other | | | 1,009 | | | | 840 | |
| | | | | | | | |
| | | 12,290 | | | | 12,417 | |
| | | | | | | | |
| | | | | | | | |
Long-term debt | | | 9,918 | | | | 9,673 | |
Long-term obligations under capital leases | | | 822 | | | | 727 | |
| | | | | | | | |
| Other liabilities and deferred credits: | | | | | | | | |
Frequent flyer deferred revenue | | | 2,748 | | | | 2,826 | |
Postretirement benefit liability | | | 1,581 | | | | 1,882 | |
Pension liability | | | 1,892 | | | | 1,488 | |
Advanced purchase of miles | | | 430 | | | | 1,010 | |
Lease fair value adjustment, net | | | 277 | | | | 359 | |
Other | | | 1,527 | | | | 1,516 | |
| | | | | | | | |
| | | 8,455 | | | | 9,081 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Stockholder’s equity: | | | | | | | | |
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at December 31, 2016 and 2015 | | | — | | | | — | |
Additional capital invested | | | 3,573 | | | | 6,138 | |
Retained earnings | | | 5,937 | | | | 3,673 | |
Accumulated other comprehensive loss | | | (829) | | | | (831) | |
Receivable from related parties | | | (75) | | | | (17) | |
| | | | | | | | |
| | | 8,606 | | | | 8,963 | |
| | | | | | | | |
| | $ | 40,091 | | | $ | 40,861 | |
| | | | | | | | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 (a) |
| Operating Activities: | | | | | |
| Net income | $ | 2,131 |
| | $ | 2,163 |
| | $ | 2,234 |
|
| Adjustments to reconcile net income to net cash provided by operating activities - | | | | | |
| Deferred income taxes | 515 |
| | 956 |
| | 1,633 |
|
| Depreciation and amortization | 2,240 |
| | 2,149 |
| | 1,977 |
|
| Special charges, non-cash portion | 416 |
| | 35 |
| | 391 |
|
| Other operating activities | 170 |
| | 140 |
| | 109 |
|
| Changes in operating assets and liabilities - | | | | | |
| Increase in receivables | (29 | ) | | (183 | ) | | (16 | ) |
| Increase in intercompany receivables | (20 | ) | | (15 | ) | | (57 | ) |
| (Increase) decrease in other assets | 29 |
| | (533 | ) | | (250 | ) |
| Increase (decrease) in advance ticket sales | 441 |
| | 145 |
| | (28 | ) |
| Increase (decrease) in frequent flyer deferred revenue | 222 |
| | (107 | ) | | (55 | ) |
| Increase in accounts payable | 130 |
| | 66 |
| | 239 |
|
| Decrease in advanced purchase of miles | — |
| | (942 | ) | | (206 | ) |
| Decrease in other liabilities | (82 | ) | | (475 | ) | | (436 | ) |
| Net cash provided by operating activities | 6,163 |
| | 3,399 |
| | 5,535 |
|
| Investing Activities: | | | | | |
| Capital expenditures | (4,177 | ) | | (3,998 | ) | | (3,223 | ) |
| Purchases of short-term and other investments | (2,552 | ) | | (3,241 | ) | | (2,768 | ) |
| Proceeds from sale of short-term and other investments | 2,616 |
| | 3,177 |
| | 2,712 |
|
| Loans made to others | (466 | ) | | (30 | ) | | (56 | ) |
| Investment in affiliates | (139 | ) | | (2 | ) | | (14 | ) |
| Other, net | 155 |
| | 164 |
| | 111 |
|
| Net cash used in investing activities | (4,563 | ) | | (3,930 | ) | | (3,238 | ) |
| Financing Activities: | | | | | |
| Proceeds from issuance of long-term debt and airport construction financing | 1,740 |
| | 2,765 |
| | 808 |
|
| Payments of long-term debt | (1,727 | ) | | (901 | ) | | (1,215 | ) |
| Dividend to UAL | (1,235 | ) | | (1,844 | ) | | (2,614 | ) |
| Principal payments under capital leases | (134 | ) | | (124 | ) | | (136 | ) |
| Capitalized financing costs | (37 | ) | | (80 | ) | | (64 | ) |
| Other, net | 1 |
| | 3 |
| | 15 |
|
| Net cash used in financing activities | (1,392 | ) | | (181 | ) | | (3,206 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 208 |
| | (712 | ) | | (909 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 1,585 |
| | 2,297 |
| | 3,206 |
|
| Cash, cash equivalents and restricted cash at end of year | $ | 1,793 |
| | $ | 1,585 |
| | $ | 2,297 |
|
| | | | | | |
| Investing and Financing Activities Not Affecting Cash: | | | | | |
| Property and equipment acquired through the issuance of debt and capital leases | $ | 174 |
| | $ | 935 |
| | $ | 386 |
|
| Debt associated with termination of a maintenance service agreement | 163 |
| | — |
| | — |
|
| Investment in Republic Airways Holdings, Inc. received from bankruptcy claims | — |
| | 92 |
| | — |
|
| Airport construction financing | 12 |
| | 42 |
| | 91 |
|
| Operating lease conversions to capital lease | 52 |
| | — |
| | 12 |
|
| | | | | | |
| Cash Paid During the Period for: | | | | | |
| Interest | $ | 651 |
| | $ | 571 |
| | $ | 584 |
|
| Income taxes | 19 |
| | 20 |
| | 14 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
Cash Flows from Operating Activities: | | | | | | | | | | | | |
Net income | | $ | 2,264 | | | $ | 7,301 | | | $ | 1,114 | |
Adjustments to reconcile net income to net cash provided by operating activities - | | | | | | | | | | | | |
Deferred income taxes | | | 1,650 | | | | (3,136) | | | | 13 | |
Depreciation and amortization | | | 1,977 | | | | 1,819 | | | | 1,679 | |
Special charges,non-cash portion | | | 391 | | | | 247 | | | | 78 | |
Other operating activities | | | 108 | | | | 115 | | | | 4 | |
Changes in operating assets and liabilities - | | | | | | | | | | | | |
(Increase) decrease in fuel hedge collateral | | | 26 | | | | 551 | | | | (577) | |
(Decrease) increase in fuel derivatives | | | (20) | | | | (305) | | | | 436 | |
Decrease in other liabilities | | | (112) | | | | (199) | | | | (236) | |
Decrease in frequent flyer deferred revenue and advanced purchase of miles | | | (641) | | | | (200) | | | | (88) | |
Increase in other assets | | | (251) | | | | (160) | | | | (34) | |
Increase (decrease) in accounts payable | | | 239 | | | | (77) | | | | (251) | |
Increase (decrease) in advance ticket sales | | | (22) | | | | 52 | | | | 296 | |
(Increase) decrease in receivables | | | (16) | | | | (15) | | | | 209 | |
Increase in intercompany receivables | | | (58) | | | | (12) | | | | — | |
Decrease in intercompany payables | | | — | | | | — | | | | (118) | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 5,535 | | | | 5,981 | | | | 2,525 | |
| | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
Capital expenditures | | | (3,223) | | | | (2,747) | | | | (2,005) | |
Purchases of short-term and other investments | | | (2,768) | | | | (2,517) | | | | (3,569) | |
Proceeds from sale of short-term and other investments | | | 2,712 | | | | 2,707 | | | | 3,112 | |
Proceeds from sale of property and equipment | | | 28 | | | | 86 | | | | 94 | |
Other, net | | | 13 | | | | (136) | | | | 37 | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (3,238) | | | | (2,607) | | | | (2,331) | |
| | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
Dividend to UAL | | | (2,614) | | | | (1,233) | | | | (212) | |
Payments of long-term debt | | | (1,215) | | | | (2,178) | | | | (2,503) | |
Proceeds from issuance of long-term debt | | | 808 | | | | 1,073 | | | | 1,432 | |
Principal payments under capital leases | | | (136) | | | | (123) | | | | (127) | |
Capitalized financing costs | | | (64) | | | | (37) | | | | (104) | |
UAL contributions related to stock plans | | | 6 | | | | 16 | | | | 60 | |
Other, net | | | 9 | | | | (2) | | | | (33) | |
| | | | | | | | | | | | |
Net cash used in financing activities | | | (3,206) | | | | (2,484) | | | | (1,487) | |
| | | | | | | | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | (909) | | | | 890 | | | | (1,293) | |
Cash, cash equivalents and restricted cash at beginning of year | | | 3,206 | | | | 2,316 | | | | 3,609 | |
| | | | | | | | | | | | |
Cash, cash equivalents and restricted cash at end of year | | $ | 2,297 | | | $ | 3,206 | | | $ | 2,316 | |
| | | | | | | | | | | | |
Investing and Financing Activities Not Affecting Cash: | | | | | | | | | | | | |
Property and equipment acquired through the issuance of debt | | $ | 386 | | | $ | 866 | | | $ | 1,114 | |
Airport construction financing | | | 91 | | | | 17 | | | | 14 | |
Operating lease conversions to capital lease | | | 12 | | | | 285 | | | | — | |
Transfer of UAL subsidiaries to United | | | — | | | | — | | | | 186 | |
Exchange of convertible notes for common stock | | | — | | | | — | | | | 156 | |
Cash Paid (Refunded) During the Period for: | | | | | | | | | | | | |
Interest | | $ | 584 | | | $ | 660 | | | $ | 748 | |
Income taxes | | | 14 | | | | 15 | | | | (16) | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
STATEMENTS OF CONSOLIDATED
STOCKHOLDER’SSTOCKHOLDER'S EQUITY
(In millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Additional Capital Invested | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Receivable from Related Parties, Net | | Total |
| Balance at December 31, 2015 | $ | 6,138 |
| | $ | 3,673 |
| | $ | (831 | ) | | $ | (17 | ) | | $ | 8,963 |
|
| Net income (a) | — |
| | 2,234 |
| | — |
| | — |
| | 2,234 |
|
| Other comprehensive income | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Dividend to UAL | (2,603 | ) | | — |
| | — |
| | — |
| | (2,603 | ) |
| Stock-settled share-based compensation | 32 |
| | — |
| | — |
| | — |
| | 32 |
|
| UAL contribution related to stock plans | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
| Other (a) | — |
| | (56 | ) | | — |
| | (58 | ) | | (114 | ) |
| Balance at December 31, 2016 | 3,573 |
| | 5,851 |
| | (829 | ) | | (75 | ) | | 8,520 |
|
| Net income (a) | — |
| | 2,163 |
| | — |
| | — |
| | 2,163 |
|
| Other comprehensive loss | — |
| | — |
| | (200 | ) | | — |
| | (200 | ) |
| Dividend to UAL | (1,844 | ) | | — |
| | — |
| | — |
| | (1,844 | ) |
| Stock-settled share-based compensation | 56 |
| | — |
| | — |
| | — |
| | 56 |
|
| UAL contribution related to stock plans | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
| Excess tax benefits from share-based awards | — |
| | 14 |
| | — |
| | — |
| | 14 |
|
| Reclassification of stranded tax effects | — |
| | 118 |
| | (118 | ) | | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | (15 | ) | | (15 | ) |
| Balance at December 31, 2017 | 1,787 |
| | 8,146 |
| | (1,147 | ) | | (90 | ) | | 8,696 |
|
| Net income | — |
| | 2,131 |
| | — |
| | — |
| | 2,131 |
|
| Other comprehensive loss | — |
| | — |
| | 338 |
| | — |
| | 338 |
|
| Dividend to UAL | (1,249 | ) | | — |
| | — |
| | — |
| | (1,249 | ) |
| Stock-settled share-based compensation | 60 |
| | — |
| | — |
| | — |
| | 60 |
|
| Other | — |
| | (5 | ) | | 6 |
| | (20 | ) | | (19 | ) |
| Balance at December 31, 2018 | $ | 598 |
| | $ | 10,272 |
| | $ | (803 | ) | | $ | (110 | ) | | $ | 9,957 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | | | | | | | | | |
| | | Additional
Capital
Invested | | | Retained
Earnings
(Accumulated
Deficit) | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Receivable
from Related
Parties, Net | | | Total | |
Balance at December 31, 2013 | | $ | 7,590 | | | $ | (4,743) | | | $ | 608 | | | $ | (232) | | | $ | 3,223 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | 1,114 | | | | — | | | | — | | | | 1,114 | |
Other comprehensive loss | | | — | | | | — | | | | (1,687) | | | | — | | | | (1,687) | |
Convertible debt redemption | | | 156 | | | | — | | | | — | | | | — | | | | 156 | |
Dividend and other capital distributions to UAL | | | (469) | | | | 1 | | | | — | | | | 232 | | | | (236) | |
Share-based compensation | | | 10 | | | | — | | | | — | | | | — | | | | 10 | |
UAL contribution related to stock plans | | | 60 | | | | — | | | | — | | | | — | | | | 60 | |
Other | | | — | | | | — | | | | — | | | | (5) | | | | (5) | |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 | | | 7,347 | | | | (3,628) | | | | (1,079) | | | | (5) | | | | 2,635 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | 7,301 | | | | — | | | | — | | | | 7,301 | |
Other comprehensive income | | | — | | | | — | | | | 248 | | | | — | | | | 248 | |
Dividend to UAL | | | (1,232) | | | | — | | | | — | | | | — | | | | (1,232) | |
Share-based compensation | | | 7 | | | | — | | | | — | | | | — | | | | 7 | |
UAL contribution related to stock plans | | | 16 | | | | — | | | | — | | | | — | | | | 16 | |
Other | | | — | | | | — | | | | — | | | | (12) | | | | (12) | |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 | | | 6,138 | | | | 3,673 | | | | (831) | | | | (17) | | | | 8,963 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | 2,264 | | | | — | | | | — | | | | 2,264 | |
Other comprehensive income | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
Dividend to UAL | | | (2,603) | | | | — | | | | — | | | | — | | | | (2,603) | |
Share-based compensation | | | 32 | | | | — | | | | — | | | | — | | | | 32 | |
UAL contribution related to stock plans | | | 6 | | | | — | | | | — | | | | — | | | | 6 | |
Other | | | — | | | | — | | | | — | | | | (58) | | | | (58) | |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | $ | 3,573 | | | $ | 5,937 | | | $ | (829) | | | $ | (75) | | | $ | 8,606 | |
| | | | | | | | | | | | | | | | | | | | |
Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL”"UAL" or the “Company”"Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”"United"). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’sUnited's operating revenues and operating expenses comprise nearly 100% of UAL’sUAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’sUAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,”"we," "our," "us," and the “Company”"Company" in this report for disclosures that relate to all of UAL and United.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
| |
| (a) | Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”("GAAP") requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. |
| |
| (b) | Revenue Recognition—The Company records passenger ticket salespresents Passenger revenue, Cargo revenue and tickets sold by other airlines for useOther operating revenue on United as passengerits income statement. Passenger revenue is recognized when the transportation is provided or upon estimated breakage. The value of unused passenger ticketsand Cargo revenue is included in current liabilitiesrecognized when shipments arrive at their destination. Other operating revenue is recognized as Advance ticket sales. Tickets sold by other airlinesthe related performance obligations are recorded at the estimated values to be billed to the other airlines. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its interline billings and payables if historical experience indicates that these amounts are different.Non-refundablesatisfied. tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date. |
Fees chargedPassenger tickets and related ancillary services sold by the Company for mainline and regional flights are purchased primarily via credit card transactions, with payments collected by the Company in associationadvance of the performance of related services. The Company initially records ticket sales in its Advance ticket sales liability, deferring revenue recognition until the travel occurs. For travel that has more than one flight segment, the Company deems each segment as a separate performance obligation and recognizes revenue for each segment as travel occurs. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its billings and payables with changesother airlines based on historical experience.
The Company sells certain tickets with connecting flights with one or extensions tonon-refundable ticketsmore segments operated by its other airline partners. For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are recordedresponsible for their portion of the contract (i.e. transportation of the passenger). The Company, as otherthe agent, recognizes revenue within Other operating revenue at the time of the fee is incurred. The fare on the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue recognition policy at the time the transportation is provided. Change fees related tonon-refundable tickets are considered a separate transaction from the air transportation because they represent a chargetravel for the Company’s additional servicenet amount representing commission to modify a previous sale. Therefore,be retained by the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes.The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results and forecasted trends. any segments flown by other airlines.
Refundable tickets expire after one year from the date of issuance. Non-refundable tickets generally expire on the date of the intended travel, unless the date is extended by notification from the customer on or before the intended travel date. The Company recognizes cargorecords 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 revenuefacts, such as servicerecent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets. Fees charged in association with changes or extensions to non-refundable tickets are considered part of the Company's passenger travel obligation. As such, those fees are deferred at the time of collection and recognized at the time the travel is provided.
Under our capacity purchase agreements (“CPAs”) with regional carriers, we purchase all
United initially capitalizes the costs of selling airline travel tickets and then recognizes those costs as Distribution expense at the time of travel. Passenger ticket costs include credit card fees, travel agency and other commissions paid, as well as global distribution systems booking fees.
Advance Ticket Sales. Advance ticket sales represent the Company's liability to provide air transportation in the future. In the years ended December 31, 2018 and 2017, the Company recognized approximately $3.1 billion and $2.9 billion, respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods. All tickets sold at any given point of time have travel dates extending up to twelve months. As a result, the balance of the capacity relatedCompany's Advance ticket sales liability represents activity that will be recognized in the next twelve months.
| |
| Revenue by Geography. The Company further disaggregates revenue by geographic regions. Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating decision maker and are used in resource allocation and performance assessments. |
The Company deploys its aircraft across its route network through a single route scheduling system to maximize its value. When making resource allocation decisions, the Company's chief operating decision maker evaluates flight profitability data, which considers aircraft coveredtype and route economics. The Company's chief operating decision maker makes resource allocation decisions to maximize the Company's consolidated financial results. Managing the Company as one segment allows management the opportunity to maximize the value of its route network.
The Company's operating revenue by principal geographic region (as defined by the contracts and are responsible for selling allU.S. Department of the related seat inventory. We record the passenger revenue and related expenses as separate operating revenue and expense in the consolidated statement of operations.Accounts receivable primarily consist of amounts due from credit card companies and customers of our aircraft maintenance and cargo transportation services. We provide an allowance for uncollectible
accounts equal to the estimated losses expected to be incurred based on historical write-offs and other specific analyses. Bad debt expense and write-offs were not materialTransportation) for the years ended December 31 is presented in the table below (in millions):
|
| | | | | | | | | | | | |
| | | 2018 | | 2017¹ | | 2016¹ |
| Domestic (U.S. and Canada) | | $ | 25,552 |
| | $ | 23,114 |
| | $ | 22,151 |
|
| Atlantic | | 7,103 |
| | 6,340 |
| | 6,194 |
|
| Pacific | | 5,188 |
| | 4,914 |
| | 4,984 |
|
| Latin America | | 3,460 |
| | 3,416 |
| | 3,229 |
|
| Total | | $ | 41,303 |
| | $ | 37,784 |
| | $ | 36,558 |
|
(1) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See (u) below for additional information.
The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment. The Company's operations involve an insignificant level of dedicated revenue-producing assets in geographic regions as the overwhelming majority of the Company's revenue-producing assets (primarily U.S. registered aircraft) can be deployed in any of its geographic regions.
Ancillary Fees.The Company charges fees, separately from ticket sales, for certain ancillary services that are directly related to passengers' travel, such as ticket change fees, baggage fees, inflight amenities fees, and other ticket-related fees. These ancillary fees are part of the travel performance obligation and, as such, are recognized as passenger revenue when the travel occurs. The Company recorded $2.2 billion, $2.0 billion, and $1.9 billion of ancillary fees within passenger revenue in the years ended December 31, 2018, 2017 and 2016 2015 and 2014.respectively. | |
| (c) | Frequent Flyer Accounting—United’sUnited's MileagePlus® loyalty program builds customer loyalty by offering awards, benefits and services to program participants. Members in this program earn miles for flightstravel on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can also earn miles by purchasing the goods and services of our network ofnon-airline partners. We have contracts to sell miles to these partners whichwith the terms extending from one to eight years. These partners include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air travel andnon-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.Miles expire after 18 months of member account inactivity. |
Miles Earned in Conjunction with FlightsTravel.When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the air transportationtravel occurs and defers a portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement.separate performance obligation. The Company determines the estimated selling price of air transportationtravel and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro ratapro-rata basis. TheAt the time of travel, the Company records the portion allocated to the miles are recorded into Frequent flyer deferred revenue on the Company’sCompany's consolidated balance sheet and recognizedsubsequently recognizes it into revenue when the transportation is provided.
miles are redeemed for air travel and non-air travel awards.
The Company’sCompany's estimated selling price of miles is based on an equivalent ticket value less fulfillment discount,breakage, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months’months' weighted average equivalent ticket value of similar fares as those used to
settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region. The estimated selling price of miles is adjusted by a fulfillment discountbreakage that considers a number of factors, including redemption patterns of various customer groups. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. The Company's estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the program. For the portion of the outstanding miles that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining miles are redeemed.
Co-Brand AgreementCo-branded Credit Card Partner Mileage Sales. United has a significant contract the Second Amended and RestatedCo-Branded Card Marketing Services Agreement (the“Co-Brand Agreement” "Co-Brand Agreement"), to sell MileagePlus miles to itsco-branded credit card partner Chase Bank USA, N.A. (“Chase”("Chase"). Chase awards miles to MileagePlus members based on their credit card activity. United identified the following significant revenue elementsseparately identifiable performance obligations in the Co-Brand Agreement:
Co-Brand Agreement:MileagePlus miles awarded – United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel and non-travel award redemptions. The Company records Passenger revenue related to the airtravel awards when the transportation element represented byis provided and records Other revenue related to the valuenon-travel awards when the goods or services are delivered. The Company records the cost associated with non-travel awards in Other operating revenue.
Marketing – United has a performance obligation to provide Chase access to its customer list and the use of its brand. Marketing revenue is recorded to Other operating revenue as miles are delivered to Chase.
Advertising – United has a performance obligation to provide advertising in support of the mile (generally resulting from its redemption for future air transportationMileagePlus card in various customer contact points such as United's website, email promotions, direct mail campaigns, airport advertising and whose fair valuein-flight advertising. Advertising revenue is described above);recorded to Other operating revenue as miles are delivered to Chase.
Other travel-related benefits – United's performance obligations are comprised of various items such as waived bag fees, seat upgrades and lounge passes. Lounge passes are recorded to Other operating revenue as customers use the lounge passes. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the United brandassociated travel.
We account for all the payments received (including monthly and accessone-time payments) under the Co-Brand Agreement by allocating them to MileagePlus member lists; advertising; and other travel related benefits.the separately identifiable performance obligations. The fair value of the elementsseparately identifiable performance obligations is determined using management’smanagement's estimated selling price of each element.component. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of theCo-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elementscomponents to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated selling priceconsideration from the Co-Brand Agreement on a prospective basis.
Frequent flyer deferred revenue. Miles in MileagePlus members' accounts are combined into one homogeneous pool and are thus not separately identifiable, for award redemption purposes, between miles earned in the current period and those in their beginning balance. Of the miles expected to be redeemed, the Company expects the majority of these miles to be redeemed within two years. The table below presents a roll forward of Frequent flyer deferred revenue (in millions):
|
| | | | | | | |
| | Twelve Months Ended
December 31, |
| | 2018 | | 2017 |
| Total Frequent flyer deferred revenue - beginning balance | $ | 4,783 |
| | $ | 4,889 |
|
| Total miles awarded | 2,451 |
| | 2,077 |
|
| Travel miles redeemed (Passenger revenue) | (2,068 | ) | | (2,004 | ) |
| Non-travel miles redeemed (Other operating revenue) | (161 | ) | | (179 | ) |
| Total Frequent flyer deferred revenue - ending balance | $ | 5,005 |
| | $ | 4,783 |
|
In the year ended December 31, 2018, 2017 and 2016, the Company
records passengerrecognized, in Other operating revenue,
$2.0 billion, $1.8 billion and $1.7 billion, respectively, related to the
air transportation element when the transportation is delivered. Themarketing, advertising, non-travel miles redeemed (net of related costs) and other
elements are generally recognized as Other operating revenue when earned.Expiration of Miles
The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of member account inactivity.
The Company’s estimatetravel-related benefits of the expected expiration of miles requires significant management judgment. Current and future changesmileage revenue associated with our various partner agreements including, but not limited to, expiration assumptions orour Chase co-brand agreement. The portion related to the expiration policy, or to program rulesMileagePlus miles awarded of the total amounts received is deferred and program redemption opportunities, may resultpresented in material changes to the deferred revenue balancetable above as well as recognized revenues from the programs.
Other Information
The following table provides additional information relatedan increase to the frequent flyer program (in millions):
| | | | | | | | | | | | | | | | |
Year Ended
December 31, | | Cash Proceeds
from Miles Sold
and Earned | | | Other Revenue
Recognized Upon
Award of Miles
to Third-Party
Customers (a) | | | Increase in Frequent
Flyer Deferred
Revenue for Miles
Awarded (b) | | | Decrease in
Advanced
Purchase
of Miles (c) | |
2016 | | $ | 3,022 | | | $ | 1,221 | | | $ | 2,050 | | | $ | (249) | |
2015 | | | 2,999 | | | | 1,050 | | | | 2,173 | | | | (224) | |
2014 | | | 2,861 | | | | 882 | | | | 2,178 | | | | (199) | |
| | | | | | | | | | | | | |
| (a) This amount represents other revenue recognized during the period from the sale of miles to third parties, representing the marketing-related deliverable services component of the sale. | |
| (b) This amount represents the increase to Frequent flyer deferred revenue during the period. | |
| (c) This amount represents the net decrease in the advance purchase of miles obligation due to cash payments for the sale of miles less than miles awarded to customers. | |
| |
| (d) | Cash and Cash Equivalents and Restricted Cash—Highly liquid investments with a maturity of three months or less on their acquisition date are classified as cash and cash equivalents. |
Restricted cash primarily includes cash collateral
for letters of credit and collateral associated with
workers’ compensation obligations
for facility leases and
reserves for institutions that process credit card ticket sales.other insurance-related obligations. Restricted cash is classified as short-term or long-term in the consolidated balance sheets based on the expected timing of return of the assets to the Company.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of consolidated cash
flows:flows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | UAL | | | United | |
| | | At December 31, | | | At December 31, | |
| | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 | |
Current assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 2,179 | | | $ | 3,006 | | | $ | 2,002 | | | $ | 2,173 | | | $ | 3,000 | | | $ | 1,996 | |
Restricted cash included in Prepaid expenses and other | | | — | | | | 2 | | | | 44 | | | | — | | | | 2 | | | | 44 | |
Other assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Restricted cash | | | 124 | | | | 204 | | | | 276 | | | | 124 | | | | 204 | | | | 276 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total cash, cash equivalents and restricted cash shown in the statement of consolidated cash flows | | $ | 2,303 | | | $ | 3,212 | | | $ | 2,322 | | | $ | 2,297 | | | $ | 3,206 | | | $ | 2,316 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | UAL | | United |
| | At December 31, | | At December 31, |
| | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Current assets: | | | | | | | | | | | |
| Cash and cash equivalents | $ | 1,694 |
| | $ | 1,482 |
| | $ | 2,179 |
| | $ | 1,688 |
| | $ | 1,476 |
| | $ | 2,173 |
|
| Restricted cash included in Prepaid expenses and other | — |
| | 18 |
| | — |
| | — |
| | 18 |
| | — |
|
| Other assets: | | | | | | | | | | | |
| Restricted cash | 105 |
| | 91 |
| | 124 |
| | 105 |
| | 91 |
| | 124 |
|
| Total cash, cash equivalents and restricted cash shown in the statement of consolidated cash flows | $ | 1,799 |
| | $ | 1,591 |
| | $ | 2,303 |
| | $ | 1,793 |
| | $ | 1,585 |
| | $ | 2,297 |
|
| |
| (e) | Short-term Investments—Short-termDebt investments are classified asavailable-for-sale and are stated at fair value. Realized gains and losses on sales of these investments are reflected in nonoperating income (expense)Miscellaneous, net in the consolidated statements of operations. Unrealized gains and losses onavailable-for-sale securities are reflected as a component of accumulated other comprehensive income (loss). Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method, or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). Changes in fair value are recorded in Miscellaneous, net in the consolidated statements of operations. |
| |
| (f) | Accounts Receivable. Accounts receivable primarily consist of amounts due from credit card companies, non-airline partners, and cargo transportation customers. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical write-offs and other specific analyses. Bad debt expense and write-offs were not material for the year ended December 31, 2018 and 2017. |
| |
| (g) | Aircraft Fuel, Spare Parts and Supplies—The Company accounts for aircraft fuel, spare parts and supplies at average cost and provides an obsolescence allowance for aircraft spare parts with an assumed residual value of 10% of original cost. |
(g) | |
| (h) | Property and Equipment—The Company records additions to owned operating property and equipment at cost when acquired. Property under capital leases and the related obligation for future lease payments are recorded at an amount equal to the initial present value of those lease payments. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized as property and equipment. It is the Company’sCompany's policy to record compensation from delays in delivery of aircraft as a reduction of the cost of the related aircraft. |
Depreciation and amortization of owned depreciable assets is based on the straight-line method over the assets’assets' estimated useful lives. Leasehold improvements are amortized over the remaining term of the lease, including estimated facility renewal options when renewal is reasonably assured at key airports, or the estimated useful life of the related asset, whichever is less. Properties under capital leases are amortized on the straight-line method over the life of the lease or, in the case of certain aircraft, over their estimated useful lives, whichever is shorter. Amortization
of capital lease assets is included in depreciation and amortization expense. The estimated useful lives of property and equipment are as follows: | |
| | |
| | | Estimated Useful Life (in years) | |
Aircraft and related rotable parts | | | 25 to 30 |
| Aircraft seats | | 10 to 15 |
Buildings | | | 25 to 45 | |
Other property and equipment | | | 3 to 15 | |
Computer software | | | 5 | to 15 |
Building improvements | | | 1 to 40 | |
As of December 31,
20162018 and
2015,2017, the Company had a carrying value of computer software of
$356$359 million and
$279$345 million, respectively. For the years ended December 31,
2018, 2017 and 2016,
2015 and 2014, the
Company’sCompany's depreciation expense related to computer software was
$108$122 million,
$93$117 million and
$81$108 million, respectively. Aircraft and aircraft spare parts were assumed to have residual values of approximately 10% of original cost, and other categories of property and equipment were assumed to have no residual value.
(h) | |
| (i) | Maintenance and Repairs—The cost of maintenance and repairs, including the cost of minor replacements, is charged to expense as incurred, except for costs incurred under ourpower-by-the-hour (“PBTH” ("PBTH") engine maintenance agreements. PBTH contracts transfer certain risk to third-party service providers and fix the amount we pay per flight hour or per cycle to the service provider in exchange for maintenance and repairs under a predefined maintenance program. Under PBTH agreements, the Company recognizes expense at a level rate per engine hour, unless the level of service effort and the related payments during the period are substantially consistent, in which case the Company recognizes expense based on the amounts paid. |
(i) | |
| (j) | Lease Fair Value Adjustments—Lease fair value adjustments, which arose from recording operating leases at fair value under fresh start or business combination accounting, are amortized on a straight-line basis over the related lease term. |
(j) | |
| (k) | Regional Capacity Purchase—Payments made to regional carriers under CPAscapacity purchase agreements ("CPAs") are reported in Regional capacity purchase in our consolidated statements of operations. |
(k) | |
| (l) | Advertising—Advertising costs, which are included in Other operating expenses, are expensed as incurred. Advertising expenses were $220$211 million, $201$217 million and $179$220 million for the years ended December 31, 2018, 2017 and 2016 2015 and 2014, respectively. |
(l) | |
| (m) | Intangibles—The Company has finite-lived and indefinite-lived intangible assets, including goodwill. Finite-lived intangible assets are amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. Goodwill and indefinite-lived assets are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. See Note 2 of this report for additional information related to intangibles. |
(m) | |
| (n) | Long-Lived Asset Impairments—The Company evaluates the carrying value of long-lived assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized when the asset’sasset's carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’sasset's carrying value and fair market value. See Note 1614 of this report for additional information related to asset impairments. |
(n) | |
| (o) | Share-Based Compensation—The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Obligations for cash-settled restricted stock units (“RSUs”("RSUs") are remeasured at fair value throughout the requisite service period onat the last dayclose of eachthe reporting period based upon UAL’sUAL's stock price. In addition to the service requirement, certain RSUs have performance metrics that must be achieved prior to vesting. These awards are accrued based on the expected level of achievement at each reporting period. A cumulativeAn adjustment is recorded on the last day of each reporting period to adjust compensation expense based on both UAL’sUAL's stock price and the then current level of expected performance achievement for the performance-based awards. See Note 5 of this report for additional information on UAL’s share-based compensation plans. |
expected performance achievement for the performance-based awards. See Note 5 of this report for additional information on UAL's share-based compensation plans.
(o) | |
| (p) | Ticket Taxes—Certain governmental taxes are imposed on the Company’sCompany's ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis (excludedand, as a result, are excluded from operating revenue).revenue. |
(p) | |
| (q) | Retirement of Leased Aircraft—The Company accrues for estimated lease costs over the remaining term of the lease at the present value of future minimum lease payments, net of estimated sublease rentals (if any), in the period that aircraft are permanently removed from service. When reasonably estimable and probable, the Company estimates maintenance lease return condition obligations for items such as minimum aircraft and engine conditions specified in leases and accrues these amounts over the lease term while the aircraft are operating, and any remaining unrecognized estimated obligations are accrued in the period that an aircraft is removed from service. |
(q) | |
| (r) | Uncertain Income Tax Positions—The Company has recorded reserves for income taxes and associated interest that may become payable in future years. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The Company’sCompany's uncertain tax position reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitation, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax matters, the release of administrative tax guidance affecting its estimates of tax liabilities, or the rendering of relevant court decisions. The Company records penalties and interest relating to uncertain tax positions in Other operatingas part of income tax expense and Interest expense, respectively, in its |
| consolidated statements of operations. The Company has not recorded any material expense or liabilities related to interest or penalties in its consolidated financial statements. See Note 7 of this report for additional information on UAL's uncertain tax positions. |
(r) | |
| (s) | Labor Costs—The Company records expenses associated with amendable labor agreements when the amounts are probable and estimable. These include costs associated with lump sum cash payments that would be made in conjunction with the ratification of labor agreements. To the extent these upfront costs are in lieu of future pay increases, they would be capitalized and amortized over the term of the labor agreements. If not, these amounts would be expensed. |
(s) | |
| (t) | Third-Party Business—The Company has third-party business revenue that includes fuel sales, catering, ground handling, maintenance services and frequent flyer awardnon-air redemptions, and third-party redemptions. Third-party business revenue is recorded in Other operating revenue. The Company also incurs third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales andnon-air mileage redemptions, and thoseredemptions. The third-party business expenses are recorded in Other operating expenses.expenses, except for non-air mileage redemption. Non-air mileage redemption expenses are recorded to Other operating revenue. |
(t) | |
(u) | Recently Issued Accounting Standards—The Company adopted Financial Accounting Standards Board (“FASB”("FASB") amended the FASB Accounting Standards Codification and created a new Topic 606,Revenue from Contracts with Customers. This amendmentCustomers (the "New Revenue Standard"), effective January 1, 2018 using the full-retrospective method. Topic 606 prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedesFor the revenue recognition requirements in Topic 605,Revenue Recognition, andCompany, the most industry-specific guidance throughout the Industry Topicssignificant impact of the Accounting Standards Codification. The Company currently plans to usestandard was the full-retrospective approach in adopting this standardreclassification of certain ancillary fees from other operating revenue into passenger revenue on January 1, 2018. Under the new standard, certain airlinestatement of consolidated operations. These ancillary fees are directly related to passenger revenue tickets,travel, such as ticket change fees and baggage fees, and are likely to no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change fees, which were previously recognized when received, and booking fees when paid, will likely beare now recognized when transportation is provided. The Company has previously recorded ancillary fees and change fees in other operating revenue but will record these in passenger revenue underAdoption of the new standard. The Company is evaluating other possible impacts fromstandard had no impact on the new standard on itsCompany's consolidated financialcash flows statements. |
The Company adopted Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the "New Retirement Standard"), effective January 1, 2018 using the full-retrospective method. The New Retirement Standard requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. The Company elected to apply the practical expedient and use the amounts disclosed in Note 8 to the financial statements included in Part II, Item 8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as the estimation basis for applying the retrospective presentation requirements of the standard.
The New Revenue Standard and the New Retirement Standard had the same impact on the financial statements of United as they had on the financial statements of UAL. The tables below present the impact of the adoption of the New Revenue Standard and the New Retirement Standard on select accounts and captions of UAL's statements of consolidated operations for the twelve months ended December 31, 2017 and 2016 (in millions, except per share amounts) and the impact on UAL's balance sheet accounts and captions as of December 31, 2017 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Statements of Consolidated Operations for the Years Ended December 31, |
| | As Previously Reported | | New Revenue Standard Adjustments | | New Retirement Standard Adjustments | | As Adjusted |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Operating revenue: | | | | | | | | | | | | | | | |
| Passenger revenue | $ | 32,404 |
| | $ | 31,457 |
| | $ | 2,056 |
| | $ | 1,972 |
| | $ | — |
| | $ | — |
| | $ | 34,460 |
| | $ | 33,429 |
|
| Cargo | 1,035 |
| | 876 |
| | 79 |
| | 58 |
| | — |
| | — |
| | 1,114 |
| | 934 |
|
| Other operating revenue | 4,297 |
| | 4,223 |
| | (2,087 | ) | | (2,028 | ) | | — |
| | — |
| | 2,210 |
| | 2,195 |
|
| Total operating revenue | 37,736 |
| | 36,556 |
| | 48 |
| | 2 |
| | — |
| | — |
| | 37,784 |
| | 36,558 |
|
| Operating expenses | 34,238 |
| | 32,218 |
| | (21 | ) | | (12 | ) | | (104 | ) | | 8 |
| | 34,113 |
| | 32,214 |
|
| Operating income | 3,498 |
| | 4,338 |
| | 69 |
| | 14 |
| | 104 |
| | (8 | ) | | 3,671 |
| | 4,344 |
|
| Nonoperating expense, net | (499 | ) | | (519 | ) | | (28 | ) | | (60 | ) | | (104 | ) | | 8 |
| | (631 | ) | | (571 | ) |
| Income before income taxes | 2,999 |
| | 3,819 |
| | 41 |
| | (46 | ) | | — |
| | — |
| | 3,040 |
| | 3,773 |
|
| Income tax expense | 868 |
| | 1,556 |
| | 28 |
| | (17 | ) | | — |
| | — |
| | 896 |
| | 1,539 |
|
| Net income | $ | 2,131 |
| | $ | 2,263 |
| | $ | 13 |
| | $ | (29 | ) | | $ | — |
| | $ | — |
| | $ | 2,144 |
| | $ | 2,234 |
|
| | | | | | | | | | | | | | | | |
| Earnings per share, basic | $ | 7.04 |
| | $ | 6.86 |
| | $ | 0.04 |
| | $ | (0.09 | ) | | $ | — |
| | $ | — |
| | $ | 7.08 |
| | $ | 6.77 |
|
| Earnings per share, diluted | $ | 7.02 |
| | $ | 6.85 |
| | $ | 0.04 |
| | $ | (0.09 | ) | | $ | — |
| | $ | — |
| | $ | 7.06 |
| | $ | 6.76 |
|
|
| | | | | | | | | | | |
Consolidated Balance Sheet as of December 31, 2017
|
| | As Previously Reported | | New Revenue Standard Adjustments | | As Adjusted |
| Current assets: | | | | | |
| Prepaid expenses and other | $ | 1,051 |
| | $ | 20 |
| | $ | 1,071 |
|
| Current liabilities: | | | | | |
| Advance ticket sales | 3,876 |
| | 64 |
| | 3,940 |
|
| Frequent flyer deferred revenue | 2,176 |
| | 16 |
| | 2,192 |
|
| Other | 569 |
| | 7 |
| | 576 |
|
| Other liabilities and deferred credits: | | | | | |
| Frequent flyer deferred revenue | 2,565 |
| | 26 |
| | 2,591 |
|
| Deferred income taxes | 225 |
| | (21 | ) | | 204 |
|
| Stockholders' equity: | | | | | |
| Retained earnings | $ | 4,621 |
| | $ | (72 | ) | | $ | 4,549 |
|
The Company adopted Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) effective January 1, 2018. This standard made several changes, including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in earnings. The Company reclassified to retained earnings $6 million of unrealized loss, net of tax, on the Company's investment in Azul, S.A. ("Azul") which was previously classified as an available-for-sale security. See Notes 6 and 9 to the financial statements included in this Part II, Item 8 for additional information.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13"). The main objective is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace 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 will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. The amendments are effective for public business entities for fiscal years and interim periods beginning after December 15, 2019. The Company is evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and believes that it will not have a material impact on its consolidated financial statements.
In 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,Leases(“Topic 842”the "New Lease Standard"). The guidance requires lessees to recognize aright-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840,Leases("Topic 840"). ItThe New Lease Standard is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. Lessees and lessors are required to adopt Topic 8422018. The Company adopted this standard on January 1, 2019 using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to useand utilizing certain practical expedients.
The Company is evaluating the impact the adoption of this standard will havethe New Lease Standard is expected to impact our reported results as shown in the tables below (in millions, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheets as of December 31, |
| | As Reported | | New Lease Standard Adjustments | | As Adjusted |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Current assets: | | | | | | | | | | | |
| Receivables, less allowance for doubtful accounts | $ | 1,346 |
| | $ | 1,340 |
| | $ | 80 |
| | $ | 126 |
| | $ | 1,426 |
| | $ | 1,466 |
|
| Prepaid expenses and other | 913 |
| | 1,071 |
| | (180 | ) | | (208 | ) | | 733 |
| | 863 |
|
| | | | | |
| |
| | | | |
| Operating property and equipment: | | | | |
| |
| |
|
| |
|
|
| Other property and equipment (owned) | 7,919 |
| | 6,946 |
| | (1,041 | ) | | (922 | ) | | 6,878 |
| | 6,024 |
|
| Less-Accumulated depreciation and amortization (owned) | (12,760 | ) | | (11,159 | ) | | 140 |
| | 92 |
| | (12,620 | ) | | (11,067 | ) |
| Flight equipment (finance leases) (a) | 1,029 |
| | 1,151 |
| | (37 | ) | | (211 | ) | | 992 |
| | 940 |
|
| Less-Accumulated amortization | (654 | ) | | (777 | ) | | 8 |
| | 169 |
| | (646 | ) | | (608 | ) |
| | | | | | | | | | | | |
| Operating lease assets | | | | |
| |
| | | | |
| Flight equipment | — |
| | — |
| | 2,380 |
| | 3,102 |
| | 2,380 |
| | 3,102 |
|
| Other property and equipment | — |
| | — |
| | 2,882 |
| | 2,975 |
| | 2,882 |
| | 2,975 |
|
| | | | | |
| |
| | | | |
| Current liabilities: | | | | |
| |
| |
|
| |
|
|
| Current maturities of finance leases (a) | 149 |
| | 128 |
| | (26 | ) | | (50 | ) | | 123 |
| | 78 |
|
| Current maturities of operating leases | — |
| | — |
| | 719 |
| | 949 |
| | 719 |
| | 949 |
|
| Other | 619 |
| | 576 |
| | (66 | ) | | (58 | ) | | 553 |
| | 518 |
|
| | | | | | | | | | | | |
| Long-term obligations under finance leases (a) | 1,134 |
| | 996 |
| | (910 | ) | | (766 | ) | | 224 |
| | 230 |
|
| Long-term obligations under operating leases | — |
| | — |
| | 5,276 |
| | 5,789 |
| | 5,276 |
| | 5,789 |
|
| | | | | | | | | | | | |
| Other liabilities and deferred credits: | | | | |
| |
| | | | |
| Deferred income taxes | 814 |
| | 204 |
| | 14 |
| | 16 |
| | 828 |
| | 220 |
|
| Other | 1,832 |
| | 1,832 |
| | (822 | ) | | (811 | ) | | 1,010 |
| | 1,021 |
|
| | | | | | | | | | | | |
| Stockholders' equity: | | | | |
| |
| |
|
| |
|
|
| Retained earnings | 6,668 |
| | 4,549 |
| | 47 |
| | 54 |
| | 6,715 |
| | 4,603 |
|
(a) Finance leases, under the New Lease Standard, are the equivalent of capital leases under Topic 840.
The adoption of the New Lease Standard primarily resulted in the recording of assets and obligations of our operating leases on
its consolidated financial statements and believes this standard will have a significant impact on itsour consolidated balance sheets.
In 2016, Certain amounts recorded for prepaid and accrued rent associated with historical operating leases were reclassified to the FASB issued Accounting Standards UpdateNo. 2016-09,Improvements to Employee Share-Based Payment Accounting(“ASU2016-09”).newly captioned Operating lease assets in the consolidated balance sheets. Also, certain leases designated under Topic 840 as owned assets and capitalized finance leases will not be considered assets under the New Lease Standard and will be removed from the consolidated balance sheets, along with the related capital lease liability.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Statements of Consolidated Operations for the Years Ended December 31, |
| | As Reported | | New Lease Standard Adjustments | | As Adjusted |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Operating expense: | | | | | | | | | | | |
| Regional capacity purchase | $ | 2,601 |
| | $ | 2,232 |
| | $ | 48 |
| | $ | 36 |
| | $ | 2,649 |
| | $ | 2,268 |
|
| Landing fees and other rent | 2,359 |
| | 2,240 |
| | 90 |
| | 70 |
| | 2,449 |
| | 2,310 |
|
| Depreciation and amortization | 2,240 |
| | 2,149 |
| | (75 | ) | | (53 | ) | | 2,165 |
| | 2,096 |
|
| Total operating expenses | 38,011 |
| | 34,113 |
| | 63 |
| | 53 |
| | 38,074 |
| | 34,166 |
|
| Operating income | 3,292 |
| | 3,671 |
| | (63 | ) | | (53 | ) | | 3,229 |
| | 3,618 |
|
| | | | | | | | | | | | |
| Nonoperating income (expense): | | | | | | | | | | | |
| Interest expense | (729 | ) | | (671 | ) | | 59 |
| | 45 |
| | (670 | ) | | (626 | ) |
| Interest capitalized | 70 |
| | 84 |
| | (5 | ) | | (10 | ) | | 65 |
| | 74 |
|
| Total nonoperating expense, net | (634 | ) | | (631 | ) | | 53 |
| | 36 |
| | (581 | ) | | (595 | ) |
| Income before income taxes | 2,658 |
| | 3,040 |
| | (10 | ) | | (17 | ) | | 2,648 |
| | 3,023 |
|
| Income tax expense | 529 |
| | 896 |
| | (3 | ) | | (16 | ) | | 526 |
| | 880 |
|
| Net income | $ | 2,129 |
| | $ | 2,144 |
| | $ | (7 | ) | | $ | (1 | ) | | $ | 2,122 |
| | $ | 2,143 |
|
| Earnings per share, basic | $ | 7.73 |
| | $ | 7.08 |
| | $ | (0.03 | ) | | $ | — |
| | $ | 7.70 |
| | $ | 7.08 |
|
| Earnings per share, diluted | $ | 7.70 |
| | $ | 7.06 |
| | $ | (0.03 | ) | | $ | — |
| | $ | 7.67 |
| | $ | 7.06 |
|
The
update requires excess tax benefits and tax deficiencies, which arise due to differences betweenexpense for leases under the
measure of compensation expense and the amount deductible for tax purposes,New Lease Standard will continue to be
recorded directly through earnings as a component ofclassified in their historical income
tax expense. Under current GAAP, these differences are generally recordedstatement captions (primarily in
additionalpaid-in capitalAircraft rent, Landing fees and
thus have no impact on net income. The changeother rent and Regional capacity purchase in
treatment of excess tax benefits and tax deficiencies will also impact the computation of diluted earnings per share and the cash flows associated with those items will be classified as operating activities on theour statements of consolidated
cash flows. Additionally, entities will be permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required under current GAAP, or recognized when they occur.operations). The
amendments in this update areeffective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect the adoption of ASU2016-09the New Lease Standard also resulted in the recharacterization of certain leases from capital leases under Topic 840 to have a material impact on its consolidated financial statements.
In 2016,operating leases under the FASB issued Accounting Standards UpdateNo. 2016-15,StatementNew Lease Standard. This change will result in less depreciation and amortization and interest expense associated with capital leases offset by higher lease expense associated with operating leases. The change is associated with leases of Cash Flows (Topic 230): Classification of Certain Cash Receiptsaircraft under certain CPAs and Cash Payments(“ASU2016-15”).certain airport facilities. The update amends the guidancereduction in Accounting Standards Codification 230,Statement of Cash Flows(“ASC 230”), and clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flowscapitalized interest is also associated with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The Company adopted ASU2016-15 as of December 31, 2016 and the standard did not have a material impact on its consolidated financial statements.
In 2016, the FASB issued Accounting Standards UpdateNo. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. The update amends ASC 230 to add guidance on the classification and presentation of restricted cash in the statement of cash flows. Furthermore, a reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. The Company adopted this standard as of December 31, 2016 and included $124 million, $206 million and $320 million of restricted cash in the total of cash, cash equivalents and restricted cash in its statements of consolidated cash flows for the year ended December 31, 2016, 2015 and 2014, respectively. A reconciliation of restricted cash for each period of the Company’s balance sheet to its statement of consolidated cash flows is included in Note 1(d) Cash and Cash Equivalents and Restricted Cash of this report.
The FASB issued Accounting Standards UpdateNo. 2015-07,Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Under the standard, investments for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) using the practical expedient are no longer categorized in the fair value hierarchy. The Company adopted this standard on January 1, 2016. As of December 31, 2016, the Company had approximately $182 million of such investments as part of Short-term investments on its consolidated balance sheets. In addition, pension plan investments measured at NAV per share are no longer categorized within the fair value hierarchy. As of December 31, 2016, the Company had approximately $1.8 billion of such investments.
same airport facilities.
NOTE 2 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents information about the
Company’sCompany's goodwill and other intangible assets at December 31 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | 2016 | | | 2015 | |
Item | | Asset life (a) | | | Gross Carrying
Amount | | | Accumulated
Amortization | | | Gross Carrying
Amount | | | Accumulated
Amortization | |
Goodwill | | | | | | $ | 4,523 | | | | | | | $ | 4,523 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Finite-lived intangible assets | | | | | | | | | | | | | | | | | | | | |
Frequent flyer database (b) | | | 22 | | | $ | 1,177 | | | $ | 771 | | | $ | 1,177 | | | $ | 702 | |
Hubs | | | 20 | | | | 145 | | | | 82 | | | | 145 | | | | 74 | |
Contracts | | | 13 | | | | 135 | | | | 95 | | | | 135 | | | | 86 | |
Patents and tradenames | | | 3 | | | | 108 | | | | 108 | | | | 108 | | | | 108 | |
Airport slots and gates | | | 8 | | | | 97 | | | | 97 | | | | 97 | | | | 97 | |
Other | | | 25 | | | | 109 | | | | 81 | | | | 109 | | | | 77 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | $ | 1,771 | | | $ | 1,234 | | | $ | 1,771 | | | $ | 1,144 | |
| | | | | | | | | | | | | | | | | | | | |
Indefinite-lived intangible assets | | | | | | | | | | | | | | | | | | | | |
Route authorities | | | | | | $ | 1,562 | | | | | | | $ | 1,570 | | | | | |
Airport slots and gates | | | | | | | 536 | | | | | | | | 942 | | | | | |
Tradenames and logos | | | | | | | 593 | | | | | | | | 593 | | | | | |
Alliances | | | | | | | 404 | | | | | | | | 404 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | $ | 3,095 | | | | | | | $ | 3,509 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
(a) Weighted average life expressed in years.
(b) The frequent flyer database is amortized based on an accelerated amortization schedule to reflect utilization of the assets. Estimated cash flows correlating to the expected attrition rate of customers in the frequent flyer database is considered in the determination of the amortization schedules.
|
| | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 |
| Item | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Goodwill | | $ | 4,523 |
| | | | $ | 4,523 |
| | |
| | | | | | | | | |
| Finite-lived intangible assets | | | | | | | | |
| Frequent flyer database | | $ | 1,177 |
| | $ | 884 |
| | $ | 1,177 |
| | $ | 832 |
|
| Hubs | | 145 |
| | 97 |
| | 145 |
| | 89 |
|
| Contracts | | 120 |
| | 106 |
| | 121 |
| | 103 |
|
| Patents and tradenames | | 108 |
| | 108 |
| | 108 |
| | 108 |
|
| Airport slots and gates | | 97 |
| | 97 |
| | 97 |
| | 97 |
|
| Other | | 109 |
| | 88 |
| | 109 |
| | 84 |
|
| Total | | $ | 1,756 |
| | $ | 1,380 |
| | $ | 1,757 |
| | $ | 1,313 |
|
| Indefinite-lived intangible assets | | | | | | | | |
| Route authorities | | $ | 1,240 |
| | | | $ | 1,562 |
| | |
| Airport slots and gates | | 546 |
| | | | 536 |
| | |
| Tradenames and logos | | 593 |
| | | | 593 |
| | |
| Alliances | | 404 |
| | | | 404 |
| | |
| Total | | $ | 2,783 |
| | | | $ | 3,095 |
| | |
Amortization expense in
2018, 2017 and 2016
2015 and 2014 was
$90$67 million,
$105$79 million and
$128$90 million, respectively. Projected amortization expense in
2017, 2018, 2019, 2020,
2021, 2022 and
20212023 is
$79$61 million,
$70$55 million,
$64$50 million,
$58$40 million and
$53$37 million, respectively.
See Note 1614 of this report for additional information related to impairment of intangible assets.
NOTE 3 - COMMON
STOCKHOLDERS’STOCKHOLDERS' EQUITY AND PREFERRED SECURITIES
In
2016,2018, UAL repurchased approximately
5017.5 million shares of UAL common stock for
$2.6$1.2 billion.
In December 2017, UAL's Board of Directors authorized a $3.0 billion share repurchase program to acquire UAL's common stock. As of December 31,
2016,2018, the Company had approximately $1.8 billion remaining to purchase shares under its share
repurchase program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL may repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 5,
“MarketMarket for
registrant’sregistrant's common equity, related stockholder matters and issuer purchases of equity
securities”securities, of this report for additional information.
In 2016, the Company retired 70 million treasury shares that were originally acquired at an average cost of approximately $53 per share.
At December 31,
2016,2018, approximately
510 million shares of
UAL’sUAL's common stock were reserved for future issuance related to the issuance of equity-based awards under the
Company’sCompany's incentive compensation plans.
As of December 31, 2016,2018, UAL had two shares of junior preferred stock (par value $0.01 per share) outstanding. In addition, UAL is authorized to issue 250 million shares of preferred stock (without par value) under UAL’sUAL's amended and restated certificate of incorporation.
NOTE 4 - EARNINGS PER SHARE
The computations of
UAL’sUAL's basic and diluted earnings per share are set forth below for the years ended December 31 (in millions, except per share amounts):
| | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | 2014 | |
Basic earnings per share: | | | | | | | | | | | | |
Earnings available to common stockholders | | $ | 2,263 | | | $ | 7,340 | | | $ | 1,132 | |
| | | | | | | | | | | | |
Basic weighted-average shares outstanding | | | 329.9 | | | | 376.1 | | | | 371.1 | |
| | | | | | | | | | | | |
Earnings per share, basic | | $ | 6.86 | | | $ | 19.52 | | | $ | 3.05 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | |
Earnings available to common stockholders | | $ | 2,263 | | | $ | 7,340 | | | $ | 1,132 | |
Effect of dilutive securities | | | — | | | | — | | | | 11 | |
| | | | | | | | | | | | |
Earnings available to common stockholders including the effect of dilutive securities | | $ | 2,263 | | | $ | 7,340 | | | $ | 1,143 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Diluted shares outstanding: | | | | | | | | | | | | |
Basic weighted-average shares outstanding | | | 329.9 | | | | 376.1 | | | | 371.1 | |
Effect of convertible notes | | | — | | | | 0.3 | | | | 17.7 | |
Effect of employee stock awards | | | 0.4 | | | | 0.5 | | | | 0.9 | |
| | | | | | | | | | | | |
Diluted weighted-average shares outstanding | | | 330.3 | | | | 376.9 | | | | 389.7 | |
| | | | | | | | | | | | |
Earnings per share, diluted | | $ | 6.85 | | | $ | 19.47 | | | $ | 2.93 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | 2018 | | 2017 (a) | | 2016 (a) |
| Earnings available to common stockholders | | $ | 2,129 |
| | $ | 2,144 |
| | $ | 2,234 |
|
| | | | | | | |
| Basic weighted-average shares outstanding | | 275.5 |
| | 302.7 |
| | 329.9 |
|
| Effect of employee stock awards | | 1.2 |
| | 0.9 |
| | 0.4 |
|
| Diluted weighted-average shares outstanding | | 276.7 |
| | 303.6 |
| | 330.3 |
|
| | | | | | | |
| Earnings per share, basic | | $ | 7.73 |
| | $ | 7.08 |
| | $ | 6.77 |
|
| Earnings per share, diluted | | $ | 7.70 |
| | $ | 7.06 |
| | $ | 6.76 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not material.
NOTE 5 - SHARE-BASED COMPENSATION PLANS
UAL maintains several share-based compensation plans. These plans provide for grants of
qualified andnon-qualified stock options,
incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986), stock appreciation rights, restricted
stock awards,shares, RSUs, performance compensation awards, performance units, cash incentive awards,
and other
types of equity-based and equity-related
awards.awards, and dividends and dividend equivalents.
All awards are recorded as either equity or a liability in the
Company’sCompany's consolidated balance sheets. The
share-based compensation expense is
directly recorded in salaries and related
costs or integration-related expense.costs.
During 2016,2018, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 20082017 Incentive Compensation Plan. These share-based compensation awards includeincluded approximately 1.91.8 million RSUs 0.4consisting of 1.1 million shares of restricted stocktime-vested RSUs and 0.40.7 million stock options.performance-based RSUs. The time-vested RSUs and the restricted stock awards vest inone-third incrementspro-rata, a majority of which vest on February 28th of each year over the first three anniversaries ofa three-year period from the date of grant. The time-vestedThese RSUs are generally stock-settledequity awards settled in stock for domestic employees and cash-settledliability awards settled in cash for international employeesemployees. The cash payments are based on the20-day average closing price of UAL common stock immediately prior to the vesting date. The remainder of theperformance-based RSUs are performance-based and vest based on the Company’s return on invested capital and the Company’sCompany's relative improvement inpre-tax margin compared to a group of airline industry peers for the three years ending December 31, 2018.2020. If the applicable performance conditions arecondition is achieved, cash payments will be made after the end of the performance period based on the20-day average closing price of UAL common stock immediately prior to the vesting date. The stock options vest inone-third increments over either (i)date and based on the first three anniversarieslevel, if any, of the date of grant (for seven-year term options) or (ii)performance goal achieved. The Company accounts for the fourth, fifth and sixth anniversaries of the date of grant (forperformance-based RSUs as liability awards.
ten-year term options).The following table provides information related to UAL’sUAL's share-based compensation plan cost for the years ended December 31 (in millions):
| | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | 2014 | |
Compensation cost (a): | | | | | | | | | | | | |
RSUs | | $ | 58 | | | $ | 52 | | | $ | 104 | |
Restricted stock | | | 11 | | | | 6 | | | | 10 | |
Stock options | | | 1 | | | | — | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 70 | | | $ | 58 | | | $ | 114 | |
| | | | | | | | | | | | |
(a) All compensation cost is recorded to Salaries and related costs, with the exception of $3 million in 2014 that was recorded in integration-related costs as a component of special items.
|
| | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
| Compensation cost: | | | | | | |
| RSUs | | $ | 98 |
| | $ | 63 |
| | $ | 58 |
|
| Restricted stock | | 2 |
| | 8 |
| | 11 |
|
| Stock options | | 1 |
| | 2 |
| | 1 |
|
| Total | | $ | 101 |
| | $ | 73 |
| | $ | 70 |
|
The table below summarizes UAL’sUAL's unearned compensation and weighted-average remaining period to recognize costs for all outstanding share-based awards that are probable of being achieved as of December 31, 20162018 (in millions, except as noted): | | | | | | | | |
| | | Unearned
Compensation | | | Weighted-
Average
Remaining
Period
(in years) | |
RSUs | | $ | 49 | | | | 1.5 | |
Restricted stock | | | 11 | | | | 1.5 | |
Stock options | | | 5 | | | | 3.2 | |
| | | | | | | | |
Total | | $ | 65 | | | | | |
| | | | | | | | |
|
| | | | | | |
| | | Unearned Compensation | | Weighted- Average Remaining Period (in years) |
| RSUs | | $ | 66 |
| | 1.6 |
| Stock options | | 2 |
| | 2.6 |
| Total | | $ | 68 |
| | |
RSUs and Restricted Stock. All performance-based RSUs, as well as a portion of the outstanding time-vested RSUs, will be settled in cash. As of December 31, 2016,2018, UAL had recorded a liability of $70$51 million related to its RSUs. UAL paid $69$28 million, $85$50 million and $86$69 million related to its RSUs during 2018, 2017 and 2016, 2015 and 2014, respectively. The table below summarizes
UAL’sUAL's RSUs and restricted stock activity for the years ended December 31 (shares in millions):
| | | | | | | | | | | | |
| | | RSUs | | | Restricted Stock | | | Weighted-
Average
Grant Price | |
Non-vested at December 31, 2013 | | | 5.4 | | | | 0.9 | | | $ | 25.02 | |
Granted | | | 0.9 | | | | 0.3 | | | | 43.33 | |
Vested | | | (2.2) | | | | (0.4) | | | | 24.66 | |
Forfeited | | | (0.3) | | | | (0.1) | | | | 28.88 | |
| | | | | | | | | | | | |
Non-vested at December 31, 2014 | | | 3.8 | | | | 0.7 | | | | 32.55 | |
Granted | | | 1.0 | | | | 0.2 | | | | 66.53 | |
Vested | | | (1.6) | | | | (0.4) | | | | 31.14 | |
Forfeited | | | (0.6) | | | | (0.2) | | | | 46.23 | |
| | | | | | | | | | | | |
Non-vested at December 31, 2015 | | | 2.6 | | | | 0.3 | | | | 48.68 | |
Granted | | | 1.9 | | | | 0.4 | | | | 50.63 | |
Vested | | | (1.4) | | | | (0.1) | | | | 41.47 | |
Forfeited | | | (0.2) | | | | (0.1) | | | | 53.42 | |
| | | | | | | | | | | | |
Non-vested at December 31, 2016 | | | 2.9 | | | | 0.5 | | | | 52.00 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | Liability Awards | | Equity Awards |
| | | RSUs | |
RSUs | | Weighted- Average Grant Price | | Restricted Stock | | Weighted- Average Grant Price |
| Outstanding at December 31, 2015 | | 2.6 |
| | — |
| | $ | — |
| | 0.3 |
| | $ | 48.68 |
|
| Granted | | 1.0 |
| | 0.9 |
| | 51.60 |
| | 0.4 |
| | 50.63 |
|
| Vested | | (1.4 | ) | | — |
| | — |
| | (0.1 | ) | | 41.47 |
|
| Forfeited | | (0.1 | ) | | (0.1 | ) | | 50.57 |
| | (0.1 | ) | | 53.42 |
|
| Outstanding at December 31, 2016 | | 2.1 |
| | 0.8 |
| | 51.67 |
| | 0.5 |
| | 52.00 |
|
| Granted | | 0.6 |
| | 1.0 |
| | 71.68 |
| | — |
| | — |
|
| Vested | | (0.7 | ) | | (0.3 | ) | | 51.81 |
| | (0.2 | ) | | 51.60 |
|
| Forfeited | | (0.2 | ) | | (0.1 | ) | | 57.49 |
| | — |
| | — |
|
| Outstanding at December 31, 2017 | | 1.8 |
| | 1.4 |
| | 63.99 |
| | 0.3 |
| | 52.30 |
|
| Granted | | 0.7 |
| | 1.1 |
| | 67.74 |
| | — |
| | — |
|
| Vested | | (0.5 | ) | | (0.5 | ) | | 63.02 |
| | (0.2 | ) | | 53.24 |
|
| Forfeited | | (0.1 | ) | | (0.2 | ) | | 67.34 |
| | — |
| | — |
|
| Outstanding at December 31, 2018 | | 1.9 |
| | 1.8 |
| | 66.29 |
| | 0.1 |
| | 51.17 |
|
The fair value of RSUs and restricted stock that vested in
2018, 2017 and 2016
2015 and 2014 was
$80$70 million,
$92$76 million and
$97$80 million, respectively. The fair value of the restricted stock
awardsand the stock-settled RSUs was based upon the UAL common stock price on the date of grant. These awards are accounted for as equity awards. The fair value of the
cash-settled RSUs was based on the UAL common stock price as of the last day preceding the settlement date. These awards
wereare accounted for as
either equity or liability
awards based on their method of settlement.awards. Restricted stock vesting and the recognition of the expense is similar to the stock option vesting described below.
Stock Options. During 2018, UAL did not grant any stock option awards. In 2017, UAL granted approximately 36,000 stock options with exercise prices equal to the fair market value of UAL's common stock on the date of grant with a weighted-average exercise price of $77.56 and a weighted-average grant date fair value of approximately $0.7 million. In 2016, UAL granted approximately 0.1 million stock options with exercise prices equal to the fair market value of UAL’sUAL's common stock on the date of grant and an additional approximately 0.3 million stock options with exercise prices at a 25% premium of the grant date fair market value resulting in a weighted-average exercise price of $56.19 and a weighted-average grant date fair value of approximately $2.3 million. Prior to 2016, UAL had not granted any stock options since 2010. Expense related to each portion of an option grant is recognized on a straight-line basis over the specific vesting period for those options. The Company determined the grant date fair value of stock options at the grant date using a Black ScholesBlack-Scholes option pricing model, which requires the use of several assumptions. The risk-free interest rate is based on the U.S. treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL’sUAL's common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants. The volatility assumptions were based upon historical volatilities of UAL using daily stock price returns equivalent to the expected term of the option. The expected livesterm of the
options
werewas determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration due to the
Company’sCompany's lack of relevant historical
data.data related to stock options.
As of December 31,
2016,2018, there were approximately
0.50.4 million outstanding stock option awards,
0.10.2 million of which were exercisable, with weighted-average exercise prices of
$46.83$55.62 and
$18.58,$47.07, respectively, intrinsic values of
$14$12 million and
$7$6 million, respectively, and weighted-average remaining contractual lives (in years) of
6.35.8 and
1.6,3.8, respectively.
NOTE 6 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the components of the Company’s accumulated other comprehensive income (loss) (“AOCI”),Company's AOCI, net of tax (in millions): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Deferred Taxes | | | | |
| | | Pension and
Other
Postretirement
Liabilities | | | Fuel
Derivatives
Contracts | | | Investments
and Other | | | Pension and
Other
Postretirement
Liabilities | | | Fuel
Derivative
Contracts | | | Total | |
Balance at December 31, 2013 | | $ | 699 | | | $ | 11 | | | $ | 13 | | | $ | (115) | | | $ | — | (c) | | $ | 608 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss before reclassifications (a) | | | (1,106) | (b) | | | (599) | | | | — | | | | — | | | | — | | | | (1,705) | |
Amounts reclassified from accumulated other comprehensive income (a) | | | (65) | | | | 89 | | | | (6) | | | | — | | | | — | | | | 18 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net current-period other comprehensive income (loss) | | | (1,171) | | | | (510) | | | | (6) | | | | — | | | | — | | | | (1,687) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 | | $ | (472) | | | $ | (499) | | | $ | 7 | | | $ | (115) | | | $ | — | (c) | | $ | (1,079) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | | | 78 | (b) | | | (320) | | | | (4) | | | | (28) | | | | 115 | | | | (159) | |
Amounts reclassified from accumulated other comprehensive income | | | 31 | | | | 604 | | | | — | | | | (11) | | | | (217) | | | | 407 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net current-period other comprehensive income (loss) | | | 109 | | | | 284 | | | | (4) | | | | (39) | | | | (102) | | | | 248 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 | | $ | (363) | | | $ | (215) | | | $ | 3 | | | $ | (154) | | | $ | (102) | | | $ | (831) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | | | (517) | (b) | | | (4) | | | | — | | | | 186 | | | | 1 | | | | (334) | |
Amounts reclassified from accumulated other comprehensive income | | | 26 | | | | 217 | | | | (1) | | | | (8) | | | | 102 | | | | 336 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net current-period other comprehensive income (loss) | | | (491) | | | | 213 | | | | (1) | | | | 178 | | | | 103 | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | $ | (854) | | | $ | (2) | | | $ | 2 | | | $ | 24 | | | $ | 1 | | | $ | (829) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Details about AOCI Components | | Amount Reclassified from AOCI to
Income | | | Affected Line Item in
the Statement Where
Net Income is Presented | |
| | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | | |
Fuel derivative contracts | | | | | | | | | | | | | | | | |
Fuel contracts-reclassifications of losses into earnings | | $ | 217 | | | $ | 604 | | | $ | 89 | | | | Aircraft fuel | |
Pension and Postretirement liabilities | | | | | | | | | | | | | | | | |
Amortization of unrecognized (gains) losses and prior service cost and the effect of curtailments and settlements (d) | | | 26 | | | | 31 | | | | (65) | | | | Salaries and related costs | |
Investments and other | | | | | | | | | | | | | | | | |
Available-for-sale securities—reclassifications of gains into earnings | | | (1) | | | | — | | | | (6) | | | | Miscellaneous, net | |
|
| | | | | | | | | | | | | | | | | | | |
| | Pension and Other Postretirement Liabilities | | Fuel Derivatives Contracts | | Investments and Other | | Deferred Taxes | | Total |
| Balance at December 31, 2015 | $ | (363 | ) | | $ | (215 | ) | | $ | 3 |
| | $ | (256 | ) | | $ | (831 | ) |
| Other comprehensive income (loss) before reclassifications | (517 | ) | (a) | (4 | ) | | — |
| | 187 |
| | (334 | ) |
| Amounts reclassified from accumulated other comprehensive income | 26 |
| | 217 |
| | (2 | ) | | 95 |
| | 336 |
|
| Balance at December 31, 2016 | (854 | ) | | (2 | ) | | 1 |
| | 26 |
| | (829 | ) |
| Other comprehensive income (loss) before reclassifications | (306 | ) | (a) | — |
| | (7 | ) | | 74 |
| | (239 | ) |
| Amounts reclassified from accumulated other comprehensive income | 58 |
| | 2 |
| | — |
| | (21 | ) | | 39 |
|
| Reclassification of stranded tax effects | — |
| | — |
| | — |
| | (118 | ) | (b) | (118 | ) |
| Balance at December 31, 2017 | (1,102 | ) | | — |
| | (6 | ) | | (39 | ) | | (1,147 | ) |
| Other comprehensive income (loss) before reclassifications | 377 |
| (a) | — |
| | (5 | ) | | (83 | ) | | 289 |
|
| Amounts reclassified from accumulated other comprehensive income | 62 |
| | — |
| | — |
| | (13 | ) | | 49 |
|
| Amounts reclassified to retained earnings | — |
| | — |
| | 7 |
| | (1 | ) | | 6 |
|
| Balance at December 31, 2018 | $ | (663 | ) | | $ | — |
| | $ | (4 | ) | | $ | (136 | ) |
| $ | (803 | ) |
|
| | | | | | | | | | | | | | |
| Details about AOCI Components | | Amount Reclassified from AOCI to Income | | Affected Line Item in the Statement Where Net Income is Presented |
| | | Year Ended December 31, | | |
| | | 2018 | | 2017 | | 2016 | | |
| Fuel derivative contracts | | | | | | | | |
| Fuel contracts-reclassifications of losses into earnings | | $ | — |
| | $ | 2 |
| | $ | 217 |
| | Aircraft fuel |
| Pension and Postretirement liabilities and other | | | | | | | | |
| Amortization of unrecognized (gains) losses and prior service cost (c) | | 62 |
| | 58 |
| | 26 |
| | Miscellaneous, net |
| Investments and other | | | | | | | | |
| Available-for-sale securities - reclassifications of gains into earnings | | — |
| | — |
| | (2 | ) | | Miscellaneous, net |
(a)
Income tax expense for these items was offset by the Company’s valuation allowance.(b) Prior service credits decreased by $3 million, $0 million and increased by $30 million $0and actuarial losses decreased by approximately $380 million, and $3increased $306 million and actuarial gains (losses) increased (decreased) by approximately $560 million $78 millionfor 2018, 2017 and $(1.1) billion for 2016, 2015respectively.
(b) This amount represents the reclassification from AOCI to RE of the stranded tax effects resulting from the enactment of the Tax Cuts and
2014, respectively.Jobs Act (the "Tax Act").
(c)
Deferred tax balance was offset by the Company’s valuation allowance.(d) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 8 of this report for additional information).
NOTE 7 - INCOME TAXES
The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate and consisted of the following significant components, as follows (in millions):
|
| | | | | | | | | | | | |
| UAL | | 2018 | | 2017 (a) | | 2016 (a) |
| Income tax provision at statutory rate | | $ | 558 |
| | $ | 1,064 |
| | $ | 1,320 |
|
| State income taxes, net of federal income tax benefit | | 29 |
| | 30 |
| | 38 |
|
| Foreign tax rate differential | | (84 | ) | | (43 | ) | | — |
|
| Global intangible low-taxed income | | 4 |
| | — |
| | — |
|
| Foreign income taxes | | 2 |
| | 3 |
| | 3 |
|
| Nondeductible employee meals | | 12 |
| | 17 |
| | 16 |
|
| Impact of Tax Act | | (5 | ) | | (179 | ) | | — |
|
| Income tax adjustment from AOCI (b) | | — |
| | — |
| | 180 |
|
| State rate change | | 3 |
| | 12 |
| | (12 | ) |
| Valuation allowance | | (3 | ) | | (16 | ) | | 20 |
|
| Other, net | | 13 |
| | 8 |
| | (26 | ) |
| | | $ | 529 |
| | $ | 896 |
| | $ | 1,539 |
|
| | | | | | | |
| Current | | $ | 14 |
| | $ | (77 | ) | | $ | (92 | ) |
| Deferred | | 515 |
| | 973 |
| | 1,631 |
|
| | | $ | 529 |
| | $ | 896 |
| | $ | 1,539 |
|
| | | | | | | |
| United | | 2018 | | 2017 (a) | | 2016 (a) |
| Income tax provision at statutory rate | | $ | 559 |
| | $ | 1,065 |
| | $ | 1,321 |
|
| State income taxes, net of federal income tax | | 29 |
| | 30 |
| | 38 |
|
| Foreign tax rate differential | | (84 | ) | | (43 | ) | | — |
|
| Global intangible low-taxed income | | 4 |
| | — |
| | — |
|
| Foreign income taxes | | 2 |
| | 3 |
| | 3 |
|
| Nondeductible employee meals | | 12 |
| | 17 |
| | 16 |
|
| Impact of Tax Act | | (5 | ) | | (196 | ) | | — |
|
| Income tax adjustment from AOCI (b) | | — |
| | — |
| | 180 |
|
| State rate change | | 3 |
| | 12 |
| | (12 | ) |
| Valuation allowance | | (3 | ) | | (16 | ) | | 20 |
|
| Other, net | | 12 |
| | 7 |
| | (25 | ) |
| | | $ | 529 |
| | $ | 879 |
| | $ | 1,541 |
|
| | | | | | | |
| Current | | $ | 14 |
| | $ | (77 | ) | | $ | (92 | ) |
| Deferred | | 515 |
| | 956 |
| | 1,633 |
|
| | | $ | 529 |
| | $ | 879 |
| | $ | 1,541 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
(b) Prior to the release of the deferred income tax valuation allowance in the third quarter of 2015, the Company recorded approximately $465 million of valuation allowance adjustments in AOCI. Subsequent to the release of
the deferred income tax valuation allowance in 2015, the $465 million debit remained within AOCI, of which $180 million related to losses on fuel hedges designated for hedge accounting and $285 million related to pension and other postretirement liabilities. Accounting rules required the adjustments to remain in AOCI as long as the Company had fuel derivatives designated for cash flow hedge accounting and the Company continues to provide pension and postretirement benefits. In 2016, wethe Company settled all of ourits fuel hedges and havehas not entered into any new fuel derivative contracts for hedge accounting. Accordingly, the Company reclassified the $180 million to income tax expense in 2016.
NOTE 7 - INCOME TAXES
The
significant components of the income tax expense (benefit) are as follows (in millions): | | | | | | | | |
2016 | | UAL | | | United | |
Current | | $ | (92) | | | $ | (92) | |
Deferred | | | 1,648 | | | | 1,650 | |
| | | | | | | | |
| | $ | 1,556 | | | $ | 1,558 | |
| | | | | | | | |
| | |
2015 | | | | | | |
Current | | $ | 56 | | | $ | 56 | |
Deferred | | | (3,177) | | | | (3,136) | |
| | | | | | | | |
| | $ | (3,121) | | | $ | (3,080) | |
| | | | | | | | |
| | |
2014 | | | | | | |
Current | | $ | (17) | | | $ | (17) | |
Deferred | | | 13 | | | | 13 | |
| | | | | | | | |
| | $ | (4) | | | $ | (4) | |
| | | | | | | | |
The income tax provision differed from amounts computed at the statutory federal income tax rate, as follows (in millions):
| | | | | | | | | | | | |
UAL | | 2016 | | | 2015 | | | 2014 | |
Income tax provision at statutory rate | | $ | 1,337 | | | $ | 1,477 | | | $ | 395 | |
State income taxes, net of federal income tax | | | 38 | | | | 38 | | | | 10 | |
Foreign income taxes | | | 3 | | | | 4 | | | | 2 | |
Nondeductible employee meals | | | 16 | | | | 15 | | | | 15 | |
Income tax adjustment | | | 180 | | | | — | | | | — | |
State rate change | | | (12) | | | | — | | | | — | |
Valuation allowance | | | 20 | | | | (4,662) | | | | (435) | |
Other, net | | | (26) | | | | 7 | | | | 9 | |
| | | | | | | | | | | | |
| | $ | 1,556 | | | $ | (3,121) | | | $ | (4) | |
| | | | | | | | | | | | |
| | | |
United | | 2016 | | | 2015 | | | 2014 | |
Income tax provision at statutory rate | | $ | 1,338 | | | $ | 1,477 | | | $ | 388 | |
State income taxes, net of federal income tax | | | 38 | | | | 38 | | | | 10 | |
Foreign income taxes | | | 3 | | | | 4 | | | | 2 | |
Nondeductible employee meals | | | 16 | | | | 15 | | | | 15 | |
Derivative market adjustment | | | — | | | | — | | | | (7) | |
Income tax adjustment | | | 180 | | | | — | | | | — | |
State rate change | | | (12) | | | | — | | | | — | |
Valuation allowance | | | 20 | | | | (4,621) | | | | (421) | |
Other, net | | | (25) | | | | 7 | | | | 9 | |
| | | | | | | | | | | | |
| | $ | 1,558 | | | $ | (3,080) | | | $ | (4) | |
| | | | | | | | | | | | |
The Company’sCompany's effective tax rate for the year ended December 31, 20162018 differed from the federal statutory rate of 21% due to a blend of federal, state and foreign taxes as well as the impact of certain nondeductible items.
On December 22, 2017, Congress enacted the Tax Act, which made significant changes to U.S. federal income tax laws, including reducing the corporate rate from 35% primarily becauseto 21% effective January 1, 2018. In December 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which allowed the Company to record provisional amounts related to the impact of
the Tax Act and to adjust those amounts during a measurement period not to extend more than one year from the date of enactment. Based on our current interpretation of the
non-cash income tax expense Tax Act and published Treasury and Internal Revenue Service ("IRS") guidance as of
$180 million that was related to losses on fuel derivatives designatedDecember 31, 2018, the Company's accounting for
hedge accounting. Subsequent to the
releaseimpacts of the
valuation allowance in 2015, this deferred income tax expense of $180 million remained in AOCI until all fuel derivatives were settled in December 2016. The change inTax Act is complete and the
effective tax rate each period is impacted by a number of factors, including the relative mix of domestic and state income tax expense in the U.S.,Company has not recorded any material adjustments to the
valuation allowancesprovisional amounts under SAB 118. In 2018, we recorded an income tax benefit for the one-time transition tax of $4 million and
discrete items.have completed the re-measurement of our net deferred tax balances. The Tax Act included a Global Intangible Low-Taxed Income ("GILTI") provision which introduced a new tax on foreign income in excess of a deemed return on tangible business property of foreign subsidiaries. The GILTI provisions of the Tax Act became effective for the Company during 2018 and we elected to account for it in the period incurred (the "period cost method").
Temporary differences and carryforwards that give rise to deferred tax assets and liabilities at December 31,
20162018 and
20152017 were as follows (in millions):
| | | | | | | | | | | | | | | | |
| | | UAL | | | United | |
| | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
Deferred income tax asset (liability): | | | | | | | | | | | | | | | | |
Federal and state net operating loss (“NOL”) carryforwards | | $ | 1,613 | | | $ | 2,897 | | | $ | 1,571 | | | $ | 2,855 | |
Deferred revenue | | | 2,096 | | | | 2,160 | | | | 2,096 | | | | 2,160 | |
Employee benefits, including pension, postretirement and medical | | | 1,662 | | | | 1,662 | | | | 1,662 | | | | 1,662 | |
Alternative minimum tax (“AMT”) credit carryforwards | | | 116 | | | | 232 | | | | 116 | | | | 232 | |
Other | | | 523 | | | | 566 | | | | 522 | | | | 566 | |
Less: Valuation allowance | | | (68) | | | | (48) | | | | (68) | | | | (48) | |
| | | | | | | | | | | | | | | | |
Total deferred tax assets | | $ | 5,942 | | | $ | 7,469 | | | $ | 5,899 | | | $ | 7,427 | |
| | | | | | | | | | | | | | | | |
Depreciation | | $ | (3,961) | | | $ | (3,921) | | | $ | (3,961) | | | $ | (3,921) | |
Intangibles | | | (1,326) | | | | (1,511) | | | | (1,326) | | | | (1,511) | |
| | | | | | | | | | | | | | | | |
Total deferred tax liabilities | | $ | (5,287) | | | $ | (5,432) | | | $ | (5,287) | | | $ | (5,432) | |
| | | | | | | | | | | | | | | | |
Net deferred tax asset | | $ | 655 | | | $ | 2,037 | | | $ | 612 | | | $ | 1,995 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | UAL | | United |
| | | 2018 | | 2017 | | 2018 | | 2017 |
| Deferred income tax asset (liability): | | | | | | | | |
| Federal and state net operating loss ("NOL") carryforwards | | $ | 398 |
| | $ | 601 |
| | $ | 372 |
| | $ | 574 |
|
| Deferred revenue | | 1,232 |
| | 1,090 |
| | 1,232 |
| | 1,090 |
|
| Employee benefits, including pension, postretirement and medical | | 885 |
| | 1,051 |
| | 885 |
| | 1,051 |
|
| Other | | 408 |
| | 351 |
| | 406 |
| | 351 |
|
| Less: Valuation allowance | | (59 | ) | | (63 | ) | | (59 | ) | | (63 | ) |
| Total deferred tax assets | | $ | 2,864 |
| | $ | 3,030 |
| | $ | 2,836 |
| | $ | 3,003 |
|
| | | | | | | | | |
| Depreciation | | $ | (2,929 | ) | | $ | (2,431 | ) | | $ | (2,929 | ) | | $ | (2,431 | ) |
| Intangibles | | (749 | ) | | (803 | ) | | (749 | ) | | (803 | ) |
| Total deferred tax liabilities | | $ | (3,678 | ) | | $ | (3,234 | ) | | $ | (3,678 | ) | | $ | (3,234 | ) |
| Net deferred tax liability | | $ | (814 | ) | | $ | (204 | ) | | $ | (842 | ) | | $ | (231 | ) |
United and its domestic consolidated subsidiaries file a consolidated federal income tax return with UAL. Under an intercompany tax allocation policy, United and its subsidiaries compute, record and pay UAL for their own tax liability as if they were separate companies filing separate returns. In determining their own tax liabilities, United and each of its subsidiaries take into account all tax credits or benefits generated and utilized as separate companies and they are each compensated for the aforementioned tax benefits only if they would be able to use those benefits on a separate company basis.
The
Company’sCompany's federal and state NOL carryforwards relate to prior
years’years' NOLs, which may be used to reduce tax liabilities in future years. These tax benefits are mostly attributable to federal
pre-tax NOL carryforwards of
$4.4$1.6 billion for UAL. If not utilized these federal
pre-tax NOLs will expire as follows (in billions):
$0.5$0.6 in
2026, $1.4 in 2027 and $2.5 after 2028.2030, $1.0 thereafter. In addition,
for UAL the majority of tax benefits of the state
net operating lossesNOLs of
$56$83 million
net of a valuation allowance of $36 million, for UAL will expire over a five to
20-year twenty year period.
Additionally, the Company has $108We have recorded a $48 million
of AMT credit carryforwards, net of a valuation allowance
of $8 million, which do not expire.The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets. The Company establishes valuation allowances if it is not likely it will realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, the Company’s historical financial results and tax planning strategies. In evaluating the likelihood of utilizing the Company’s net deferred income tax assets, the significant factors that the Company considers include (1) the Company’s recent history and forecasted profitability; (2) growth in the U.S. and global economies; and (3) future impact of taxable temporary differences. In 2015, the Company concluded that its deferred income tax assets were more likely than not to be realized and released almost all of its valuation allowance in 2015, resulting in a $3.1 billion benefit in its provision for income taxes. The valuation allowance recorded in AOCI in prior years was released through the income statement.
The Company has a valuation allowance of $68 million for certain state and local NOLs and credit carryforwards. The Company expects these NOLs and credits will expire unused due to limited carryforward periods. The ability to utilizeagainst these state NOLs and credits will be evaluated on a quarterly basis to determine if there are any significant events or any prudent and feasible tax planning strategies that would affect the Company’s ability to realize these deferred tax assets.
NOLs.
The
Company’sCompany's unrecognized tax benefits related to uncertain tax positions were
$39 million, $21 million and $74 million
$24 millionat December 31, 2018, 2017 and
$9 million at 2016,
2015 and 2014, respectively. Included in the ending balance at
2016December 31, 2018 is
$20$39 million that would affect the
Company’sCompany's effective tax rate if recognized. The changes in unrecognized tax benefits relating to settlements with taxing authorities, unrecognized tax benefits as a result of tax positions taken during a prior period and unrecognized tax benefits relating from a lapse of the statute of limitations were immaterial during
2016, 20152018, 2017 and
2014.2016. The Company does not expect significant increases or decreases in their unrecognized tax benefits within the next 12 months.
There are no material amounts included in the balance at December 31, 20162018 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
The Company’sCompany's federal income tax returns for tax years after 2002 remain subject to examination by the Internal Revenue Service (“IRS”)IRS and state taxing jurisdictions. Currently, there are no ongoing examinations of the Company’sCompany's prior year tax returns being conducted by the IRS.
NOTE 8 - PENSION AND OTHER POSTRETIREMENT PLANS
The following summarizes the significant pension and other postretirement plans of United:
Pension PlansPlans. United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S.non-pilot employees. Each of these plans provide benefits based on a combination of years of benefit
accruals service and an
employee’semployee's final average compensation. Additional benefit accruals are frozen under the plan covering certain pilot employees and management and administrative employees. Benefit accruals for certain
non-pilot employees continue. United maintains additional defined benefit pension plans, which cover certain international employees.
Other Postretirement PlansPlans. United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions,co-payments, deductibles and other limits as described in the specific plan documentation.
Actuarial assumption changes are reflected as a component of the net actuarial
gains/(losses)loss/(gain) during
20162018 and
2015.2017. The 2018 actuarial gains were mainly related to an increase in the discount rate applied in 2018 compared to 2017. These amounts will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive
participantsparticipants. The impacts on 2018 and
will impact 2016 and 20152017 pension and retiree medical expense
as describedare presented below.
The following
table setstables set forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):
| | | | | | | | |
| | | Pension Benefits | |
| | | Year Ended
December 31, 2016 | | | Year Ended
December 31, 2015 | |
Accumulated benefit obligation: | | $ | 4,158 | | | $ | 3,795 | |
| | | | | | | | |
| | | | | | | | |
Change in projected benefit obligation: | | | | | | | | |
Projected benefit obligation at beginning of year | | $ | 4,473 | | | $ | 4,803 | |
Service cost | | | 112 | | | | 124 | |
Interest cost | | | 200 | | | | 200 | |
Actuarial (gain) loss | | | 738 | | | | (298) | |
Gross benefits paid and settlements | | | (243) | | | | (343) | |
Other | | | (27) | | | | (13) | |
| | | | | | | | |
Projected benefit obligation at end of year | | $ | 5,253 | | | $ | 4,473 | |
| | | | | | | | |
Change in plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 2,975 | | | $ | 2,562 | |
Actual gain (loss) on plan assets | | | 230 | | | | (59) | |
Employer contributions | | | 421 | | | | 824 | |
Gross benefits paid and settlements | | | (243) | | | | (343) | |
Other | | | (28) | | | | (9) | |
| | | | | | | | |
Fair value of plan assets at end of year | | $ | 3,355 | | | $ | 2,975 | |
| | | | | | | | |
Funded status—Net amount recognized | | $ | (1,898) | | | $ | (1,498) | |
| | | | | | | | |
| | | | | | | | |
| | | Pension Benefits | |
| | | December 31, 2016 | | | December 31, 2015 | |
Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | |
Noncurrent asset | | $ | 2 | | | $ | 2 | |
Current liability | | | (8) | | | | (12) | |
Noncurrent liability | | | (1,892) | | | | (1,488) | |
| | | | | | | | |
Total liability | | $ | (1,898) | | | $ | (1,498) | |
| | | | | | | | |
Amounts recognized in accumulated other comprehensive loss consist of: | | | | | | | | |
Net actuarial loss | | $ | (1,482) | | | $ | (844) | |
Prior service loss | | | (1) | | | | (1) | |
| | | | | | | | |
Total accumulated other comprehensive loss | | $ | (1,483) | | | $ | (845) | |
| | | | | | | | |
| | | | | | | | |
| | | Other Postretirement Benefits | |
| | | Year Ended
December 31, 2016 | | | Year Ended
December 31, 2015 | |
Change in benefit obligation: | | | | | | | | |
Benefit obligation at beginning of year | | $ | 2,002 | | | $ | 2,052 | |
Service cost | | | 19 | | | | 21 | |
Interest cost | | | 86 | | | | 82 | |
Plan participants’ contributions | | | 69 | | | | 68 | |
Benefits paid | | | (191) | | | | (205) | |
Actuarial gain | | | (165) | | | | (22) | |
Plan amendments | | | (138) | | | | — | |
Other | | | 5 | | | | 6 | |
| | | | | | | | |
Benefit obligation at end of year | | $ | 1,687 | | | $ | 2,002 | |
| | | | | | | | |
Change in plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 56 | | | $ | 57 | |
Actual return on plan assets | | | 2 | | | | 1 | |
Employer contributions | | | 119 | | | | 135 | |
Plan participants’ contributions | | | 69 | | | | 68 | |
Benefits paid | | | (191) | | | | (205) | |
| | | | | | | | |
Fair value of plan assets at end of year | | | 55 | | | | 56 | |
| | | | | | | | |
Funded status—Net amount recognized | | $ | (1,632) | | | $ | (1,946) | |
| | | | | | | | |
| | | | | | | | |
| | | Other Postretirement Benefits | |
| | | December 31, 2016 | | | December 31, 2015 | |
Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | |
Current liability | | $ | (51) | | | $ | (64) | |
Noncurrent liability | | | (1,581) | | | | (1,882) | |
| | | | | | | | |
Total liability | | $ | (1,632) | | | $ | (1,946) | |
| | | | | | | | |
| Amounts recognized in accumulated other comprehensive income consist of: | | | | | | | | |
Net actuarial gain | | $ | 384 | | | $ | 236 | |
Prior service credit | | | 245 | | | | 246 | |
| | | | | | | | |
Total accumulated other comprehensive income | | $ | 629 | | | $ | 482 | |
| | | | | | | | |
|
| | | | | | | |
| | Pension Benefits |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
| Accumulated benefit obligation: | $ | 4,448 |
| | $ | 4,739 |
|
| | | | |
| Change in projected benefit obligation: | | | |
| Projected benefit obligation at beginning of year | $ | 5,852 |
| | $ | 5,253 |
|
| Service cost | 228 |
| | 195 |
|
| Interest cost | 217 |
| | 220 |
|
| Actuarial (gain) loss | (601 | ) | | 525 |
|
| Gross benefits paid and settlements | (292 | ) | | (366 | ) |
| Other | (8 | ) | | 25 |
|
| Projected benefit obligation at end of year | $ | 5,396 |
| | $ | 5,852 |
|
| | | | |
| Change in plan assets: | | | |
| Fair value of plan assets at beginning of year | $ | 3,932 |
| | $ | 3,355 |
|
| Actual (loss) return on plan assets | (215 | ) | | 510 |
|
| Employer contributions | 413 |
| | 419 |
|
| Gross benefits paid and settlements | (292 | ) | | (366 | ) |
| Other | (11 | ) | | 14 |
|
| Fair value of plan assets at end of year | $ | 3,827 |
| | $ | 3,932 |
|
| Funded status—Net amount recognized | $ | (1,569 | ) | | $ | (1,920 | ) |
|
| | | | | | | |
| | Pension Benefits |
| | December 31, 2018 | | December 31, 2017 |
| Amounts recognized in the consolidated balance sheets consist of: | | | |
| Noncurrent asset | $ | 13 |
| | $ | 9 |
|
| Current liability | (6 | ) | | (8 | ) |
| Noncurrent liability | (1,576 | ) | | (1,921 | ) |
| Total liability | $ | (1,569 | ) | | $ | (1,920 | ) |
| | | | |
| Amounts recognized in accumulated other comprehensive loss consist of: | | | |
| Net actuarial loss | $ | (1,382 | ) | | $ | (1,610 | ) |
| Prior service cost | (5 | ) | | (1 | ) |
| Total accumulated other comprehensive loss | $ | (1,387 | ) | | $ | (1,611 | ) |
| | | | |
| | Other Postretirement Benefits |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
| Change in benefit obligation: | | | |
| Benefit obligation at beginning of year | $ | 1,710 |
| | $ | 1,687 |
|
| Service cost | 12 |
| | 13 |
|
| Interest cost | 61 |
| | 66 |
|
| Plan participants' contributions | 68 |
| | 68 |
|
| Benefits paid | (181 | ) | | (178 | ) |
| Actuarial loss (gain) | (285 | ) | | 40 |
|
| Other | 6 |
| | 14 |
|
| Benefit obligation at end of year | $ | 1,391 |
| | $ | 1,710 |
|
| | | | |
| Change in plan assets: | | | |
| Fair value of plan assets at beginning of year | $ | 54 |
| | $ | 55 |
|
| Actual return on plan assets | 1 |
| | 1 |
|
| Employer contributions | 111 |
| | 108 |
|
| Plan participants' contributions | 68 |
| | 68 |
|
| Benefits paid | (181 | ) | | (178 | ) |
| Fair value of plan assets at end of year | 53 |
| | 54 |
|
| Funded status—Net amount recognized | $ | (1,338 | ) | | $ | (1,656 | ) |
|
| | | | | | | |
| | Other Postretirement Benefits |
| | December 31, 2018 | | December 31, 2017 |
| Amounts recognized in the consolidated balance sheets consist of: | | | |
| Current liability | $ | (43 | ) | | $ | (54 | ) |
| Noncurrent liability | (1,295 | ) | | (1,602 | ) |
| Total liability | $ | (1,338 | ) | | $ | (1,656 | ) |
| Amounts recognized in accumulated other comprehensive income consist of: | | | |
| Net actuarial gain | $ | 554 |
| | $ | 301 |
|
| Prior service credit | 170 |
| | 208 |
|
| Total accumulated other comprehensive income | $ | 724 |
| | $ | 509 |
|
The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets at December 31 (in millions):
| | | | | | | | |
| | | 2016 | | | 2015 | |
Projected benefit obligation | | $ | 5,025 | | | $ | 4,292 | |
Accumulated benefit obligation | | | 3,985 | | | | 3,655 | |
Fair value of plan assets | | | 3,164 | | | | 2,794 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| Projected benefit obligation | $ | 5,196 |
| | $ | 5,637 |
|
| Accumulated benefit obligation | 4,286 |
| | 4,567 |
|
| Fair value of plan assets | 3,614 |
| | 3,709 |
|
Net periodic benefit cost for the years ended December 31 included the following components (in millions): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | 2014 | |
| | | Pension
Benefits | | | Other
Postretirement
Benefits | | | Pension
Benefits | | | Other
Postretirement
Benefits | | | Pension
Benefits | | | Other
Postretirement
Benefits | |
| Service cost | | $ | 112 | | | $ | 19 | | | $ | 124 | | | $ | 21 | | | $ | 98 | | | $ | 19 | |
| Interest cost | | | 200 | | | | 86 | | | | 200 | | | | 82 | | | | 201 | | | | 88 | |
| Expected return on plan assets | | | (216) | | | | (2) | | | | (194) | | | | (2) | | | | (180) | | | | (2) | |
| Curtailment gain | | | — | | | | (107) | | | | — | | | | — | | | | — | | | | — | |
| Amortization of unrecognized actuarial (gain) loss | | | 76 | | | | (19) | | | | 85 | | | | (22) | | | | 12 | | | | (47) | |
| Amortization of prior service credits | | | — | | | | (31) | | | | — | | | | (32) | | | | — | | | | (31) | |
| Other | | | 5 | | | | — | | | | 4 | | | | — | | | | 1 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Net periodic benefit cost | | $ | 177 | | | $ | (54) | | | $ | 219 | | | $ | 47 | | | $ | 132 | | | $ | 27 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
As part of the ratified contract with the Association of Flight Attendants (“AFA”)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
| Service cost | $ | 228 |
| | $ | 12 |
| | $ | 195 |
| | $ | 13 |
| | $ | 112 |
| | $ | 19 |
|
| Interest cost | 217 |
| | 61 |
| | 220 |
| | 66 |
| | 200 |
| | 86 |
|
| Expected return on plan assets | (292 | ) | | (2 | ) | | (243 | ) | | (2 | ) | | (216 | ) | | (2 | ) |
| Curtailment gain | — |
| | — |
| | — |
| | — |
| | — |
| | (107 | ) |
| Amortization of unrecognized actuarial (gain) loss | 130 |
| | (32 | ) | | 128 |
| | (33 | ) | | 76 |
| | (19 | ) |
| Amortization of prior service credits | — |
| | (37 | ) | | — |
| | (37 | ) | | — |
| | (31 | ) |
| Other | 1 |
| | — |
| | 5 |
| | — |
| | 5 |
| | — |
|
| Net periodic benefit cost (credit) | $ | 284 |
| | $ | 2 |
| | $ | 305 |
| | $ | 7 |
| | $ | 177 |
| | $ | (54 | ) |
Service cost is recorded in
2016, the Company amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of aone-time $47 million gain for accelerated recognition of a prior service credit in one of the plans. Also, as part of the ratified contract with the International Brotherhood of Teamsters (the “IBT”) in 2016, the Company amended some of its techniciansSalaries and related
employees’ postretirement medical plans. The amendments triggered curtailment accounting, resulting incosts on the
recognitionstatement of
aone-time $60 million gain for accelerated recognitionconsolidated operations. All other components of
a prior service credit in one of the plans.The estimated amounts that will be amortized in 2017 out of accumulated other comprehensive income (loss) into net periodic benefit costcosts are as follows (in millions):
| | | | | | | | |
| | | Pension
Benefits | | | Other
Postretirement
Benefits | |
Actuarial (gain) loss | | $ | 127 | | | $ | (36) | |
Prior service credit | | | — | | | | (37) | |
recorded in Miscellaneous, net on the statement of consolidated operations.
See Note 14 of this report for additional information related to the curtailment gain recorded in 2016.
The assumptions used for the benefit plans were as follows: | | | | | | | | |
| | | Pension Benefits | |
Assumptions used to determine benefit obligations | | | 2016 | | | | 2015 | |
Discount rate | | | 4.18% | | | | 4.58% | |
Rate of compensation increase | | | 3.54% | | | | 3.66% | |
| | | | | | | | |
Assumptions used to determine net expense | | | | | | | | |
Discount rate | | | 4.58% | | | | 4.20% | |
Expected return on plan assets | | | 7.04% | | | | 7.40% | |
Rate of compensation increase | | | 3.53% | | | | 3.51% | |
| | | | | | | | |
| | Other Postretirement Benefits | |
Assumptions used to determine benefit obligations | | 2016 | | | 2015 | |
Discount rate | | | 4.07% | | | | 4.49% | |
| | | | | | | | |
Assumptions used to determine net expense | | | | | | | | |
Discount rate | | | 4.49% | | | | 4.07% | |
Expected return on plan assets | | | 3.00% | | | | 3.00% | |
Health care cost trend rate assumed for next year | | | 6.50% | | | | 6.75% | |
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023) | | | 5.00% | | | | 5.00% | |
|
| | | | | | |
| | | Pension Benefits |
| Assumptions used to determine benefit obligations | | 2018 | | 2017 |
| Discount rate | | 4.20 | % | | 3.65 | % |
| Rate of compensation increase | | 3.89 | % | | 3.89 | % |
| | | | | |
| Assumptions used to determine net expense | | |
| Discount rate | | 3.65 | % | | 4.19 | % |
| Expected return on plan assets | | 7.31 | % | | 7.02 | % |
| Rate of compensation increase | | 3.89 | % | | 3.54 | % |
| |
| | | Other Postretirement Benefits |
| Assumptions used to determine benefit obligations | | 2018 | | 2017 |
| Discount rate | | 4.30 | % | | 3.63 | % |
| | | | | |
| Assumptions used to determine net expense | | | | |
| Discount rate | | 3.63 | % | | 4.07 | % |
| Expected return on plan assets | | 3.00 | % | | 3.00 | % |
| Health care cost trend rate assumed for next year | | 6.00 | % | | 6.25 | % |
| Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023) | | 5.00 | % | | 5.00 | % |
The Company used the Society of Actuaries’Actuaries' 2014 mortality tables, modified to reflect the Social Security Administration Trustee’s
Trustee's Report on current projections regarding expected longevity improvements.
The Company selected the
20162018 discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31,
2016,2018, that would provide the necessary cash flows to match projected benefit payments.
We develop our expected long-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the trustee managing the plans’plans' assets.Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review our actual asset allocation and the pension plans’plans' investments are periodically rebalanced to our targeted allocation when considered appropriate. United’sUnited's plan assets are allocated within the following guidelines: | | |
| | | | | |
| | | Percent of Total | | Expected Long-Term Rate of Return |
| Equity securities | 30-45 | % | | 9.5 | % |
| Fixed-income securities | 30-40 | | | Expected Long-Term
Rate of Return
5.8 | |
| Alternatives | | | | | | | | |
Equity securities
10-25 | | | 30-40 %7.3 | |
| Other | 0-10 | | | | 9.5 % | |
Fixed-income securities
| | | 34-44 | | | | 5.0 | |
Alternatives
| | | 14-27 | | | | 7.3 | |
Other
| | | 0-10 | | | | 7.0 7.8 | |
One-hundred percent of other postretirement plan assets are invested in a deposit administration fund.
Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement plans. A 1% change in the assumed health care trend rate for the Company would have the following additional effects (in millions):
| | | | | | | | |
| | | 1% Increase | | | 1% Decrease | |
Effect on total service and interest cost for the year ended December 31, 2016 | | $ | 13 | | | $ | (11) | |
Effect on postretirement benefit obligation at December 31, 2016 | | | 169 | | | | (149) | |
A one percentage point decrease in the weighted average discount rate would increase the
Company's postretirement benefit liability by approximately
$181$139 million and increase the estimated
20162018 benefits expense by approximately
$11$10 million.
Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows: |
| | | | | | | |
Level 1 | | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value |
Level 2 | | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs |
Level 3 | | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities |
Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows:
(a)Market approach.Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities; and
(b)Income approach. Techniques to convert future amounts to a single current value based on market expectations (including present value techniques, option-pricing and excess earnings models).
The following tables present information about
United’sUnited's pension and other postretirement plan assets at December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2016 | | | | | | 2015 | |
| Pension Plan Assets: | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Assets
Measured
at NAV(a) | | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Assets
Measured
at NAV(a) | |
Equity securities funds | | $ | 1,173 | | | $ | 230 | | | $ | 111 | | | $ | — | | | $ | 832 | | | | | | | $ | 1,135 | | | $ | 254 | | | $ | 135 | | | $ | — | | | $ | 746 | |
Fixed-income securities | | | 1,298 | | | | — | | | | 824 | | | | 11 | | | | 463 | | | | | | | | 1,109 | | | | — | | | | 877 | | | | 9 | | | | 223 | |
Alternatives | | | 586 | | | | — | | | | — | | | | 134 | | | | 452 | | | | | | | | 527 | | | | — | | | | 1 | | | | 125 | | | | 401 | |
Other investments | | | 298 | | | | 47 | | | | 68 | | | | 87 | | | | 96 | | | | | | | | 204 | | | | 37 | | | | 56 | | | | 18 | | | | 93 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 3,355 | | | $ | 277 | | | $ | 1,003 | | | $ | 232 | | | $ | 1,843 | | | | | | | $ | 2,975 | | | $ | 291 | | | $ | 1,069 | | | $ | 152 | | | $ | 1,463 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Postretirement Benefit Plan Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposit administration fund | | $ | 55 | | | $ | — | | | $ | — | | | $ | 55 | | | $ | — | | | | | | | $ | 56 | | | $ | — | | | $ | — | | | $ | 56 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 |
| Pension Plan Assets: | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets Measured at NAV(a) | | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets Measured at NAV(a) |
| Equity securities funds | | $ | 1,394 |
| | $ | 254 |
| | $ | 106 |
| | $ | — |
| | $ | 1,034 |
| | | $ | 1,406 |
| | $ | 269 |
| | $ | 133 |
| | $ | — |
| | $ | 1,004 |
|
| Fixed-income securities | | 1,431 |
| | — |
| | 605 |
| | 21 |
| | 805 |
| | | 1,470 |
| | — |
| | 834 |
| | 18 |
| | 618 |
|
| Alternatives | | 596 |
| | — |
| | — |
| | 134 |
| | 462 |
| | | 637 |
| | — |
| | — |
| | 139 |
| | 498 |
|
| Other investments | | 406 |
| | 224 |
| | 40 |
| | 142 |
| | — |
| | | 419 |
| | 32 |
| | 124 |
| | 172 |
| | 91 |
|
| Total | | $ | 3,827 |
| | $ | 478 |
| | $ | 751 |
| | $ | 297 |
| | $ | 2,301 |
| | | $ | 3,932 |
| | $ | 301 |
| | $ | 1,091 |
| | $ | 329 |
| | $ | 2,211 |
|
| Other Postretirement Benefit Plan Assets: | | | | | | | | | | | | | | | | | | | | | |
| Deposit administration fund | | $ | 53 |
| | $ | — |
| | $ | — |
| | $ | 53 |
| | $ | — |
| | | $ | 54 |
| | $ | — |
| | $ | — |
| | $ | 54 |
| | $ | — |
|
(a) In accordance with the relevant accounting standards, certain investments that are measured at fair value using the
NAVnet asset value ("NAV") per share (or its equivalent) have not been classified in the fair value hierarchy. These investments are commingled funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and
non-U.S. public- or private-sector entities. Redemption periods for these investments range from daily to
annually.semiannually.
Equity and Fixed-Income.Equities include investments in both developed market and emerging market equity securities. Fixed-income includes primarily U.S. andnon-U.S. government fixed-income securities and U.S. andnon-U.S non-U.S. corporate fixed-income securities. Deposit Administration Fund.This investment is a stable value investment product structured to provide investment income. Alternatives.Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests. Other investments.Other investments consist of cash, insurance contracts and other funds. The reconciliation of
United’sUnited's defined benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31,
20162018 and
20152017 is as follows (in millions):
| | | | | | | | |
| | | 2016 | | | 2015 | |
Balance at beginning of year | | $ | 208 | | | $ | 188 | |
Actual return on plan assets: | | | | | | | | |
Sold during the year | | | 4 | | | | 8 | |
Held at year end | | | 3 | | | | (1) | |
Purchases, sales, issuances and settlements (net) | | | 72 | | | | 13 | |
| | | | | | | | |
Balance at end of year | | $ | 287 | | | $ | 208 | |
| | | | | | | | |
|
| | | | | | | |
| | 2018 | | 2017 |
| Balance at beginning of year | $ | 383 |
| | $ | 287 |
|
| Actual return (loss) on plan assets: | | | |
| Sold during the year | 10 |
| | 7 |
|
| Held at year end | (21 | ) | | 16 |
|
| Purchases, sales, issuances and settlements (net) | (22 | ) | | 73 |
|
| Balance at end of year | $ | 350 |
| | $ | 383 |
|
Funding requirements for
tax-qualified defined benefit pension plans are determined by government regulations.
United’sUnited's contributions reflected above have satisfied its required contributions through the
20162018 calendar year. In
2017,2019, employer anticipated contributions to all of
United’sUnited's pension and postretirement plans are at least
$400$318 million and approximately
$108$95 million, respectively.
The estimated future benefit payments, net of expected participant contributions, in
United’sUnited's pension plans and other postretirement benefit plans as of December 31,
20162018 are as follows (in millions):
| | | | | | | | | | | | |
| | | Pension | | | Other
Postretirement | | | Other Postretirement—
subsidy receipts | |
2017 | | $ | 303 | | | $ | 112 | | | $ | 6 | |
2018 | | | 300 | | | | 117 | | | | 6 | |
2019 | | | 310 | | | | 122 | | | | 7 | |
2020 | | | 319 | | | | 126 | | | | 7 | |
2021 | | | 337 | | | | 130 | | | | 8 | |
Years 2022 – 2026 | | | 1,782 | | | | 682 | | | | 44 | |
|
| | | | | | | | | | | |
| | Pension | | Other
Postretirement | | Other Postretirement—
subsidy receipts |
| 2019 | $ | 329 |
| | $ | 100 |
| | $ | 5 |
|
| 2020 | 327 |
| | 104 |
| | 6 |
|
| 2021 | 353 |
| | 108 |
| | 6 |
|
| 2022 | 367 |
| | 111 |
| | 6 |
|
| 2023 | 379 |
| | 113 |
| | 7 |
|
| Years 2024 – 2028 | 2,022 |
| | 575 |
| | 38 |
|
Defined Contribution Plans
Depending upon the employee group, employer contributions consist of matching contributions and/or
non-elective employer contributions.
United’sUnited's employer contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan. United recorded
contributions toexpenses for its defined contribution plans of
$592$693 million,
$522$656 million and
$503$592 million in the years ended December 31,
2018, 2017 and 2016,
2015 and 2014, respectively.
Multi-Employer Plans
United’s
United's participation in the IAM National Pension Plan
(“("IAM
Plan”Plan") for the annual period ended December 31,
20162018 is outlined in the table below. There have been no significant changes that affect the comparability
2016of 2018 and
20152017 contributions. The risks of participating in these multi-employer plans are different from single-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances could revert to United. The IAM Plan reported
$395$435 million in
employers’employers' contributions for the year ended December 31,
2015.2017. For
2015,2017, the
Company’sCompany's contributions to the IAM Plan represented more than 5% of total contributions to the IAM Plan.
The 2018
information is not available as Form 5500 is not final for the plan year. |
| |
Pension Fund | | IAM National Pension Fund |
EIN/ Pension Plan Number | | 51-6031295 - 002 |
Pension Protection Act Zone Status (2016(2018 and 2015) | 2017) | Green Zone. Plans in the green zone are at least 80 percent funded. |
FIP/RP Status Pending/Implemented | | No |
United’sUnited's Contributions
| | $4152 million, $40$50 million and $39$41 million in the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively |
Surcharge Imposed | | No |
Expiration Date of Collective Bargaining Agreement | | N/A |
At the date the financial statements were issued, Forms 5500 were not available for the plan year ending in 2016.
Substantially all employees participate in profit sharing based on a percentage of
pre-tax earnings, excluding special
items,charges, profit sharing expense and share-based compensation. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages vary above and below certain
pre-tax margin thresholds. Eligible U.S.
co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified
co-worker’s co-worker's annual eligible earnings to the eligible earnings of all qualified
co-workers in all domestic work groups. Eligible
non-U.S.co-workers non-U.S. co-workers receive profit sharing based on the calculation under the U.S. profit sharing plan for management and administrative employees. The Company recorded profit sharing and related payroll tax expense of
$334 million, $349 million and $628 million
$698 millionin 2018, 2017 and
$235 million in 2016,
2015 and 2014, respectively. Profit sharing expense is recorded as a component of Salaries and related costs in the
Company’sCompany's statements of consolidated operations.
NOTE 9 -
INVESTMENTS AND FAIR VALUE MEASUREMENTS
Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are described in Note 8 of this report. The table below presents disclosures about the fair value of financial assets and liabilities measured at fair value on a recurring basis in the Company’sCompany's financial statements as of December 31 (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | |
| | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | UAL | |
Cash and cash equivalents | | $ | 2,179 | | | $ | 2,179 | | | $ | — | | | $ | — | | | $ | 3,006 | | | $ | 3,006 | | | $ | — | | | $ | — | |
Short-term investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt | | | 835 | | | | — | | | | 835 | | | | — | | | | 891 | | | | — | | | | 891 | | | | — | |
Asset-backed securities | | | 792 | | | | — | | | | 792 | | | | — | | | | 710 | | | | — | | | | 710 | | | | — | |
Certificates of deposit placed through an account registry service (“CDARS”) | | | 246 | | | | — | | | | 246 | | | | — | | | | 281 | | | | — | | | | 281 | | | | — | |
U.S. government and agency notes | | | 140 | | | | — | | | | 140 | | | | — | | | | 72 | | | | — | | | | 72 | | | | — | |
Auction rate securities | | | — | | | | — | | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | 9 | |
Other fixed-income securities | | | 54 | | | | — | | | | 54 | | | | — | | | | 26 | | | | — | | | | 26 | | | | — | |
Other investments measured at NAV (a) | | | 182 | | | | — | | | | — | | | | — | | | | 201 | | | | — | | | | — | | | | — | |
Restricted cash | | | 124 | | | | 124 | | | | — | | | | — | | | | 206 | | | | 206 | | | | — | | | | — | |
Enhanced equipment trust certificates (“EETC”) | | | 23 | | | | — | | | | — | | | | 23 | | | | 26 | | | | — | | | | — | | | | 26 | |
Fuel derivatives liability, net | | | — | | | | — | | | | — | | | | — | | | | 124 | | | | — | | | | 124 | | | | — | |
(a) 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 this table 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. andnon-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV subject to athree-day settlement period.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
| | Total | | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total | | Level 1 |
| | Level 2 |
| | Level 3 |
|
| Cash and cash equivalents | $ | 1,694 |
| | $ | 1,694 |
| | $ | — |
| | $ | — |
| | $ | 1,482 |
| | $ | 1,482 |
| | $ | — |
| | $ | — |
|
| Short-term investments: | | | | | | | | | | | | | | | |
| Corporate debt | 1,023 |
| | — |
| | 1,023 |
| | — |
| | 958 |
| | — |
| | 958 |
| | — |
|
| Asset-backed securities | 746 |
| | — |
| | 746 |
| | — |
| | 753 |
| | — |
| | 753 |
| | — |
|
| U.S. government and agency notes | 108 |
| | — |
| | 108 |
| | — |
| | 113 |
| | — |
| | 113 |
| | — |
|
| Certificates of deposit placed through an account registry service ("CDARS") | 75 |
| | — |
| | 75 |
| | — |
| | 120 |
| | — |
| | 120 |
| | — |
|
| Other fixed-income securities | 116 |
| | — |
| | 116 |
| | — |
| | 188 |
| | — |
| | 188 |
| | — |
|
| Other investments measured at NAV | 188 |
| | — |
| | — |
| | — |
| | 184 |
| | — |
| | — |
| | — |
|
| Restricted cash | 105 |
| | 105 |
| | — |
| | — |
| | 109 |
| | 109 |
| | — |
| | — |
|
| Long-term investments: |
| | | | | | | | | | | | | | |
| Equity securities | 249 |
| | 249 |
| | — |
| | — |
| | 99 |
| | 99 |
| | — |
| | — |
|
| Enhanced equipment trust certificates ("EETC") | 18 |
| | — |
| | — |
| | 18 |
| | 22 |
| | — |
| | — |
| | 22 |
|
| Avianca Holdings S.A. ("AVH") Derivative Assets | 11 |
| | — |
| | — |
| | 11 |
| | — |
| | — |
| | — |
| | — |
|
Available-for-sale investment maturities
—The - The short-term investments shown in the table above are classified asavailable-for-sale. available-for-sale, with the exception of investments measured at NAV. As of December 31, 2016,2018, asset-backed securities have remaining maturities of less than one year to approximately 3016 years, corporate debt securities have remaining maturities of less than one year to approximately fivethree years and CDARS have maturities of less than one year. U.S. government and other securities have maturities of less than one year to approximately threetwo years. The EETC securities mature in 2019. Restricted cash - Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and other insurance-related obligations.
Equity securities - Equity securities represent United's investment in Azul. In 2018, the Company invested $138 million in Azul thus increasing its preferred equity stake in Azul to approximately 8% (representing approximately 2% of the total capital
stock of Azul). The Company recognizes changes to the fair value of its equity investment in Azul in Miscellaneous, net in its statements of consolidated operations.
Synergy Term Loan - On November 29, 2018, United, as lender, entered into a Term Loan Agreement (the "Synergy Loan Agreement") with affiliates of Synergy Aerospace Corporation ("Synergy"), as borrower and guarantor, respectively, and, pursuant to the Synergy Loan Agreement, on November 30, 2018, United provided a $456 million term loan to Synergy (the "Synergy Term Loan"), secured by a pledge of borrower's equity, as well as Synergy's 516 million shares of common stock of AVH, the parent company of Avianca (equivalent to 64.5 million American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange ("NYSE")). Pursuant to the Synergy Loan Agreement, the Synergy Term Loan is due and payable in five annual installments beginning on November 30, 2021, to be repaid in full on November 30, 2025 (a portion of which is subject to extension in limited circumstances). Subject to the satisfaction of collateral coverage thresholds, minimum share price levels and certain other conditions, Synergy may repay United in shares of AVH common stock, at market value, in an amount up to 25 percent of any principal installment, or with cash from the sale of Synergy's shares of AVH stock. The Synergy Term Loan bears interest at an annual rate of 3 percent per annum, payable quarterly in arrears. United also obtained an option to acquire, on a gross or net basis and at a fixed price, up to 77.4 million shares of AVH common stock from Synergy (the "AVH Call Options"), and agreed with Synergy to share in any increase in value of the remaining 438.6 million shares of Synergy's AVH common stock within certain price ranges (the "AVH Share Appreciation Rights"). Until the third anniversary of funding, Synergy has the option to capitalize interest that would have been due, adding it to the outstanding principal balance of the Synergy Term Loan. Pursuant to the Synergy Loan Agreement, Synergy has agreed to certain financial and non-financial covenants, as well as customary events of default.
In connection with funding the Synergy Loan Agreement, on November 29, 2018, United also entered into an agreement with AVH's significant minority shareholder, Kingsland Holdings Limited ("Kingsland"), pursuant to which, in return for Kingsland's pledge of its 144.8 million shares of AVH common stock (equivalent to 18.1 million ADRs) and its consent to Synergy's pledge of its AVH common stock to United under the Synergy Loan Agreement, United (1) granted to Kingsland the right to put its shares of AVH common stock to United at market price on the fifth anniversary of the Synergy Loan Agreement, and (2) guaranteed Synergy's obligation to pay Kingsland (which amount, if paid by United, will increase United's secured loan to Synergy by such amount) if the market price of AVH common stock on the fifth anniversary 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 $217.2 million. United also agreed with Kingsland to share in any increase in value of AVH common stock within certain price ranges (the "Upside Sharing Agreement").
AVH Derivative instrumentsAssets - The AVH Call Options, AVH Share Appreciation Rights and investmentsthe Upside Sharing Agreement (collectively, 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. Changes in the fair value of the AVH Derivative Assets are recorded as part of Nonoperating income (expense): Miscellaneous, net on the Company's statements of consolidated operations.
Investments presented in the table above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above as of December 31 (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value of Debt by Fair Value Hierarchy Level | |
| | | 2016 | | | 2015 | |
| | | Carrying
Amount | | | Fair Value | | | Carrying
Amount | | | Fair Value | |
| | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
Long-term debt | | $ | 10,767 | | | $ | 11,055 | | | $ | — | | | $ | 8,184 | | | $ | 2,871 | | | $ | 10,897 | | | $ | 11,371 | | | $ | — | | | $ | 8,646 | | | $ | 2,725 | |
. Carrying amounts include any related discounts, premiums, issuance costs and origination costs:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | Total | | Level 1 | | Level 2 | | Level 3 | | | | Total | | Level 1 | | Level 2 | | Level 3 |
| Long-term debt | $ | 13,445 |
| | $ | 13,450 |
| | $ | — |
| | $ | 9,525 |
| | $ | 3,925 |
| | $ | 13,268 |
| | $ | 13,787 |
| | $ | — |
| | $ | 10,115 |
| | $ | 3,672 |
|
| Synergy Term Loan | 478 |
| | 422 |
| | — |
| | — |
| | 422 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Fair value of the financial instruments included in the tables above was determined as follows:
|
| |
Description | | Fair Value Methodology |
| Cash and cash equivalents | | The carrying amounts approximate fair value because of the short-term maturity of these assets. |
| |
Short-term investments, Equity securities, EETC and Restricted cash | | Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, (c) internally-developed models of the expected future cash flows related to the securities, or (d)(c) broker quotes obtained by third-party valuation services. |
| Other investments measured at NAV | In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are shares of mutual funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV subject to a three-day settlement period. |
Fuel derivatives
| | Derivative contracts are privately negotiated contracts and are not exchange traded. Fair value measurements are estimated with option pricing models that employ observable inputs. Inputs to the valuation models include contractual terms, market prices, yield curves, fuel price curves and measures of volatility, among others. |
| |
Debt | 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.liabilities or assets. |
| Synergy Term Loan and 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. |
NOTE 10—HEDGING ACTIVITIESInvestments in Regional CarriersFuel Derivatives. United holds investments in several regional carriers that fly for the Company as United Express under CPAs. The combined carrying value of the investments was approximately $144 million as of the date of this report. United accounts for each investment using the equity method. Each investment and United's ownership stake is listed below.
Republic Airways Holdings Inc. ("Republic"). United holds a 19% minority interest in Republic which the Company received in 2017 in consideration for its unsecured claim in Republic's bankruptcy case. Republic does business as Republic Airways.
ManaAir, LLC ("ManaAir"). In a series of transactions completed in January 2019, United obtained a 49.9% minority ownership stake in ManaAir, LLC ("ManaAir") and ManaAir purchased 100% of the equity of ExpressJet Airlines, Inc.
Champlain Enterprises LLC ("Champlain"). United owns a 40% minority ownership stake in Champlain. Champlain does business as CommutAir.
Other Investments. United owns approximately 9% of the preferred shares of Fulcrum BioEnergy, Inc. ("Fulcrum"), a company that is developing a process for transforming municipal solid waste into transportation fuels, including jet fuel and diesel. United records its investment in Fulcrum at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. As of December 31, 2016,2018, the Company did not have any fuel hedging contracts outstanding to hedge its fuel consumption. The lastcarrying value of the Company’s fuel hedge derivatives designated for cash flow hedge accounting expired in December 2016. The Company’s current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets, and, accordingly, records any related collateral on a gross basis. The table below presents the fair value amounts of fuel derivative assets and liabilities and the location of amounts recognized in the Company’s financial statements.United's investment was $48 million.
At December 31, the Company’s derivatives were reported in its consolidated balance sheets as follows (in millions):
| | | | | | | | | | |
Classification | | Balance Sheet Location | | 2016 | | | 2015 | |
Derivatives designated as cash flow hedges | | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Fuel contracts due within one year | | Fuel derivative instruments | | $ | — | | | $ | 119 | |
Derivatives not designated for hedge accounting | | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Fuel contracts due within one year | | Fuel derivative instruments | | $ | — | | | $ | 5 | |
Total derivatives | | | | | | | | | | |
| | | | | | | | | | |
Total liabilities | | | | $ | — | | | $ | 124 | |
| �� | | | | | | | | | |
The following tables present the fuel hedge gains (losses) recognized during the periods presented and their classification in the financial statements (in millions):
Derivatives designated as cash flow hedges
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount of Loss
Recognized
in AOCI on Derivatives
(Effective Portion) | | | Loss Reclassified from
AOCI into Income
(Fuel Expense)
(Effective Portion) | | | Amount of Loss
Recognized in
Nonoperating income
(expense): Miscellaneous,
net (Ineffective Portion) | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
Fuel contracts | | $ | (4) | | | $ | (320) | | | $ | (217) | | | $ | (604) | | | $ | — | | | $ | — | |
Derivatives not designated for hedge accounting
| | | | | | | | | | | | | | |
| | | Amount of Loss Recognized
in Nonoperating income (expense):
Miscellaneous, net | | | |
| | | 2016 | | | 2015 | | | 2014 | | | |
Fuel contracts | | $ | — | | | $ | (80 | ) | | $ | (462) | | | |
Foreign Currency Derivatives
As of December 31, 2016, the Company did not have any foreign currency contracts outstanding to hedge its foreign currency sales. The last of the Company’s foreign currency derivatives designated for cash flow hedge accounting expired in December 2016. The Company’s current strategy is to not enter into transactions to hedge its foreign currency sales, although the Company regularly reviews its strategy based on market conditions and other factors.
NOTE
1110 - DEBT
| | | | | | | | |
(In millions) | | At December 31, | |
| | | 2016 | | | 2015 | |
Secured | | | | | | | | |
| Notes payable, fixed interest rates of 1.42% to 9.75% (weighted average rate of 4.85% as of December 31, 2016), payable through 2028 | | $ | 7,586 | | | $ | 7,971 | |
| Notes payable, floating interest rates of the London Interbank Offered Rate (“LIBOR”) plus 0.20% to 2.85%, payable through 2028 | | | 1,546 | | | | 1,302 | |
| Term loan, LIBOR subject to a 0.75% floor, plus 2.50%, or alternative rate based on certain market rates plus 1.50%, due 2019 | | | 866 | | | | 875 | |
| Term loan, LIBOR subject to a 0.75% floor, plus 2.75%, or alternative rate based on certain market rates plus 1.75%, due 2021 | | | 192 | | | | 194 | |
| Unsecured | | | | | | | | |
| 6% Senior Notes due 2020 (a) | | | 300 | | | | 300 | |
| 6.375% Senior Notes due 2018 (a) | | | 300 | | | | 300 | |
| Other | | | 101 | | | | 100 | |
| | | | | | | | |
| | | 10,891 | | | | 11,042 | |
| | | | | | | | |
Less: unamortized debt discount, premiums and debt issuance costs | | | (124) | | | | (145) | |
Less: current portion of long-term debt | | | (849) | | | | (1,224) | |
| | | | | | | | |
| Long-term debt, net | | $ | 9,918 | | | $ | 9,673 | |
| | | | | | | | |
|
| | | | | | | | |
| (In millions) | | At December 31, |
| | | 2018 | | 2017 |
| Secured | | | | |
| Notes payable, fixed interest rates of 0.0% to 9.52% (weighted average rate of 4.18% as of December 31, 2018), payable through 2030 | | $ | 8,811 |
| | $ | 8,661 |
|
| Notes payable, floating interest rates of the London interbank offered rate ("LIBOR") plus 1.05% to 1.75%, payable through 2030 | | 2,051 |
| | 1,880 |
|
| Term loan, LIBOR plus 1.75%, or alternative rate based on certain market rates plus 0.75%, due 2024 | | 1,474 |
| | 1,489 |
|
| Unsecured | | | | |
| 6.375% Senior Notes due 2018 (a) | | — |
| | 300 |
|
| 6% Senior Notes due 2020 (a) | | 300 |
| | 300 |
|
| 4.25% Senior Notes due 2022 (a) | | 400 |
| | 400 |
|
| 5% Senior Notes due 2024 (a) | | 300 |
| | 300 |
|
| Other | | 300 |
| | 101 |
|
| | | 13,636 |
| | 13,431 |
|
| Less: unamortized debt discount, premiums and debt issuance costs | | (191 | ) | | (163 | ) |
| Less: current portion of long-term debt | | (1,230 | ) | | (1,565 | ) |
| Long-term debt, net | | $ | 12,215 |
| | $ | 11,703 |
|
(a) UAL is the issuer of this debt. United is a guarantor.
The table below presents the Company’sCompany's contractual principal payments (not including debt discount or debt issuance costs) at December 31, 20162018 under then-outstanding long-term debt agreements in each of the next five calendar years (in millions): | | | | |
2017 | | $ | 849 | |
2018 | | | 1,427 | |
2019 | | | 1,852 | |
2020 | | | 1,007 | |
2021 | | | 1,174 | |
After 2021 | | | 4,582 | |
| | | | |
| | $ | 10,891 | |
| | | | |
As of December 31, 2016, a substantial portion of the Company’s assets, principally aircraft, route authorities, airport slots and loyalty program intangible assets, was pledged under various loan and other agreements. As of December 31, 2016, UAL and United were in compliance with their respective debt covenants. Continued compliance depends on many factors, some of which are beyond the Company’s control, including the overall industry revenue environment and the level of fuel costs.
|
| | | | |
| 2019 | | $ | 1,230 |
|
| 2020 | | 1,310 |
|
| 2021 | | 1,300 |
|
| 2022 | | 1,653 |
|
| 2023 | | 703 |
|
| After 2023 | | 7,440 |
|
| | | $ | 13,636 |
|
2013 Credit and Guaranty Agreement.On March 29, 2017, United and UAL, are parties to aas borrower and guarantor, respectively, entered into an Amended and Restated Credit and Guaranty Agreement (the “Credit Agreement”) as(as amended, the borrower and guarantor, respectively."Credit Agreement"). The Credit Agreement consists of a $900 million$1.5 billion term loan due April 2019 (of which $866 million was outstanding as of December 31, 2016) (the “Term Loan due 2019”), a $500 million term loan due September 2021 (of which $192 million was outstanding as of December 31, 2016) (the “Term Loan due 2021”)1, 2024 and a $1.35$2.0 billion revolving credit facility with $1.35 billion being available for drawing until April 2018 and $1.315 billion being available for drawing until January 2019.Borrowings1, 2022. The obligations of United under the revolving credit facilityamended Credit Agreement are secured by liens on certain international route authorities, certain take-off and landing rights and related assets of United.
Term loan borrowings under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 3.0%1.75% per annum, or another rate based on certain market interest rates, plus a margin of 2.0%0.75% per annum. The principal amount of the term loansloan must be repaid in consecutive quarterly installments of 0.25% of the original principal amount thereof, commencing on June 30, 2017, with any unpaid balance due in the case of the Term Loan due 2019, on April 1, 2019 and, in the case of the Term Loan due 2021, on September 15, 2021.2024. United may prepay all or a portion of the term loansloan from time to time, at par plus accrued and unpaid interest.
As of December 31, 2018, United had its entire capacity of $2.0 billion available under the revolving credit facility of the Company's Credit Agreement. United pays a commitment fee equal to 0.75%
per-annum per annum on the undrawn amount available under the revolving credit facility.
The Term Loan due 2021 ranks pari passu with the Term Loan due 2019 that United originally borrowed under the Credit Agreement. The Credit Agreement requires United to repay the term If drawn, revolving loans and any other outstanding borrowings under the Credit Agreement bear interest at para variable rate equal to LIBOR plus accrued and unpaida margin of 2.25% per annum, or another rate based on certain market interest if certain changesrates, plus a margin of control of UAL occur.
1.25% per annum.
As of December 31, 2016, United had its entire capacity of $1.35 billion available under the revolving credit facility of the Company’s Credit Agreement.As of December 31, 2016,2018, United had cash collateralized $72$73 million of letters of credit. United also had $383 million of surety bonds securing various obligations at December 31, 2016. Most of the letters of credit, which generally have evergreen clauses and are expected to be renewed on an annual basis and thebasis. As of December 31, 2018, United also had $418 million of surety bonds havesecuring various obligations with expiration dates through 2021.
2022.
EETCs. As of December 31, 2018, United has $7.5had $8.8 billion principal amount of equipment notes outstanding issued under EETC financings included in notes payable in the table of outstanding debt above. Generally, the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issuedby United and secured by its aircraft. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United’sUnited's consolidated balance sheet because the proceeds held by the depositary are not United’sUnited's assets.
In September 2016February 2018, May 2018 and June 2016,February 2019, United created separate EETC pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. United expects to receive all proceeds from the September 2016 and June 2016 pass-through trusts by the end of the second quarter of 2017. Certain details of the pass-through trusts with proceeds received from issuance of debt in 20162018 are as follows (in millions, except stated interest rate): | | | | | | | | | | | | | | | | | | | | | | | | |
EETC Date | | Class | | Principal | | | Final expected
distribution
date | | Stated
interest
rate | | | Total debt
recorded
as of December 31,
2016 | | | Proceeds
received from
issuance of
debt during
2016 | | | Remaining
proceeds from
issuance of debt
to be received
in future
periods | |
September 2016 | | AA | | $ | 637 | | | October 2028 | | | 2.875% | | | $ | 80 | | | $ | 80 | | | $ | 557 | |
September 2016 | | A | | | 283 | | | October 2028 | | | 3.10% | | | | 36 | | | | 36 | | | | 247 | |
June 2016 | | AA | | | 729 | | | July 2028 | | | 3.10% | | | | 410 | | | | 410 | | | | 319 | |
June 2016 | | A | | | 324 | | | July 2028 | | | 3.45% | | | | 182 | | | | 182 | | | | 142 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ | 1,973 | | | | | | | | | $ | 708 | | | $ | 708 | | | $ | 1,265 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| EETC Date | | Class | | Principal | | Final expected distribution date | | Stated interest rate | | Total debt recorded
as of December 31, 2018 | | Proceeds received from issuance of debt during 2018 | | Remaining proceeds from issuance of debt to be received in future periods |
| February 2019 | | AA | | $ | 717 |
| | August 2031 | | 4.15 | % | | $ | — |
| | $ | — |
| | $ | 717 |
|
| February 2019 | | A | | 296 |
| | August 2031 | | 4.55 | % | | — |
| | — |
| | 296 |
|
| May 2018 | | B | | 226 |
| | March 2026 | | 4.60 | % | | 226 |
| | 226 |
| | — |
|
| February 2018 | | AA | | 677 |
| | March 2030 | | 3.50 | % | | 677 |
| | 677 |
| | — |
|
| February 2018 | | A | | 258 |
| | March 2030 | | 3.70 | % | | 258 |
| | 258 |
| | — |
|
| | | | | $ | 2,174 |
| | | | | | $ | 1,161 |
| | $ | 1,161 |
| | $ | 1,013 |
|
In
2016,2018, United borrowed approximately
$369$424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in
2016.2018. The notes evidencing these borrowings, which are secured by the related aircraft,
have maturity dates ranging from 2026 to 2028mature in 2030 and have interest rates comprised of
the LIBOR plus a specified margin.
Unsecured debt
4.25% Senior Notes due 2022. In September 2017, UAL issued $400 million aggregate principal amount of 4.25% Senior Notes due October 1, 2022 (the "4.25% Senior Notes due 2022"). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 4.25% Senior Notes due 2022 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest.
5% Senior Notes due 2024.In January 2017, UnitedUAL issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024 (the “5%"5% Senior Notes due 2024”2024"). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 5% Senior Notes due 2024 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest.
As of December 31, 2018, UAL and United were in compliance with their respective debt covenants. The collateral, covenants and cross default provisions of the
Company’sCompany's principal debt instruments that contain such provisions are summarized in the table below:
|
| |
| Debt Instrument | | Collateral, Covenants and Cross Default Provisions |
Various equipment notes and other notes payable | | Secured by certain aircraft. The indentures contain events of default that are customary for aircraft financing, including in certain cases cross default to other related aircraft. |
Credit Agreement
| | Secured by certain of United’sUnited's international route authorities, specifiedtake-off and landing slots at certain airports and certain other assets.
The Credit Agreement requires the Company to maintain at least $3.0$2.0 billion of unrestricted liquidity at all times, which includes unrestricted cash, short-term investments and any undrawn amounts under any revolving credit facility, and to maintain a minimum ratio of appraised value of collateral to the outstanding obligations under the Credit Agreement of 1.671.6 to 1.0 at all times. The Credit Agreement contains covenants that, among other things, restrict the ability of UAL and its restricted subsidiaries (as defined in the Credit Agreement) to incur additional indebtedness and to pay dividends on or repurchase stock, although, as of December 31, 2018, the Company currently hashad ample ability under these restrictions to repurchase stock under the Company’sCompany's share repurchase program.
The Credit Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company.
|
6.375% Senior Notes due 2018
4.25% Senior Notes due 2022 5% Senior Notes due 2024 | | The indentures for these notes contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries (as defined in the indenture)indentures) to incur additional indebtedness and pay dividends on or repurchase stock, although the Company currently has ample ability under these restrictions to repurchase stock under the Company’sCompany's share repurchase program. |
NOTE 12 - ADVANCED PURCHASE OF MILES
United previously sold MileagePlus miles to Chase which United recorded as Advanced purchase of miles. The remaining balance ofpre-purchased miles is eligible to be allocated by Chase to MileagePlus members’ accounts in 2017. The Company has recorded these amounts as Advanced purchase of miles in the liabilities section of the Company’s consolidated balance sheets. TheCo-Brand Agreement contains termination penalties that may require United to make certain payments and repurchase outstandingpre-purchased miles in cases such as United’s insolvency, bankruptcy or other material breaches.
NOTE
1311 - LEASES AND CAPACITY PURCHASE AGREEMENTS
United leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other commercial real estate, office and computer equipment and vehicles.
In 2018, United entered into a new Airline Use and Lease Agreement at Chicago O'Hare International Airport ("Chicago O'Hare") with the City of Chicago with a lease term of approximately 15 years, effective May 12, 2018 through December 31, 2033. United also entered into several new ground and facility leases at Chicago O'Hare, effective May 12, 2018, for hangars, a ground equipment maintenance building, and employee parking with lease terms ranging from 15 years to 30 years.
At December 31, 2016, United’s2018, United's scheduled future minimum lease payments under operating leases having initial or remaining noncancelable lease terms of more than one year, aircraft leases, including aircraft rent under CPAs and capital leases (substantially
(substantially all of which are for aircraft) were as follows (in millions): | | | | | | | | | | | | |
| | | Capital Leases | | | Facility and Other
Operating Leases | | | Aircraft Operating
Leases | |
2017 | | $ | 183 | | | $ | 1,256 | | | $ | 1,271 | |
2018 | | | 170 | | | | 1,106 | | | | 1,074 | |
2019 | | | 105 | | | | 991 | | | | 894 | |
2020 | | | 85 | | | | 1,104 | | | | 669 | |
2021 | | | 84 | | | | 888 | | | | 551 | |
After 2021 | | | 915 | | | | 6,702 | | | | 2,049 | |
| | | | | | | | | | | | |
Minimum lease payments | | $ | 1,542 | | | $ | 12,047 | | | $ | 6,508 | |
| | | | | | | | | | | | |
Imputed interest | | | (604) | | | | | | | | | |
| | | | | | | | | | | | |
Present value of minimum lease payments | | | 938 | | | | | | | | | |
Current portion | | | (116) | | | | | | | | | |
| | | | | | | | | | | | |
Long-term obligations under capital leases | | $ | 822 | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | Capital Leases (b) | | Facility and Other Operating Leases | | Aircraft Operating Leases |
| 2019 | | $ | 308 |
| | $ | 1,330 |
| | $ | 845 |
|
| 2020 | | 170 |
| | 1,351 |
| | 682 |
|
| 2021 | | 147 |
| | 1,107 |
| | 583 |
|
| 2022 | | 123 |
| | 970 |
| | 407 |
|
| 2023 | | 104 |
| | 953 |
| | 379 |
|
| After 2023 | | 1,268 |
| | 7,029 |
| | 1,160 |
|
| Minimum lease payments (a) | | $ | 2,120 |
| | $ | 12,740 |
| | $ | 4,056 |
|
| Imputed interest | | (837 | ) | | | | |
| Present value of minimum lease payments | | 1,283 |
| | | | |
| Current portion | | (149 | ) | | | | |
| Long-term obligations under capital leases | | $ | 1,134 |
| | | | |
(a) Includes fair value lease and deferred financing fee balances, which are being amortized over the terms of their respective leases.
(b) Includes airport construction projects managed by United in which United has construction risk, including project cost overruns. The Company recorded an asset for project costs and a related liability equal to project costs funded by parties other than United. As of December 31, 2016, United’s2018, United had an asset balance of $886 million recorded in operating property and equipment and $920 million recorded in current and long-term obligations under capital leases for these airport construction projects.
As of December 31, 2018, United's aircraft capital lease minimum payments relate to leases of
3828 mainline and
2990 regional aircraft as well as to leases of nonaircraft assets. Imputed interest rate ranges are 3.5% to
20.8%115.1%.
Aircraft operating leases have initial terms of five to 26 years, with expiration dates ranging from
20172019 through
2028.2029. Under the terms of most leases, United has the right to purchase the aircraft at the end of the lease term, in some cases, at fair market value, and in others, at fair market value or a percentage of cost.
United has facility operating leases that extend to 2041.During 2015, the Company reached an agreement with AerCap Holdings N.V., a major aircraft leasing company, to lease used Airbus S.A.S (“Airbus”) A319s. Five such aircraft are expected to be delivered in 2017. In addition, up to 14 more aircraft may be delivered over the next four years subject to certain conditions.
United is the lessee of real property under long-term operating leases at a number of airports where we are also the guarantor of approximately
$1.4$1.3 billion of underlying debt and interest thereon as of December 31,
2016.2018. These leases are typically with municipalities or other governmental entities, which are excluded from the consolidation requirements concerning a variable interest entity
(“VIE”("VIE"). To the extent
United’sUnited's leases and related guarantees are with a separate legal entity other than a governmental entity, United is not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease and the lease does not include a residual value guarantee, fixed-price purchase option, or similar feature.
In 2016, United signed a seven year lease extension through 2024 with the Metropolitan Washington Airports Authorityhas facility operating leases that extend to continue its use of terminals at Washington Dulles International Airport.
United’s2055.
United's nonaircraft rent expense was approximately
$1.2$1.3 billion, $1.3 billion and
$1.4$1.2 billion for the years ended December 31,
2018, 2017 and 2016,
2015 and 2014, respectively.
In addition to nonaircraft rent and aircraft rent, which is separately presented in the consolidated statements of operations, United had aircraft rent related to regional aircraft operating leases, which is included as part of Regional capacity purchase expense in
United’sUnited's consolidated statement of operations, of
$439$505 million,
$461$458 million and
$442$439 million for the years ended December 31,
2018, 2017 and 2016,
2015 and 2014, respectively.
In connection with UAL
Corporation’sCorporation's and United Air Lines, Inc.
’s's (predecessors to UAL and United) fresh-start reporting requirements upon their exit from Chapter 11 bankruptcy protection in 2006 and the
Company’sCompany's acquisition accounting adjustments related to the
Company’sCompany's merger transaction in 2010, lease valuation adjustments for operating leases were initially recorded in the consolidated balance sheet, representing the net present value of the differences between contractual lease rates and the fair market lease rates for similar leased assets at the time. An asset (liability) results when the contractual lease rates are more (less) favorable than market lease terms at the valuation date. The lease valuation adjustment is amortized on a straight-line basis as an increase (decrease) to rent expense over the individual applicable remaining lease terms, resulting in recognition of rent expense as if United had entered into the leases at market rates. The related remaining lease terms, primarily related to aircraft which make up the majority of the fair value lease adjustment balance, are one to
eightsix years for United. The lease valuation adjustments are classified within other noncurrent liabilities and the net accretion amounts are
$82$60 million,
$107$79 million and
$160$82 million for the years ended December 31,
2018, 2017 and 2016,
2015 and 2014, respectively.
United has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. Under these CPAs, with certainthe Company pays the regional carriers. We purchase allcarriers contractually agreed fees (carrier costs) for operating these
flights plus a variable reimbursement (incentive payment for operational performance) based on agreed performance metrics, subject to annual adjustments. The fees for carrier costs are based on specific rates for various operating expenses of the
capacity fromregional carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures), while others are fixed monthly amounts. Under these CPAs, the
flights coveredCompany is responsible for all fuel costs incurred, as well as landing fees and other costs, which are either passed through by
the CPA at a negotiated price. We pay the regional carrier
a predetermined rate, subject to annual inflation adjustments, primarily for block hours flown (the hours from gate departure to gate arrival) and other operating factors and reimburse the regional carrier for various pass-through expenses related to the
flights. UnderCompany without any markup or directly incurred by the
CPAs, we are responsible forCompany, and, in some cases, the
cost of providing fuel for all flights and for paying aircraft rent forCompany owns or leases some or all of the aircraft
covered bysubject to the
CPAs. Generally,CPA, and leases or subleases, as applicable, such aircraft to the
CPAs contain incentive bonus and rebate provisions based upon each regional
carrier’s operational performance. United’scarrier. United's CPAs are for
494559 regional aircraft
as of December 31, 2018, and the CPAs have terms expiring through 2029. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United or leased from third-party lessors and operated by the regional carriers. See Part I, Item 2,
“Properties”Properties, of this report for additional information.
In 2016 and 2015, Republic Airline Inc. (“Republic”),2017, United entered into a wholly-owned subsidiary of Republic Airways Holdings (“Republic Airways”), purchased and took delivery of 16 new76-seat Embraer S.A. (“Embraer”) E175 aircraft, and placed these aircraft intofive-year CPA with Air Wisconsin Airlines for regional service under the United Express brand. Subsequentbrand to operate up to 65 CRJ200 aircraft. In addition, United extended the Chapter 11 bankruptcy filing by Republic Airways and certainterm of its subsidiariesexisting CPA with ExpressJet Airlines to operate up to approximately 125 aircraft through December 31, 2022.
United recorded approximately $979 million, $907 million and $935 million in
the first quarter of 2016, United entered into amendmentsexpenses related to its
CPACPAs with
Republicits regional carriers, in
which United is a minority shareholder, for the years ended December 31, 2018, 2017 and 2016,
for Republicrespectively. There were approximately $53 million and $24 million in accounts payable due to
operate a total of 28 Embraer E175 aircraft, 16 of which were deliveredthese companies as
previously described and 12 of which remain to be delivered in 2017. In connection with the amended CPA, United will own the 12 remaining Embraer E175 aircraft.In 2016, United agreed to purchase 12 new Embraer E175 aircraft that were previously expected to be purchased by one of its United Express operators, and in the first quarter of 2017, United entered into a CPA amendment with Mesa Air Group, Inc. (“Mesa Air Group”) and Mesa Airlines, Inc. (“Mesa”), a wholly-owned subsidiary of Mesa Air Group, for Mesa to operate these 12 additional Embraer E175 aircraft under the United Express brand. As of December 31, 2016, all 12 of2018 and December 31, 2017, respectively. There were no material accounts receivables due from these aircraft are expected to be delivered in 2017.
In 2015, United entered into amendments to the CPA with SkyWest Airlines, Inc. (“SkyWest”), a wholly-owned subsidiary of SkyWest, Inc., to operate an additional 25 new76-seat Embraer E175 aircraft under the United Express brand. SkyWest purchased all of these76-seat aircraft directly from the manufacturer with seven deliveries remaining in 2017.
In 2015, United entered into a new CPA with Champlain Enterprises, LLC d/b/a CommutAir (“CommutAir”), pursuant to which CommutAir will operate 40 used Embraer ERJ145 aircraft under the United Express brand that are currently being operated by a different United Express regional carrier, with transfers that are continuing through 2018. Ascompanies as of December 31, 2016, 28 aircraft are still pending transfer.
2018 and December 31, 2017. The CPAs with these related parties were executed in the ordinary course of business.
Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict. The most important of these variables is the number of scheduled block hours. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have set forth below estimates of our future payments under the CPAs based on our assumptions.
United’sUnited's estimates of its future
payments under all of the CPAs do not include the portion of the underlying obligation for any aircraft leased to a regional carrier or deemed to be leased from other regional carriers and facility rent that are disclosed as part of aircraft and nonaircraft operating leases. For purposes of calculating these estimates, we have assumed (1) the number of block hours flown is based on our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is higher, (2) that we will reduce the fleet as rapidly as contractually allowed under each CPA, (3) that aircraft utilization, stage length and load factors will remain constant, (4) that each carrier’scarrier's operational performance will remain at historic levels and (5) an annual projected inflation rate. These amounts exclude variable pass-through costs such as fuel and landing fees, among others. Based on these assumptions as of December 31, 2016,2018, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):
| | | | |
2017 | | $ | 1.9 | |
2018 | | | 1.9 | |
2019 | | | 1.3 | |
2020 | | | 1.0 | |
2021 | | | 1.0 | |
After 2021 | | | 4.3 | |
| | | | |
| | $ | 11.4 | |
| | | | |
|
| | | |
| 2019 | $ | 2.2 |
|
| 2020 | 2.0 |
|
| 2021 | 1.8 |
|
| 2022 | 1.4 |
|
| 2023 | 0.8 |
|
| After 2023 | 3.1 |
|
| | $ | 11.3 |
|
The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates. For example, a 10% increase or decrease in scheduled block hours for all of United’sUnited's regional operators (whether as a result of changes in average daily utilization or otherwise) in 20172019 would result in a corresponding change in annual cash obligations under the CPAs of approximately $147$160 million.
NOTE
1412 - VARIABLE INTEREST ENTITIES
Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the fair value of the
entity’sentity's net assets exclusive of variable interests. A VIE can arise from items such as lease agreements, loan arrangements, guarantees or service contracts. An entity is a VIE if (a) the entity lacks sufficient equity or (b) the
entity’sentity's equity holders lack power or the obligation and right as equity holders to absorb the
entity’sentity's expected losses or to receive its expected residual returns.
Therefore, if the equity owners as a group do not have the power to direct the entity’s activities that most significantly impact its economic performance, the entity is a VIE.If an entity is determined to be a VIE, the entity must be consolidated by the primary beneficiary. The primary beneficiary is the holder of the variable interests that has the power to direct the activities of a VIE that (i) most significantly impact the VIE’sVIE's economic performance and (ii) has the obligation to absorb losses of or the right to receive benefits from the VIE that could
potentially be significant to the VIE. Therefore, the Company must identify which activities most significantly impact the
VIE’sVIE's economic performance and determine whether it, or another party, has the power to direct those activities.
The Company’s evaluation of its association with VIEs is described below:
Aircraft Leases. We are the lessee in a number of operating leases covering the majority of our leased aircraft. The lessors are trusts established specifically to purchase, finance and lease aircraft to us. These leasing entities meet the criteria for VIEs. We are generally not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. This is the case for many of our operating leases; however, leases of 3723 mainline jet aircraft contain a fixed-price purchase option that allow United to purchase the aircraft at predetermined prices on specified dates during the lease term. Additionally, leases covering 19290 leasedregional jet aircraft contain an option to purchase the aircraft at the end of the lease term at prices that, depending on market conditions, could be below fair value. United has not consolidated the related trusts because, even taking into consideration these purchase options, United is still not the primary beneficiary. United’sUnited's maximum exposure under these leases is the remaining lease payments, which are reflected in future lease commitments in Note 1311 of this report.
EETCs. United evaluated whether the pass-through trusts formed for its EETC financings, treated as either debt or aircraft operating leases, are VIEs required to be consolidated by United under applicable accounting guidance, and determined that the pass-through trusts are VIEs. Based on United’sUnited's analysis as described below, United determined that it does not have a variable interest in the pass-through trusts. The primary risk of the pass-through trusts is credit risk (i.e. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments). The primary purpose of the pass-through trust structure is to enhance the credit worthiness of
United’sUnited's debt obligation through certain bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improved
loan-to-value ratios for more senior debt classes. These credit enhancements lower
United’sUnited's total borrowing cost. Pass-through trusts are established to receive principal and interest payments on the equipment notes purchased by the pass-through trusts from United and remit these proceeds to the pass-through
trusts’trusts' certificate holders.
United does not invest in or obtain a financial interest in the pass-through trusts. Rather, United has an obligation to make interest and principal payments on its equipment notes held by the pass-through trusts. United did not intend to have any voting ornon-voting equity interest in the pass-through trusts or to absorb variability from the pass-through trusts. Based on this analysis, the Company determined that it is not required to consolidate the pass-through trusts.
Synergy affiliates.
BRW Aviation LLC ("BRW"): Synergy's wholly-owned affiliate, BRW, is a special purpose entity created to be the borrower of the Synergy Term Loan. BRW is also the owner of the collateral that secures the Synergy Term Loan, including Synergy's shares of AVH. BRW is a VIE and United holds variable interests in BRW including the Synergy Term Loan. However, United is not the primary beneficiary of BRW because it does not hold BRW equity and does not have management rights at BRW and therefore does not have the power to direct the activities that most significantly impact BRW's economic performance.
AVH: United concluded that AVH is a VIE and that United holds a variable interest through its call option on Synergy's AVH shares. However, United is not the primary beneficiary because it does not hold a material number of shares of AVH and does not have the power through any other agreements to direct the activities that most significantly impact AVH's economic performance.
NOTE 1513 - COMMITMENTS AND CONTINGENCIES
Commitments. Commitments.As of December 31, 2016,2018, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”("Boeing"), Airbus S.A.S. ("Airbus") and Embraer and AirbusS.A. ("Embraer") presented in the table below:
|
| | | |
Aircraft Type | | Number of Firm
Commitments (a) | |
Airbus A350-1000 A350 | | 45 | 35 |
|
Boeing 737NG/737MAX 737 MAX | | 175 | 165 |
|
Boeing777-300ER | | 4 | 12 |
|
Boeing787-8/-9/-10 | | | 21 | |
Embraer E175
| 787 | | 24 |
|
| Embraer E175 | | 25 |
|
| (a) United also has options and purchase rights for additional aircraft. | |
The aircraft listed in the table above are scheduled for delivery from
20172019 through 2027. 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’sCompany's future capital commitments could change.
In 2019, United expects to take delivery of 25 Embraer E175 aircraft, 20 Boeing 737 MAX aircraft, 8 Boeing 787 aircraft and 2 Boeing 777-300ER aircraft. United also has agreements to purchase 20 used Airbus A319 aircraft with expected delivery dates through 2022.
During the third quarter of 2018, United entered into an agreement with the lessor of 54 Embraer ERJ 145 aircraft to purchase those aircraft in 2019. The provisions of such agreement resulted in a change in accounting classification of the applicable leases from operating leases to capital leases up until the applicable purchase date.
The table below summarizes
United’sUnited's commitments as of December 31,
2016,2018, which primarily relate to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments for the years ended December 31 (in billions). Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company.
| | | | |
2017 | | $ | 4.5 | |
2018 | | | 3.2 | |
2019 | | | 3.1 | |
2020 | | | 2.5 | |
2021 | | | 2.2 | |
After 2021 | | | 7.8 | |
| | | | |
| | $ | 23.3 | |
| | | | |
|
| | | |
| 2019 | $ | 4.2 |
|
| 2020 | 5.3 |
|
| 2021 | 3.5 |
|
| 2022 | 2.8 |
|
| 2023 | 1.9 |
|
| After 2023 | 7.0 |
|
| | $ | 24.7 |
|
In
the first quarter of 2017,February 2019, the Company
announced that it will retire its fleetsecured $1.0 billion of
Boeing 747 aircraft from scheduled service by the end of 2017. The Company does not expect thereEETC financing to
be a material impact to depreciation and amortization expense.As of December 31, 2016, United had $1.3 billion in financing available through EETC transactions for the financing of all of itsfinance certain aircraft deliveries scheduled in the first half of 2017. See Note 11 of this report for additional information on aircraft financing.2018 and 2019. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions. Financing may be necessary to satisfy the Company’sCompany's capital commitments for its firm order aircraft and other related capital expenditures.
Legal and Environmental.The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. As of December 31, 2016,2018, management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect the Company’sCompany's consolidated financial position or results of operations. The Company records liabilities for legal and environmental claims when a loss is probable and reasonably estimable. These amounts are recorded based on the Company’sCompany's assessments of the likelihood of their eventual disposition. Guarantees and Indemnifications. In the normal course of business, the Company enters into numerous real estate leasing and aircraft financing arrangements that have various guarantees included in the contracts. These guarantees are primarily in the form of indemnities under which the Company typically indemnifies the lessors and any tax/financing parties against tort liabilities that arise out of the use, occupancy, operation or maintenance of the leased premises or financed aircraft. Currently, the Company believes that any future payments required under these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles). Additionally, certain leased premises such as fueling stations or storage facilities include indemnities of such parties for any environmental liability that may arise out of or relate to the use of the leased premises. As of December 31,
2016,2018, 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
$1.4approximately $1.3 billion of these obligations are accounted for as operating leases with the associated expense recorded on a straight-line basis resulting in ratable accrual of the lease obligation over the expected lease term. These
tax-exempt special facilities revenue bonds are included in our lease commitments disclosed in Note
1311 of this report. The leasing arrangements associated with
$400approximately $466 million of these obligations are accounted for as capital leases. All of these bonds are due between
20172019 and 2038.
In United’sconnection with funding the Synergy Loan Agreement, the Company entered into an agreement with AVH's significant minority shareholder, Kingsland Holdings Limited ("Kingsland"), pursuant to which, in return for Kingsland's pledge of its 144.8 million shares of AVH common stock (equivalent to 18.1 million American Depositary Receipts ("ADRs")) and its consent to Synergy's pledge of its AVH common stock to United under the Synergy Loan Agreement, United (1) granted to Kingsland the right to put its shares of AVH common stock to United at market price on the fifth anniversary of the Synergy
Loan Agreement, and (2) guaranteed Synergy's obligation to pay Kingsland (which amount, if paid by United, will increase United's secured loan to Synergy by such amount) if the market price of AVH common stock on the fifth anniversary 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 $217.2 million. Accordingly, the Company recorded a liability of $31 million for the fair value of its guarantee to loan additional funds to Synergy if required. Any additional loans to Synergy would be collateralized by Synergy's shares of AVH stock and other collateral.
Increased Cost Provisions. In United's financing transactions that include loans, 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 in which the interest rate is based on 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 December 31, 2016,2018, the Company had $2.6$3.5 billion of floating rate debt and $90$27 million of fixed rate debt, with remaining terms of up to 12 years, that are subject to these increased cost provisions. In several financing transactions involving loans or leases fromnon-U.S. entities, with remaining terms of up to 12 years and an aggregate balance of $2.6$3.2 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder tonon-U.S. entities to withholding taxes, subject to customary exclusions. As of December 31,
2016,2018, United is the guarantor of
$168$145 million of aircraft mortgage debt issued by one of
United’sUnited's regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the
Company’sCompany's debt, and the Company would potentially be responsible for those costs under the guarantees.
Fuel Consortia.United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed throughtax-exempt bonds, (eithereither special facilities lease revenue bonds or general airport revenue bonds),bonds, issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2016,2018, approximately $1.5$1.7 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2016,2018, the Company’sCompany's contingent exposure was approximately $234$164 million principal amount of such bonds based on its recent consortia participation. The Company’sCompany's contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when thetax-exempt bonds are paid in full, which ranges from 20172022 to 2049.2051. The Company did not record a liability at the time these indirect guarantees were made. Regional Capacity Purchase.As of December 31, 2016,2018, United had 223292 call options to purchase regional jet aircraft being operated by certain of its regional carriers. At December 31, 2016, nonecarriers with contract dates extending until 2029. These call options are exercisable upon wrongful termination or breach of contract, among other conditions. None of the call options were exercisable because none of the required conditions to make an option exercisable by United was met.at December 31, 2018. Credit Card Processing Agreements.The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company’sCompany's credit card processing agreements, the financial institutions in certain circumstances have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that has been processed by that financial institution, but for which the Company has not yet provided the air transportation. Such financial institutions may require additional cash or other collateral reserves to be established or additional withholding of payments related to receivables collected if the Company does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments (collectively, “Unrestricted Liquidity”"Unrestricted Liquidity"). The Company’sCompany's current level of Unrestricted Liquidity is substantially in excess of these minimum levels. Labor Negotiations. As of December 31, 2016,2018, United, including its subsidiaries, had approximately 88,00092,000 employees. Approximately 80%83% of United’sUnited's employees were represented by various U.S. labor organizations as of December 31, 2016.In January 2016, United’s pilots, represented by the Air Line Pilots Association, International (“ALPA”), agreed to extend their contract through January 31, 2019. In March 2016, the Company’s dispatchers, represented by the Professional Airline Flight Control Association, agreed to extend their current contract through 2021. In April 2016, the fleet service, passenger service, storekeeper and other employees represented by2018.The agreement with the International AssociationBrotherhood of Machinists and Aerospace Workers (“IAM”Teamsters (the "IBT") ratified seven new contracts with the Company which extended the contracts through 2021. In August 2016, United’sflight attendants, represented by the AFA, ratified a five-year joint collective bargaining agreement through 2021. In December 2016, the technicians and related employees, represented by the IBT, ratified asix-year joint collective bargaining agreement which extended the contract through 2022. The agreements with ALPA and IBT containcontains provisions that require the Company to align contract terms with other airlines’airlines' workgroups under certain conditions.
On October 23, 2018, United's Catering Operations employees voted to unionize under the Railway Labor Act. In an election overseen by the National Mediation Board, UNITE HERE received the majority of the votes and was officially certified to represent United's frontline Catering Operations employees. The Company expects contract negotiations to begin in 2019.
NOTE
1614 - SPECIAL
ITEMSCHARGES
Special
items classified as special charges in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):
| | | | | | | | | | | | |
| Operating: | | 2016 | | | 2015 | | | 2014 | |
Impairment of assets | | $ | 412 | | | $ | 79 | | | $ | 49 | |
Cleveland airport lease restructuring | | | 74 | | | | — | | | | — | |
Labor agreement costs | | | 64 | | | | 18 | | | | — | |
Severance and benefit costs | | | 37 | | | | 107 | | | | 199 | |
| (Gains) losses on sale of assets and other special charges | | | 51 | | | | 122 | | | | 195 | |
| | | | | | | | | | | | |
Special charges | | | 638 | | | | 326 | | | | 443 | |
Nonoperating and income taxes: | | | | | | | | | | | | |
| Losses (gain) on extinguishment of debt and other | | | (1) | | | | 202 | | | | 74 | |
| Income tax benefit related to special charges | | | (229) | | | | (11) | | | | (10) | |
| Income tax adjustments (Notes 6 and 7) | | | 180 | | | | (3,130 | ) | | | — | |
| | | | | | | | | | | | |
Total operating and nonoperating special items, net of income taxes | | $ | 588 | | | $ | (2,613 | ) | | $ | 507 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| Operating: | | 2018 | | 2017 (a) | | 2016 (a) |
| Impairment of assets | | $ | 377 |
| | $ | 25 |
| | $ | 412 |
|
| Termination of an engine maintenance service agreement | | 64 |
| | — |
| | — |
|
| Severance and benefit costs | | 41 |
| | 116 |
| | 37 |
|
| Cleveland airport lease restructuring | | — |
| | — |
| | 74 |
|
| Labor agreement costs | | — |
| | — |
| | 171 |
|
| (Gains) losses on sale of assets and other special charges | | 5 |
| | 35 |
| | 51 |
|
| Total operating special charges | | 487 |
| | 176 |
| | 745 |
|
| Nonoperating: | | | | | | |
| Postretirement curtailment gain | | — |
| | — |
| | (107 | ) |
| Gains on extinguishment of debt and other | | — |
| | — |
| | (1 | ) |
| Total operating and nonoperating special charges before income taxes | | 487 |
| | 176 |
| | 637 |
|
| Nonoperating mark-to-market ("MTM") losses on financial instruments | | 5 |
| | — |
| | — |
|
| Total special charges and MTM losses on financial instruments | | 492 |
| | 176 |
| | 637 |
|
| Income tax benefit | | (110 | ) | | (63 | ) | | (229 | ) |
| Income tax adjustments (Note 7) | | (5 | ) | | (179 | ) | | 180 |
|
| Total special charges and MTM losses on financial instruments, net of income taxes and income tax adjustments | | $ | 377 |
| | $ | (66 | ) | | $ | 588 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
2018
The Company conducted its annual impairment review of intangible assets in the fourth quarter of 2018, which consisted of a comparison of the book value of specific assets to the fair value of those assets. Due to increased costs without sufficient corresponding increases in revenue in the Hong Kong market, the Company determined that the value of its Hong Kong routes had been impaired. Accordingly, in the fourth quarter of 2018, the Company recorded a special non-cash impairment charge of $206 million ($160 million net of taxes) associated with its Hong Kong routes. The collateral pledged under the Company's term loan, including the Hong Kong routes, continues to be sufficient to satisfy the loan covenants. The Company determined the fair value of the Hong Kong routes using a variation of the income approach known as the excess earnings method, which discounts an asset's projected future net cash flows to determine the current fair value. Assumptions used in the discounted cash flow methodology include a discount rate, which is based upon the Company's current weighted average cost of capital plus an asset-specific risk factor, and a projection of sales, expenses, gross margin, tax rates and contributory asset charges for four future years and a terminal growth rate. The assumptions used for future projections are determined based upon the Company's asset-specific forecasts along with the Company's strategic plan. These assumptions are inherently uncertain as they relate to future events and circumstances. Actual results will be influenced by the competitive environment, fuel costs and other expenses, and potentially other unforeseen events or circumstances that could have a material negative impact on future results.
In May 2018, the Brazil–United States open skies agreement was ratified, which provides air carriers with unrestricted access between the United States and Brazil. The Company determined that the approval of the open skies agreement impaired the entire value of its Brazil route authorities because the agreement removes all limitations or reciprocity requirements for flights between the United States and Brazil. Accordingly, the Company recorded a $105 million special charge ($82 million net of taxes) to write off the entire value of the intangible asset associated with its Brazil routes. This asset is not part of any collateral pledged against any of the Company's borrowings. The Company continues to maintain its slot assets related to Brazil since airport access is still regulated by slot allocations that are limited by airport facility constraints.
During 2018, the Company also recorded $66 million ($51 million net of taxes) of fair value adjustments related to aircraft purchased off lease, write-offs of unexercised aircraft purchase options and other impairments related to certain fleet types and international slots no longer in use.
During 2018, the Company recorded a one-time termination charge of $64 million ($50 million net of tax) related to one of its engine maintenance service agreements.
During 2018, the Company recorded severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the IBT of $22 million ($17 million net of taxes). In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2018. Also during 2018, the Company recorded other management severance of $19 million ($15 million net of taxes).
During 2018, the Company recorded gains of $28 million ($22 million net of taxes) for the change in market value of certain of its equity investments. Also, the Company recorded losses of $33 million ($26 million net of taxes) for the change in fair value of certain derivative assets related to equity of Avianca Holdings S.A. For equity investments and derivative assets subject to MTM accounting, the Company records gains and losses as part of Nonoperating income (expense): Miscellaneous, net in its statements of consolidated operations.
2017
During 2017 the Company recorded a $10 million ($6 million net of taxes) impairment charge related to obsolete spare parts inventory and a $15 million ($10 million net of taxes) intangible asset impairment charge related to a maintenance service agreement.
During 2017, the Company recorded $83 million ($53 million net of taxes) of severance and benefit costs related to the voluntary early-out program for its technicians and related employees represented by the IBT as described above. Also during 2017, the Company recorded $33 million ($21 million net of taxes) of other management severance.
In April 2016, the Federal Aviation Administration
(“FAA”("FAA") announced that it will designate Newark Liberty International Airport
(“Newark”("Newark") as a Level 2 schedule-facilitated airport under the International Air Transport Association Worldwide Slot
Guidelines effective October 30, 2016.Guidelines. The designation was associated with an updated demand and capacity analysis of Newark by the FAA. In 2016, the Company determined that the
FAA’sFAA's action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governs
take-off and landing rights. Accordingly, the Company recorded a $412 million special charge ($264 million net of taxes) to write off the intangible asset.
During 2016, the Company recorded $37 million ($24 million net of taxes) of severance and benefit costs related to a voluntary early-out program for the Company's flight attendants and other severance agreements. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.
In 2016, the City of Cleveland agreed to amend the
Company’sCompany's lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport
(“Cleveland”("Cleveland"). The Company recorded an accrual for remaining payments under the lease for facilities that the Company no longer uses and will continue to incur costs under the lease without economic benefit to the Company. This liability was measured and recorded at its fair value when the Company ceased its right to use such facilities leased to it pursuant to the lease. The Company recorded a net charge of $74 million ($47 million net of taxes) related to the amended lease.
The fleet service, passenger service, storekeeper and other employees represented by the IAMInternational Association of Machinists and Aerospace Workers (the "IAM") ratified seven new contracts with the Company which extended the contracts through 2021. The technicians and related employees represented by the IBT ratified asix-year joint collective bargaining agreement which extended the contract through 2022. During 2016, the Company recorded $171 million ($110 million net of taxes) of special charges primarily for payments in conjunction with the IAM and IBT agreements described above.
As part of the ratified
contract with the IBT, the Company amended some of its technicians and related employees’employees' postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of aone-time $60 million gain ($38 million net of taxes) for accelerated recognition of a prior service credit in one of the plans. Also, as part of the ratified contract with the AFA,Association of Flight Attendants, the Company amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of aone-time $47 million gain ($30 million net of taxes) for accelerated recognition of a prior service credit.
During 2016, the Company recorded $37 million ($24 million net of taxes) of severance and benefit costs related to a voluntaryearly-out program for the Company’s flight attendants and other severance agreements. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.
During 2016, the Company recorded gains and losses on sale of assets and other special charges of $51 million ($33 million net of taxes). In addition, the Company recorded $8 million ($5 million net of taxes) of losses due to exchange rate changes in Venezuela applicable to funds held in local currency and recorded a $9 million ($6 million net of taxes) gain on the sale of an affiliate.
2015
During its annual assessment in the fourth quarter, the Company recorded $33 million ($22 million net of related income tax benefit) related to the impairment of its indefinite-lived intangible assets (certain domestic slots and international Pacific routes), $8 million for thewrite-off of unexercised aircraft purchase options and $7 million for inventory held for sale. For the full-year 2015, the Company also recorded other impairments, including $10 million for discontinued internal software projects and $10 million for the impairment of several engines held for sale.
The Company recorded $107 million of severance and benefit costs primarily related to a voluntaryearly-out program for its flight attendants. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.
During 2015, the Company also recorded $18 million related to collective bargaining agreements, $60 million of integration-related costs primarily related to systems integration and training for employees, $32 million related to charges for settlements in connection with legal matters, $16 million for the cease use of an aircraft under lease and $14 million for losses on the sale of aircraft and other miscellaneous gains and losses.
The Company recorded $202 million of losses as part of Nonoperating income (expense): Miscellaneous, net due primarily to thewrite-off of $134 million related to the unamortizednon-cash debt discount from the extinguishment of the 6% Notes due 2026 and the 6% Notes due 2028. During 2015, the Company also recorded a $61 million foreign exchange loss related to its cash holdings in Venezuela. The Venezuelan government has maintained currency controls and fixed official exchange rates (i.e. Sistema Complementario de Administracion de Divisas (“SICAD”), and Sistema Marginal de Divisas (“SIMADI”)) for many years. Previously, airlines were permitted to use the more favorable SICAD rate (13.5 Venezuelan bolivars to one U.S. dollar) if repatriating profits and for payments of local goods and services in Venezuela. During 2015, many of the payments for local goods and services transitioned to utilizing the SIMADI rate (200 Venezuelan bolivars to one U.S. dollar) or were required to be paid in U.S. dollars. Furthermore, the Venezuelan government has not permitted the exchange and repatriations of local currency sincemid-2014. As a result, the Company changed the exchange rate from historical SICAD rates to a combination of SIMADI and SICAD rates based on projections of future cash payments. Including this adjustment, the Company’s resulting cash balance held in Venezuelan bolivars at December 31, 2015 was approximately $13 million.
2014
The Company recorded a charge of $16 million ($10 million net of related income tax benefits) related to its annual assessment of impairment of its indefinite-lived intangible assets (certain international Pacific routes). The Company also recorded $33 million for charges related primarily to impairment of its flight equipment held for disposal associated with its Boeing737-300 and737-500 fleets.
The Company recorded $141 million of severance and benefit costs related primarily to a voluntaryearly-out program for its flight attendants. More than 2,500 participants elected aone-time opportunity to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016. In addition, the Company recorded $58 million of severance and benefits primarily related to reductions of management and front-line employees, including from Cleveland, as part of its cost savings initiatives.
The Company recorded $66 million for the permanent grounding of 21 of the Company’s Embraer ERJ 135 regional aircraft under lease through 2018, which included an accrual for remaining lease payments and an amount for maintenance return conditions. The Company decided to permanently ground these 21 Embraer ERJ 135 aircraft as a result of new Embraer E175 regional jet deliveries, the impact of pilot shortages at regional carriers and fuel prices. The Company also recorded $33 million for losses on the sale of assets and other special charges. In addition, $96 million of integration-related costs included compensation costs related to systems integration, training, severance and relocation for employees.
United used cash to retire, at par, the entire $248 million principal balance of the 6% Convertible Debentures and the 6% Convertible Preferred Securities, Term Income Deferrable Equity Securities (TIDES) and incurred $64 million of expense primarily associated with thewrite-off of the relatednon-cash debt discounts. The Company also recorded $10 million of foreign exchange losses in Venezuela in 2014.
Activity related to the accruals for severance and medical costs and future lease payments on permanently grounded aircraft is as follows (in millions): | | | | | | | | |
| | | Severance/
Benefit Costs | | | Permanently
Grounded Aircraft | |
Balance at December 31, 2013 | | $ | 91 | | | $ | 11 | |
Accrual | | | 199 | | | | 102 | |
Payments | | | (181) | | | | (11) | |
| | | | | | | | |
Balance at December 31, 2014 | | | 109 | | | | 102 | |
Accrual | | | 107 | | | | 30 | |
Payments | | | (189) | | | | (54) | |
| | | | | | | | |
Balance at December 31, 2015 | | | 27 | | | | 78 | |
Accrual and related adjustments | | | 37 | | | | (17) | |
Payments | | | (50) | | | | (20) | |
| | | | | | | | |
Balance at December 31, 2016 | | $ | 14 | | | $ | 41 | |
| | | | | | | | |
The Company’s accrual and payment activity is primarily related to severance and other compensation expense associated with voluntary employee early retirement programs.
|
| | | | | | | |
| | Severance/ Benefit Costs | | Permanently Grounded Aircraft |
| Balance at December 31, 2015 | $ | 27 |
| | $ | 78 |
|
| Accrual and related adjustments | 37 |
| | (17 | ) |
| Payments | (50 | ) | | (20 | ) |
| Balance at December 31, 2016 | 14 |
| | 41 |
|
| Accrual | 116 |
| | (4 | ) |
| Payments | (93 | ) | | (15 | ) |
| Balance at December 31, 2017 | 37 |
| | 22 |
|
| Accrual | 41 |
| | (7 | ) |
| Payments | (53 | ) | | (3 | ) |
| Balance at December 31, 2018 | $ | 25 |
| | $ | 12 |
|
NOTE
17 - SEGMENT INFORMATIONOperating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating decision maker and are used in resource allocation and performance assessments.
The Company deploys its aircraft across its route network through a single route scheduling system to maximize its value. When making resource allocation decisions, the Company’s chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics. The Company’s chief operating decision maker makes resource allocation decisions to maximize the Company’s consolidated financial results. Managing the Company as one segment allows management the opportunity to maximize the value of its route network.
The Company’s operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) for the years ended December 31 is presented in the table below (in millions):
| | | | |
| | 2016 | |
Domestic (U.S. and Canada)
| | $ | 22,202 | |
Pacific
| | | 4,959 | |
Atlantic
| | | 6,157 | |
Latin America
| | | 3,238 | |
| | | | |
Total
| | $ | 36,556 | |
| | | | |
| |
| | 2015 | |
Domestic (U.S. and Canada)
| | $ | 21,931 | |
Pacific
| | | 5,498 | |
Atlantic
| | | 7,068 | |
Latin America
| | | 3,367 | |
| | | | |
Total
| | $ | 37,864 | |
| | | | |
| |
| | 2014 | |
Domestic (U.S. and Canada)
| | $ | 22,320 | |
Pacific
| | | 5,767 | |
Atlantic
| | | 7,321 | |
Latin America
| | | 3,493 | |
| | | | |
Total
| | $ | 38,901 | |
| | | | |
The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment. The Company’s operations involve an insignificant level of dedicated revenue-producing assets in geographic regions as the overwhelming majority of the Company’s revenue producing assets (primarily U.S. registered aircraft) can be deployed in any of its geographic regions.
NOTE 1815 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| UAL | | Quarter Ended |
| (In millions, except per share amounts) | | March 31 | | June 30 | | September 30 | | December 31 |
| 2018 | | | | | | | | |
| Operating revenue | | $ | 9,032 |
| | $ | 10,777 |
| | $ | 11,003 |
| | $ | 10,491 |
|
| Income from operations | | 276 |
| | 1,161 |
| | 1,203 |
| | 652 |
|
| Net income | | 147 |
| | 684 |
| | 836 |
| | 462 |
|
| Basic earnings per share | | 0.52 |
| | 2.49 |
| | 3.07 |
| | 1.71 |
|
| Diluted earnings per share | | 0.52 |
| | 2.48 |
| | 3.06 |
| | 1.70 |
|
| | | | | | | | | |
| 2017 (a) | | | | | | | | |
| Operating revenue | | $ | 8,426 |
| | $ | 10,008 |
| | $ | 9,899 |
| | $ | 9,451 |
|
| Income from operations | | 320 |
| | 1,437 |
| | 1,138 |
| | 776 |
|
| Net income | | 99 |
| | 821 |
| | 645 |
| | 579 |
|
| Basic earnings per share | | 0.32 |
| | 2.67 |
| | 2.15 |
| | 1.99 |
|
| Diluted earnings per share | | 0.32 |
| | 2.67 |
| | 2.15 |
| | 1.98 |
|
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, | | | | | | | | | | | | | | | | |
UAL | | Quarter Ended | |
(In millions, except per share amounts) | | March 31 | | | June 30 | | | September 30 | | | December 31 | |
2016 | | | | | | | | | | | | | | | | |
Operating revenue | | $ | 8,195 | | | $ | 9,396 | | | $ | 9,913 | | | $ | 9,052 | |
Income from operations | | | 649 | | | | 1,060 | | | | 1,624 | | | | 1,005 | |
Net income | | | 313 | | | | 588 | | | | 965 | | | | 397 | |
Basic earnings per share | | | 0.88 | | | | 1.78 | | | | 3.02 | | | | 1.26 | |
Diluted earnings per share | | | 0.88 | | | | 1.78 | | | | 3.01 | | | | 1.26 | |
2015 | | | | | | | | | | | | | | | | |
Operating revenue | | $ | 8,608 | | | $ | 9,914 | | | $ | 10,306 | | | $ | 9,036 | |
Income from operations | | | 741 | | | | 1,445 | | | | 1,899 | | | | 1,081 | |
Net income | | | 508 | | | | 1,193 | | | | 4,816 | | | | 823 | |
Basic earnings per share | | | 1.33 | | | | 3.14 | | | | 12.83 | | | | 2.24 | |
Diluted earnings per share | | | 1.32 | | | | 3.14 | | | | 12.82 | | | | 2.24 | |
UAL’sRevenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
UAL's quarterly financial data is subject to seasonal fluctuations and historically its second and third quarter financial results, which reflect higher travel demand, are better than its first and fourth quarter financial results. UAL’sUAL's quarterly results were
impacted by the following significant items (in millions): | | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | March 31 | | | June 30 | | | September 30 | | | December 31 | |
2016 | | | | | | | | | | | | | | | | |
Operating: | | | | | | | | | | | | | | | | |
Impairment of assets | | $ | — | | | $ | 412 | | | $ | — | | | $ | — | |
Cleveland airport lease restructuring | | | 74 | | | | — | | | | — | | | | — | |
Labor agreement costs and related items | | | 100 | | | | 10 | | | | 14 | | | | (60) | |
Severance and benefit costs | | | 8 | | | | 6 | | | | 13 | | | | 10 | |
(Gains) losses on sale of assets and other special charges | | | 8 | | | | 6 | | | | 18 | | | | 19 | |
| | | | | | | | | | | | | | | | |
Special charges | | | 190 | | | | 434 | | | | 45 | | | | (31) | |
Nonoperating and income taxes: | | | | | | | | | | | | | | | | |
Losses (gain) on extinguishment of debt and other | | | 8 | | | | (9) | | | | — | | | | — | |
Income tax expense (benefit) related to special charges | | | (72) | | | | (153) | | | | (16) | | | | 12 | |
Income tax adjustments (Note 6) | | | — | | | | — | | | | — | | | | 180 | |
| | | | | | | | | | | | | | | | |
Total operating and nonoperating special items, net of income taxes | | $ | 126 | | | $ | 272 | | | $ | 29 | | | $ | 161 | |
| | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | |
Operating: | | | | | | | | | | | | | | | | |
Impairment of assets | | $ | 2 | | | $ | 11 | | | $ | 18 | | | $ | 48 | |
Labor agreement costs and related items | | | — | | | | — | | | | — | | | | 18 | |
Severance and benefit costs | | | 50 | | | | 25 | | | | 28 | | | | 4 | |
(Gains) losses on sale of assets and other special charges | | | 12 | | | | 19 | | | | 30 | | | | 61 | |
| | | | | | | | | | | | | | | | |
Special charges | | | 64 | | | | 55 | | | | 76 | | | | 131 | |
Nonoperating and income taxes: | | | | | | | | | | | | | | | | |
Losses on extinguishment of debt and other | | | 6 | | | | 128 | | | | 61 | | | | 7 | |
Income tax benefit related to special charges | | | — | | | | — | | | | — | | | | (11) | |
Income tax expense (benefit) associated with valuation allowance release | | | — | | | | — | | | | (3,218) | | | | 88 | |
| | | | | | | | | | | | | | | | |
Total operating and nonoperating special items, net of income taxes | | $ | 70 | | | $ | 183 | | | $ | (3,081) | | | $ | 215 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| | | March 31 | | June 30 | | September 30 | | December 31 |
| 2018 | | | | | | | | |
| Operating: | | | | | | | | |
| Impairment of assets | | $ | 23 |
| | $ | 111 |
| | $ | 11 |
| | $ | 232 |
|
| Termination of an engine maintenance service agreement | | — |
| | — |
| | — |
| | 64 |
|
| Severance and benefit costs | | 14 |
| | 11 |
| | 9 |
| | 7 |
|
| (Gains) losses on sale of assets and other special charges | | 3 |
| | 7 |
| | (3 | ) | | (2 | ) |
| Total operating special charges | | 40 |
| | 129 |
| | 17 |
| | 301 |
|
| Nonoperating: | | | | | | | | |
| Nonoperating mark-to-market ("MTM") (gains) losses on financial instruments | | (45 | ) | | 135 |
| | (29 | ) | | (56 | ) |
| Total special charges and MTM (gains) losses on financial instruments | | (5 | ) | | 264 |
| | (12 | ) | | 245 |
|
| Income taxes: | | | | | | | | |
| Income tax expense (benefit) related to special charges and MTM gains and losses on financial instruments | | 1 |
| | (59 | ) | | 3 |
| | (55 | ) |
| Income tax adjustments | | — |
| | — |
| | — |
| | (5 | ) |
| Total special charges and MTM (gains) losses on financial instruments, net of tax | | $ | (4 | ) | | $ | 205 |
| | $ | (9 | ) | | $ | 185 |
|
| | | | | | | | | |
| 2017 (a) | | | | | | | | |
| Operating: | | | | | | | | |
| Severance and benefit costs | | $ | 37 |
| | $ | 41 |
| | $ | 23 |
| | $ | 15 |
|
| Impairment of assets | | — |
| | — |
| | 15 |
| | 10 |
|
| (Gains) losses on sale of assets and other special charges | | 14 |
| | 3 |
| | 12 |
| | 6 |
|
| Total operating special charges | | 51 |
| | 44 |
| | 50 |
| | 31 |
|
| Income taxes: | |
|
| |
|
| |
|
| |
|
|
| Income tax benefit related to special charges | | (18 | ) | | (16 | ) | | (18 | ) | | (11 | ) |
| Income tax adjustments | | — |
| | — |
| | — |
| | (179 | ) |
| Total operating special charges, net of income taxes and income tax adjustments | | $ | 33 |
| | $ | 28 |
| | $ | 32 |
| | $ | (159 | ) |
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 161 to the financial statements contained in Part II, Item 8 of this report for additional information.
See Note 14 of this report for additional information
ofrelated to these items.
| |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
| |
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Control and Procedures
UAL and United each maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted by UAL and United to the
Securities and Exchange Commission (“SEC”)SEC is recorded, processed, summarized and reported, within the time periods specified by the
SEC’sSEC's rules and forms, and is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that
UAL’sUAL's and
United’sUnited's disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports they file with the SEC on a timely basis. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of December 31,
2016,2018, disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting during the Quarter Ended December 31, 20162018 During the three months ended December 31,
2016,2018, there was no change in
UAL’sUAL's or
United’sUnited's internal control over financial reporting
during their most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, their internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
and Stockholders of
United Continental Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited United Continental Holdings, Inc.’s's (the “Company”"Company") internal control over financial reporting as of December 31, 2016,2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”)COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements as of and for the year ended December 31, 2018 of the Company and our report dated February 28, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The
Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control
Overover Financial Reporting in Item 9A. Our responsibility is to express an opinion on the
company’sCompany's internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A
company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2016 of the Company and our report dated February 23, 2017 expressed an unqualified opinion thereon.
February 23, 201728, 2019
United Continental Holdings, Inc. Management Report on Internal Control Over Financial Reporting
February 23, 201728, 2019
To the Stockholders of United Continental Holdings, Inc.
The management of United Continental Holdings, Inc.
(“UAL”("UAL") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the design and operating effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, management used the framework set forth in Internal Control—Integrated Framework (2013 Framework)issued by the Committee of the Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2016.
Our independent registered public accounting firm, Ernst & Young LLP, who audited UAL’s consolidated financial statements included in this Form10-K, has issued a report on UAL’s internal control over financial reporting, which is included herein.
United Airlines, Inc. Management Report on Internal Control Over Financial Reporting
February 23, 2017
To the Stockholder of United Airlines, Inc.
Chicago, Illinois
The management of United Airlines, Inc. (“United”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules13a-15(f). United’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including United’sour Chief Executive Officer and Chief Financial Officer, Unitedwe conducted an evaluation of the design and operating effectiveness of our internal control over financial reporting as of December 31, 2016.2018. In making this assessment, management used the framework set forth in Internal Control—Integrated Framework (2013 Framework)issued by the Committee of the Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2018.
Our independent registered public accounting firm, Ernst & Young LLP, who audited UAL's consolidated financial statements included in this Form 10-K, has issued a report on UAL's internal control over financial reporting, which is included herein.
United Airlines, Inc. Management Report on Internal Control Over Financial Reporting
February 28, 2019
To the Stockholder of United Airlines, Inc.
Chicago, Illinois
The management of United Airlines, Inc. ("United") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). United's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, United's internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including United's Chief Executive Officer and Chief Financial Officer, United conducted an evaluation of the design and operating effectiveness of its internal control over financial reporting as of December 31, 2018. In making this assessment, management used the framework set forth in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of the Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
United’sUnited's Chief Executive Officer and Chief Financial Officer concluded that its internal control over financial reporting was effective as of December 31,
2016.2018.
This annual report does not include an attestation report of
United’sUnited's registered public accounting firm regarding internal control over financial reporting.
Management’sManagement's report was not subject to attestation by
United’sUnited's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit United to provide only
management’smanagement's report in this annual report.
| |
| ITEM 9B. | OTHER INFORMATION. |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Certain information required by this item with respect to UAL is incorporated by reference from
UAL’sUAL's definitive proxy statement for its
20172019 Annual Meeting of
Stockholders.Stockholders under the captions "Election of Directors," "Corporate Governance" and "Beneficial Ownership of Securities—Section 16(a) Beneficial Ownership Reporting Compliance." Information regarding the executive officers of UAL is presented below.
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form
10-K.EXECUTIVE OFFICERS OF UAL
Kate Gebo. The executive officers of UAL as of February 23, 2017 are listed below, along with their ages, tenure as officer and business background for at least the last five years.
Michael P. Bonds.Age 54. Mr. Bonds50. Ms. Gebo has served as Executive Vice President Human Resources and Labor Relations of UAL and United since October 2010.December 2017. From June 2005November 2016 to September 2010, Mr. BondsNovember 2017, Ms. Gebo served as Senior Vice President, Human ResourcesGlobal Customer Service Delivery and Labor RelationsChief Customer Officer of Continental Airlines, Inc. (“Continental”). Mr. Bonds joined Continental in 1995.United. From October 2015 to November 2016, Ms. Gebo served as Vice President of the Office of the Chief Executive Officer. From November 2009 to October 2015, Ms. Gebo served as Vice President of Corporate Real Estate of United.
Brett J. Hart.Age 47.49. Mr. Hart has served as Executive Vice President, Chief Administrative Officer and General Counsel of UAL and United since May 2017. From February 2012 to May 2017, he served as Executive Vice President and General Counsel of UAL and United since February 2012.United. Mr. Hart served as acting Chief Executive Officer and principal executive officer of the Company, on an interim basis, from October 2015 to March 2016. From December 2010 to February 2012, he served as Senior Vice President, General Counsel and Secretary of UAL, United and Continental.Continental Airlines, Inc. ("Continental"). From June 2009 to December 2010, Mr. Hart served as Executive Vice President, General Counsel and Corporate Secretary at Sara Lee Corporation, a consumer food and beverage company. From March 2005 to May 2009, Mr. Hart served as Deputy General Counsel and Chief Global Compliance Officer of Sara Lee Corporation. Mr. Hart joined UAL in 2010. Gregory L. Hart.Age 51.53. Mr. Hart has served as Executive Vice President and Chief Operations Officer of UAL and United since February 2014. From December 2013 to February 2014, he served as Senior Vice President Operations of UAL and United. From September 2012 to December 2013, Mr. Hart served as Senior Vice President Technical Operations of United. From October 2010 to September 2012, Mr. Hart served as Senior Vice President Network of United and Continental. From September 2008 to September 2010, Mr. Hart served as Vice President Network Strategy of Continental. Mr. Hart joined Continental in 1997. Linda P. Jojo.Age 51.53. Ms. Jojo has served as Executive Vice President Technology and Chief Digital Officer of UAL and United since May 2017. From November 2014 to May 2017, Ms. Jojo served as Executive Vice President and Chief Information Officer of UAL and United since November 2014.United. From July 2011 to October 2014, Ms. Jojo served as Executive Vice President and Chief Information Officer of Rogers Communications, Inc., a Canadian communications and media company. From October 2008 to June 2011, Ms. Jojo served as Chief Information Officer of Energy Future Holdings, a Dallas-based privately held energy company and electrical utility provider. Chris Kenny. Age 52.54. Mr. Kenny has served as Vice President and Controller of UAL and United since October 2010. From September 2003 to September 2010, Mr. Kenny served as Vice President and Controller of Continental. Mr. Kenny joined Continental in 1997. J. Scott Kirby. Age 49.Age 51. Mr. Kirby has served as President of UAL and United since August 2016. Prior to joining the Company, from December 2013 to August 2016, Mr. Kirby served as President of American Airlines Group and American Airlines, Inc. Mr. Kirby also previously served as President of US Airways from October 2006 to December 2013. Mr. Kirby held significant other leadership roles at US Airways and at America West prior to the 2005 merger of those carriers, including Executive Vice President—Sales and Marketing (2001 to 2006); Senior Vice President,e-business (2000 to 2001); Vice President, Revenue Management (1998 to 2000);Vice President, Planning (1997 to 1998); and Senior Director, Scheduling and Planning (1995 to 1998). Prior to joining America West, Mr. Kirby worked for American Airlines Decision Technologies and at the Pentagon.
Andrew C. Levy.Gerald Laderman. Age 47. 61. Mr. LevyLaderman has served as Executive Vice President and Chief Financial Officer since August 2016. From November 20142018. Mr. Laderman served as Senior Vice President Finance, Procurement and Treasurer for UAL and United from 2013 to August 2015, and again from August 2016 to May 2018. Mr. Laderman additionally was acting Chief Financial Officer from
August 2015 to August 2016
he wasand from May 2018 to August 2018. Mr. Laderman served as Senior Vice President Finance and Treasurer for the
Chief Executive Officer and Managing Partner of AML Ventures, LLC, an investment and advisory firm specializing in the airline industry. Previously, Mr. Levy held leadership roles at Allegiant Travel Company
(“Allegiant”) for thirteen years, including as Chief Operating Officer and a Director from
September 20132010 to
October 2014; President from September 2009 to October 2014; Chief Financial Officer from October 2007 to May 2010; and Managing Director, Planning & Treasurer from April2013. From 2001 to
October 2010. Prior to joining Allegiant,2010, Mr.
Levy worked at Mpower Communications, Inc., Savoy CapitalLaderman served as Senior Vice President of Finance and
ValuJet Airlines, Inc.Treasurer for Continental. Mr. Laderman joined Continental in 1988 as senior director legal affairs, finance and aircraft programs.
Oscar Munoz. Age 58.60. Mr. Munoz has served as Chief Executive Officer of UAL and United since September 2015, and also as President of UAL and United from September 2015 until August 2016. From February 2015 to September 2015, Mr. Munoz served as President and Chief Operating Officer of CSX Corporation (“CSX”("CSX"), a railroad and intermodal transportation services company, overseeing operations, sales and marketing, human resources, service design and information technology. Prior to his appointment as President and Chief Operating Officer of CSX, Mr. Munoz served as Executive Vice President and Chief Operating Officer of CSX Transportation from January 2012 to February 2015 and as Executive Vice President and Chief Financial Officer of CSX from 2003 to 2012. Mr. Munoz has been a member of the UAL Board of Directors (“Board of Directors”) since 2010. Andrew Nocella. Age 49. Mr. Nocella has served as Executive Vice President and Chief Commercial Officer of UAL and United since September 2017. From February 2017 to September 2017, he served as Executive Vice President and Chief Revenue Officer of UAL and United. Prior to joining the Company, from August 2016 to February 2017, Mr. Nocella served as Senior Vice President, Alliances and Sales of American Airlines, Inc. From December 2013 to August 2016, he served as Senior Vice President and Chief Marketing Officer of American Airlines, Inc. From August 2007 to December 2013, he served as Senior Vice President, Marketing and Planning of US Airways.
There are no family relationships among the executive officers or the directors of UAL. The executive officers are elected by
theUAL's Board of Directors each year and hold office until the next annual meeting of stockholders, until their successors are elected and qualified, or until their earlier death, resignation or removal.
The Company has a code of ethics, the
“Ethics"Code of Ethics and
Compliance Principles,”Business Conduct," for its directors, officers and employees. The code serves as a
“Code"Code of
Ethics”Ethics" as defined by SEC regulations, and as a
“Code"Code of
Business Conduct and Ethics”Conduct" under
the listed Company Manual of the NYSE.Nasdaq Listing Rule 5610. The code is available on the
Company’sCompany's investor relations website at
http://ir.united.com. Waivers granted to certain officers from compliance with or future amendments to the code will be disclosed on the
Company’sCompany's investor relations website in accordance with Item 5.05 of Form
8-K. | |
| ITEM 11. | EXECUTIVE COMPENSATION. |
Information required by this item with respect to UAL is incorporated by reference from
UAL’sUAL's definitive proxy statement for its
20172019 Annual Meeting of
Stockholders.Stockholders under the captions "Executive Compensation," "2018 Director Compensation" and "Corporate Governance—Compensation Committee Interlocks and Insider Participation."
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form10-K. | |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
Information required by this item with respect to UAL is incorporated by reference from
UAL’sUAL's definitive proxy statement for its
20172019 Annual Meeting of
Stockholders.Stockholders under the caption "Beneficial Ownership of Securities."
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form
10-K. | |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Information required by this item with respect to UAL is incorporated by reference from
UAL’sUAL's definitive proxy statement for its
20172019 Annual Meeting of
Stockholders.Stockholders under the captions "Corporate Governance—Certain Relationships and Related Transactions," "Corporate Governance—Committees of the Board" and "Corporate Governance—Director Independence."
Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form
10-K. | |
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
The Audit Committee of the
UAL Board of Directors has adopted a policy on
pre-approval of services of the
Company’sCompany's independent registered public accounting firm. As a wholly-owned subsidiary of UAL,
United’sUnited's audit services are determined by UAL. The policy provides that the Audit Committee shall
pre-approve all audit and
non-audit services to be provided to UAL and its subsidiaries and affiliates by its independent auditors. The process by which this is carried out is as follows:
For recurring services, the Audit Committee reviews and
pre-approves the independent registered public accounting
firm’sfirm's annual audit services in conjunction with the annual appointment of the outside auditors. The reviewed materials include a description of the services along with related fees. The Audit Committee also reviews and
pre-approves other classes of recurring services along with fee thresholds for
pre-approved services. In the event that the additional services are required prior to the next scheduled Audit Committee meeting,
pre-approvals of additional services follow the process described below.
Any requests for audit, audit related, tax and other services not contemplated with the recurring services approval described above must be submitted to the Audit Committee for specific
pre-approval and cannot commence until such approval has been granted. Normally,
pre-approval is provided at regularly scheduled meetings. However, the authority to grant specific
pre-approval between meetings, as necessary, has been delegated to the Chair of the Audit Committee. The Chair must update the Audit Committee at the next regularly scheduled meeting of any services that were granted specific
pre-approval.On a periodic basis, the Audit Committee reviews the status of services and fees incurred
year-to-date and a list of newly
pre-approved services since its last regularly scheduled meeting. The Audit Committee has considered whether the
20162018 and
20152017 non-audit services provided by Ernst & Young LLP, the
Company’sCompany's independent registered public accounting firm, are compatible with maintaining auditor independence.
All of the services in
20162018 and
20152017 under the Audit Fees, Audit Related Fees, Tax Fees and All Other Fees categories below have been approved by the Audit Committee pursuant to paragraph (c)(7) of Rule
2-01 of Regulation
S-X of the Exchange Act.
The aggregate fees billed for professional services rendered by the
Company’sCompany's independent auditors in
20162018 and
20152017 are as follows (in thousands):
| | | | | | | | |
Service | | 2016 | | | 2015 | |
Audit Fees | | $ | 3,751 | | | $ | 4,193 | |
Audit Related Fees | | | 215 | | | | 98 | |
Tax Fees | | | 1,252 | | | | 2,050 | |
All Other Fees | | | 2 | | | | 5 | |
| | | | | | | | |
| | $ | 5,220 | | | $ | 6,346 | |
| | | | | | | | |
Note: UAL
|
| | | | | | | | |
| Service | | 2018 | | 2017 |
| Audit Fees | | $ | 3,992 |
| | $ | 4,548 |
|
| Audit Related Fees | | 375 |
| | 565 |
|
| Tax Fees | | 166 |
| | 584 |
|
| All Other Fees | | 2 |
| | 2 |
|
| Total Fees | | $ | 4,535 |
| | $ | 5,699 |
|
| Note: UAL and United amounts are the same. | | | | |
AUDIT FEES
For 2018 and
United amounts are the same.AUDIT FEES
For 2016 and 2015,2017, audit fees consist primarily of the audit and quarterly reviews of the consolidated financial statements and the audit of the effectiveness of internal control over financial reporting of United Continental Holdings, Inc. and its wholly-owned subsidiaries. Audit fees also include the audit of the consolidated financial statements of United, employee benefit plan audits, attestation services required by statute or regulation, comfort letters, consents, assistance with and review of documents filed with the SEC, and accounting and financial reporting consultations and research work necessary to comply with generally accepted auditing standards.
For
20162018 and
2015,2017, fees for audit related services
primarily consisted of professional services related to due diligence and
understanding key process changes and identifying and testing changes inconsultations related to the
internal control environment prior to implementationadoption of
system conversions.new accounting standards.
Tax fees for
20162018 and
2015 include2017 relate to professional services provided for
foreign and state tax returns, research and consultations regarding tax accounting and tax compliance matters and
assistance in assembling data to prepare forreview of U.S. and
respond to governmental reviewsinternational tax impacts of
past tax filings,certain transactions, exclusive of tax services rendered in connection with the audit.
Fees for all other services billed in
20162018 and
20152017 consist of subscriptions to Ernst & Young
LLP’sLLP's on-line accounting research tool.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
| | |
| (a) | | List of documents filed as part of this report: |
(a) | | |
| (1) | | Financial Statements. The financial statements required by this item are listed in Part II, Item 8,Financial Statements and Supplementary Data herein. |
| |
| (2) | | Financial Statement Schedules. The financial statement schedule required by this item is listed below and included in this report after the signature page hereto. |
Schedule II-Valuation and Qualifying Accounts for the years ended December 31, 2018, 2017 and 2016.
|
| |
| | ScheduleII-Valuation and Qualifying Accounts for the years ended December 31, 2016, 2015 and 2014. |
| |
| | All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto. |
| |
| (b) | | Exhibits. The exhibits required by this item are listed in the Exhibit Index which immediately precedes the exhibits filed with thisForm 10-K and is incorporated herein by this reference. Each management contract or compensatory plan or arrangement is denoted with a “†”provided in the Exhibit Index. |
ITEM 16. | FORM10-K SUMMARY. |
ITEM 16. FORM 10-K SUMMARY.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused thisForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
EXHIBIT INDEX
| | |
UNITED CONTINENTAL HOLDINGS, INC.
UNITED AIRLINES, INC.
(Registrants)
|
| |
By:
| | /s/ Andrew C. Levy
|
| | Andrew C. Levy
|
| | Executive Vice President and Chief Financial Officer
|
Date: February 23, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, thisForm 10-K has been signed below by the following persons on behalf of United Continental Holdings, Inc. and in the capacities and on the date indicated.
| | |
Signature
| | Capacity
|
| |
/s/ Oscar Munoz
Oscar Munoz
| | Chief Executive Officer, Director
(Principal Executive Officer)
|
| |
/s/ Andrew C. Levy
Andrew C. Levy
| | Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
| |
/s/ Chris Kenny
Chris Kenny
| | Vice President and Controller
(Principal Accounting Officer)
|
| |
/s/ Carolyn Corvi
Carolyn Corvi
| | Director
|
| |
/s/ Jane C. Garvey
Jane C. Garvey
| | Director
|
| |
/s/ Barney Harford
Barney Harford
| | Director
|
| |
/s/ Todd M. Insler
Todd M. Insler
| | Director
|
| |
/s/ Walter Isaacson
Walter Isaacson
| | Director
|
| |
/s/ James A.C. Kennedy
James A.C. Kennedy
| | Director
|
| | |
Signature
| | Capacity
|
| |
/s/ Robert A. Milton
Robert A. Milton
| | Director
|
| |
/s/ William R. Nuti
William R. Nuti
| | Director
|
| |
/s/ Sito Pantoja
Sito Pantoja
| | Director
|
| |
/s/ Edward M. Philip
Edward M. Philip
| | Director
|
| |
/s/ Edward L. Shapiro
Edward L. Shapiro
| | Director
|
| |
/s/ Laurence E. Simmons
Laurence E. Simmons
| | Director
|
| |
/s/ David J. Vitale
David J. Vitale
| | Director
|
| |
/s/ James M. Whitehurst
James M. Whitehurst
| | Director
|
Date: February 23, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, thisForm 10-K has been signed below by the following persons on behalf of United Airlines, Inc. and in the capacities and on the date indicated.
| | |
Signature
| | Capacity
|
| |
/s/ Oscar Munoz
Oscar Munoz
| | Chief Executive Officer
(Principal Executive Officer)
|
| |
/s/ Andrew C. Levy
Andrew C. Levy
| | Executive Vice President and Chief Financial Officer and Director
(Principal Financial Officer)
|
| |
/s/ Chris Kenny
Chris Kenny
| | Vice President and Controller
(Principal Accounting Officer)
|
| |
/s/ Gregory L. Hart
Gregory L. Hart
| | Director
|
| |
/s/ J. Scott Kirby
J. Scott Kirby
| | Director
|
Date: February 23, 2017
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2016, 2015 and 2014
| | | | | | | | | | | | | | | | | | | | |
(In millions) Description | | Balance at
Beginning of
Period | | | Additions
Charged to
Costs and
Expenses | | | Deductions
(a) | | | Other | | | Balance at
End of
Period | |
Allowance for doubtful accounts—UAL and United: | | | | | | | | | | | | | | | | | | | | |
2016 | | $ | 18 | | | $ | 18 | | | $ | 26 | | | $ | — | | | $ | 10 | |
2015 | | | 22 | | | | 25 | | | | 29 | | | | — | | | | 18 | |
2014 | | | 13 | | | | 45 | | | | 36 | | | | — | | | | 22 | |
Obsolescence allowance—spare parts—UAL and United: | | | | | | | | | | | | | | | | | | | | |
2016 | | $ | 235 | | | $ | 61 | | | $ | 16 | | | $ | 15 | | | $ | 295 | |
2015 | | | 169 | | | | 38 | | | | — | | | | 28 | | | | 235 | |
2014 | | | 162 | | | | 35 | | | | 28 | | | | — | | | | 169 | |
Valuation allowance for deferred tax assets—UAL: | | | | | | | | | | | | | | | | | | | | |
2016 | | $ | 48 | | | $ | 47 | | | $ | 27 | | | $ | — | | | $ | 68 | |
2015 | | | 4,751 | | | | — | | | | 4,703 | | | | — | | | | 48 | |
2014 | | | 4,591 | | | | 156 | | | | — | | | | 4 | | | | 4,751 | |
Valuation allowance for deferred tax assets—United: | | | | | | | | | | | | | | | | | | | | |
2016 | | $ | 48 | | | $ | 47 | | | $ | 27 | | | $ | — | | | $ | 68 | |
2015 | | | 4,721 | | | | — | | | | 4,673 | | | | — | | | | 48 | |
2014 | | | 4,561 | | | | 167 | | | | — | | | | (7) | | | | 4,721 | |
(a) Deduction from reserve for purpose for which reserve was created.
EXHIBIT INDEX
| | | | | | |
Exhibit No.
| | | Registrant
| | Exhibit
|
| | |
| Exhibit No. | Registrant | | | | Plan of Merger
|
| | |
| *2.1 | | | UAL
United
| | Agreement and Plan of Merger, dated as of May 2, 2010, by and among UAL Corporation, Continental Airlines, Inc. and JT Merger Sub Inc. (schedules and exhibits have been omitted pursuant to Item 601(b)(2) of RegulationS-K) (filed as Exhibit 2.1 to UAL’sForm 8-K filed May 4, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
| *2.2 | | | United | | Agreement and Plan of Merger, dated as of March 28, 2013, by and between Continental Airlines, Inc. and United Air Lines, Inc. (filed as Exhibit 2.1 to UAL’s Form8-K filed April 3, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
| | | |
| | | Articles of Incorporation and Bylaws |
| | |
| | *3.1 | |
| 3.1 | UAL | | |
| | |
| | *3.2 | |
| 3.2 | UAL | | |
| | |
| | *3.3 | |
| 3.3 | United | | |
| | |
| | *3.4 | |
| 3.4 | United | | |
| | |
| | | |
| | | Instruments Defining Rights of Security Holders, Including Indentures |
| | |
| | *4.1 | |
| 4.1 | United | | Amended and Restated Indenture, dated as of January 11, 2013, by and among United Continental Holdings, Inc. as Issuer, United Air Lines, Inc. as Guarantor, and the Bank of New York Mellon Trust Company, N.A. as Trustee, providing for issuance of 6% Notes due 2028, 6% Notes due 2026 and 8% Notes due 2024 (filed as Exhibit 4.6 to UAL’sUAL's Form10-K for the year ended December 31, 2012, Commission file number1-6033, and incorporated herein by reference) |
| | |
| | *4.2 | |
| 4.2 | United | | First Supplemental Indenture, dated as of April 1, 2013, by and among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Amended and Restated Indenture, dated as of January 11, 2013 (filed as Exhibit 4.1 to UAL’sUAL's Form8-K filed April 3, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
|
| | |
| 4.3 | *4.3UAL United | | | UAL
United
| | Second Supplemental Indenture, dated as of September 13, 2013, by and among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Amended and Restated Indenture, dated as of January 11, 2013 (filed as Exhibit 4.1 to UAL’sUAL's Form8-K filed September 19, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | | | |
| | |
*4.4 | | United | | Indenture, dated as of July 15, 1997, between Continental Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor to Bank One, N.A.), as trustee related to Continental Airlines, Inc.’s 4.5% Convertible Notes due 2015 (filed as Exhibit to 4.1 to Continental’s FormS-3/A filed July 18, 1997, Commission file number1-10323, and incorporated herein by reference) |
| | |
*4.54.4 | UAL United | UAL
United
| | Fourth Supplemental Indenture, dated as of October 1, 2010, by and among Continental Airlines, Inc., United Continental Holdings, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, with respect to the Indenture, dated as of July 15, 1997, between Continental Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor to Bank One, N.A.), as trustee related to Continental Airlines, Inc.’s 4.5% Convertible Notes due 2015 (filed as Exhibit 4.3 to UAL’s Form8-K dated October 1, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*4.6 | | UAL
United
| | Fifth Supplemental Indenture, dated as of May 15, 2014, among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (filed as Exhibit 4.1 to UAL’s Form8-K filed on May 19, 2014, Commission file number1-6033, and incorporated herein by reference) |
| | |
*4.7 | | UAL
United
| | Indenture, dated as of May 7, 2013, among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (filed as Exhibit 4.1 to UAL’sUAL's Form8-K filed on May 10, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*4.8 | | UAL
United
|
| 4.5 | UAL United | First Supplemental Indenture, dated as of May 7, 2013, among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of 6.375% Senior Notes due 2018 (filed as Exhibit 4.2 to UAL’sUAL's Form8-K filed on May 10, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*4.9 | | UAL
United
|
| 4.6 | UAL United | |
| | |
*4.10 | | UAL
United
|
| 4.7 | UAL United | |
| | |
*4.11 | | UAL
United
|
| 4.8 | UAL United | Second Supplemental Indenture, dated as of November 8, 2013, among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of 6.000% Senior Notes due 2020 (filed as Exhibit 4.2 to UAL’sUAL's Form8-K filed on November 12, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*4.12 | | UAL
United
|
| 4.9 | UAL United | |
| | |
*4.13 | | UAL
United
|
| 4.10 | UAL United | |
| | | | |
| | |
| | | |
| 4.11 | Material Contracts
UAL
United | Third Supplemental Indenture, dated as of January 26, 2017, among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of 5.000% Senior Notes due 2024 (filed as Exhibit 4.2 to UAL's Form 8-K filed January 27, 2017, Commission file number 1-6033, and incorporated herein by reference) |
| | |
*†10.1 | | |
| 4.12 | UAL
United | |
| | |
| 4.13 | UAL
United | |
| | |
| 4.14 | UAL
United | Fourth Supplemental Indenture, dated as of September 29, 2017, among United Continental Holdings, Inc., United Airlines, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, providing for the issuance of 4.250% Senior Notes due 2022 (filed as Exhibit 4.2 to UAL's Form 8-K filed October 4, 2017, Commission file number 1-6033, and incorporated herein by reference) |
| | |
| 4.15 | UAL
United | |
| | |
| 4.16 | UAL
United | |
| | Material Contracts |
| | |
| †10.1 | UAL | Agreement, dated April 19, 2016, by and among PAR Capital Management, Inc., Altimeter Capital Management, LP, United Continental Holdings, Inc. and the other signatories listed on the signature page thereto (filed as Exhibit 10.1 to UAL’sUAL's Form 8-K filed April 20, 2016, Commission file number1-6033, and incorporated herein by reference) |
| | |
| †10.2 | | UAL | | |
| | |
|
| | |
*† †10.3 | UAL | |
| | UAL
United
|
| †10.4 | UAL
United | |
| | |
*†10.4 | | UAL
United
|
| †10.5 | UAL
United | |
| | |
*†10.5 | | UAL |
| †10.6 | UAL
United | SERPSecond Amendment to Employment Agreement, dated as of October 1, 2010,April 21, 2017, by and among United Continental Holdings, Inc., ContinentalUnited Airlines, Inc. and James E. Compton (filed asOscar Munoz (incorporated by reference to Exhibit 10.1210.1 to UAL’sthe Registrant's Current Report on Form10-K for the year ended December 31, 2010, 8-K filed on April 21, 2017, Commission file number1-6033, and incorporated herein by reference) |
| | |
*†10.6 | | UAL
United
|
| †10.7 | UAL
United | |
| | |
*†10.7 | | UAL
| | SERP Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc., Continental Airlines, Inc. and Michael P. Bonds (filed as Exhibit 10.10 to UAL’s Form 10-K for the year ended December 31, 2010, Commission file number 1-6033, and incorporated herein by reference) |
| | |
*†10.8 | | UAL
United
| | United Continental Holdings, Inc. Senior Officer Severance Plan (effective October 1, 2014) (filed as Exhibit 10.1 to UAL’s Form10-Q for the quarter ended September 30, 2015, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.9 | †10.8 | UAL
United | | Employment Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc., United Air Lines, Inc., Continental Airlines, Inc. and Jeffery A. Smisek (filed as Exhibit 10.21 to UAL’s Form10-K for the year ended December 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*†10.10 | | UAL
United
| | |
| | |
*†10.11 | | |
| †10.9 | UAL | | |
| | | | |
| | |
*†10.12 | | |
| †10.10 | UAL | | |
| | |
*†10.13 | | UAL | | Confidentiality andNon-Competition Agreement, dated April 23, 2009, by and among Continental Airlines, Inc. and Jeffery A. Smisek (filed as Exhibit 10.1 to Continental Airlines, Inc.’s Quarterly Report on Form10-Q for the quarter ended March 31, 2009, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.14 | | UAL
United
| | Separation Agreement, dated as of September 8, 2015, by and among United Continental Holdings, Inc., United Airlines, Inc. and Jeffery A. Smisek (filed as Exhibit 10.1 to UAL’s Form8-K filed September 8, 2015, Commission file number1-6033, and incorporated herein by reference) |
| | |
*†10.15 | †10.11 | UAL
United | | |
| | |
*†10.16 | | |
| †10.12 | UAL | | |
| | |
*†10.17 | | |
| †10.13 | UAL | | |
| | |
*†10.18 | | |
| †10.14 | UAL | | |
| | |
†10.19 | | |
| †10.15 | UAL | | |
| | |
*†10.20 | | |
| †10.16 | UAL | | |
| | |
†10.21 | | |
| †10.17 | UAL | | |
| | |
*†10.22 | | |
| †10.18 | UAL | | |
| | | | |
| | |
*†10.24 | | |
| †10.20 | UAL | | |
| | |
*†10.25 | | |
| †10.21 | UAL | | |
| | |
*†10.26 | | |
| †10.22 | UAL | | |
| | |
*†10.27 | | |
| †10.23 | UAL | | |
| | |
*†10.28 | | |
| †10.24 | UAL | | |
| | |
*†10.29 | | |
| †10.25 | UAL | | |
| | |
*†10.30 | | |
| †10.26 | UAL | | |
| | |
*†10.31 | | |
| †10.27 | UAL | | |
| | |
| †10.28 | UAL | |
| | |
| †10.29 | UAL | |
| | |
| †10.30 | UAL | |
| | |
| †10.31 | UAL | |
| | |
| †10.32 | UAL | |
| | |
| †10.33 | UAL | |
| | |
|
| | |
*†10.3210.34 | UAL | |
| | |
| †10.35 | UAL | |
| | |
| †10.36 | UAL | |
| | |
| †10.37 | UAL | |
| | |
| †10.38 | UAL | |
| | |
*†10.33 | | UAL | | United Continental Holdings, Inc. Long-Term Relative Performance Program (adopted pursuant to the United Continental Holdings, Inc. Incentive Plan 2010) (filed as Exhibit 10.43 to UAL’s Form10-K for the year ended December 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | | | |
| | |
*†10.34 | †10.39 | UAL | | First Amendment to the United Continental Holdings, Inc. Long-Term Relative Performance Program (adopted pursuant to the United Continental Holdings, Inc. Incentive Plan 2010) (effective with respect to performance periods beginning on or after January 1, 2012) (filed as Exhibit 10.49 to UAL’s Form10-K for the year ended December 31, 2011, Commission file number1-6033, and incorporated herein by reference) |
| | |
*†10.35 | | UAL | | Second Amendment to the United Continental Holdings, Inc. Long-Term Relative Performance Program (adopted pursuant to the United Continental Holdings, Inc. Incentive Plan 2010) (effective with respect to performance periods beginning on or after January 1, 2014) (filed as Exhibit 10.40.2 to UAL’s Form10-K for the year ended December 31, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*†10.36 | | UAL | | Form of Annual Incentive Program Award Notice pursuant to the United Continental Holdings, Inc. Annual Incentive Program (for fiscal years beginning on or after January 1, 2013) (filed as Exhibit 10.47 to UAL’s Form10-K for the year ended December 31, 2012, Commission file number1-6033, and incorporated herein by reference) |
| | |
*†10.37 | | UAL | | Form of Long-Term Relative Performance Award Notice pursuant to the United Continental Holdings, Inc. Long-Term Relative Performance Program (for use with respect to performance periods beginning January 1, 2014) (filed as Exhibit 10.45 to UAL’s Form10-K for the year ended December 31, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*†10.38 | | UAL | | |
| | |
*†10.39 | | |
| †10.40 | UAL | | |
| | |
*†10.40 | | |
| †10.41 | UAL | |
| | |
| †10.42 | UAL | |
| | |
*†10.41 | | UAL | | Continental Airlines, Inc. 1998 Stock Incentive Plan (filed as Exhibit 4.3 to Continental’s FormS-8 Registration Statement (No.333-57297), Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.42 | | UAL | | Amendment No. 1 to 1998 Incentive Plan, 1997 Incentive Plan and 1994 Incentive Plan (filed as Exhibit 10.2 to Continental’s Quarterly Report on Form10-Q for the quarter ended June 30, 2001, Commission file no.1-10323, and incorporated herein by reference) |
| | |
*†10.43 | UAL
United | UAL | | Amendment to 1998 Incentive Plan, 1997 Incentive Plan |
| | |
*†10.44 | | UAL | | Form of Outside Director Stock Option Grant pursuant to the Continental Airlines, Inc. 1998 Incentive Plan (filed as Exhibit 10.12(c) to Continental’s Form10-K for the year ended December 31, 2006, Commission file number1-10323, and incorporated herein by reference) |
| | | | |
| | |
*†10.45 | | UAL | | Continental Airlines, Inc. Incentive Plan 2000, as amended and restated (filed as Exhibit 10.1 to Continental’s Form10-Q for the quarter ended March 31, 2002, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.46 | | UAL | | Amendment to Incentive Plan 2000, dated as of March 12, 2004 (filed as Exhibit 10.6 to Continental’s Form10-Q for the quarter ended March 31, 2004, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.47 | | UAL | | Second Amendment to Incentive Plan 2000, dated as of June 6, 2006 (filed as Exhibit 10.1 to Continental’s Form10-Q for the quarter ended June 30, 2006, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.48 | | UAL | | Third Amendment to Incentive Plan 2000, dated as of September 14, 2006 (filed as Exhibit 10.1 to Continental’s Form10-Q for the quarter ended September 30, 2006, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.49 | | UAL | | Form of Outside Director Stock Option Agreement pursuant to Incentive Plan 2000 (filed as Exhibit 10.14(b) to Continental’s Form10-K for the year ended December 31, 2000, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.50 | | UAL | | Form of Outside Director Stock Option Grant pursuant to Incentive Plan 2000 (filed as Exhibit 10.1 to Continental’s Form10-Q for the quarter ended March 31, 2008, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.51 | | UAL | | Form ofNon-Employee Director Option Grant Document pursuant to Continental Airlines, Inc. Incentive Plan 2010, as amended and restated through February 17, 2010 (filed as Exhibit 10.2(a) to Continental’s Form10-K for the year ended December 31, 2009, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.52 | | UAL | | United Air Lines, Inc. Management Cash Direct & Cash Match Program (amended and restated effective January 1, 2014) (filed as Exhibit 10.64 to UAL’s Form10-K for the year ended December 31, 2013, Commission file number1-10323, and incorporated herein by reference) |
| | |
*†10.53 | | UAL | | United Continental Holdings, Inc. Executive Severance Plan (effective October 1, 2014) (filed as Exhibit 10.1 to UAL’s Form8-K filed June 20, 2014, Commission file number1-10323, and incorporated herein by reference) |
| | |
*^10.54 | | UAL
United
| | Airbus A350-900XWBRestated A350-900 Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.27 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.55 | | UAL
United
| | Letter Agreement No.September 1, to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.28 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.56 | | UAL
United
| | Letter Agreement No. 2 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.29 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.57 | | UAL
United
| | Amended and Restated Letter Agreement No. 2 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.9 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | | | |
| | |
*^10.58 | | UAL
United
| | Letter Agreement No. 3 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.30 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.59 | | UAL
United
| | Amended and Restated Letter Agreement No. 3 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.10 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.60 | | UAL
United
| | Letter Agreement No. 4 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.31 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.61 | | UAL
United
| | Amended and Restated Letter Agreement No. 4 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.11 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.62 | | UAL
United
| | Letter Agreement No. 5 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.32 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.63 | | UAL
United
| | Letter Agreement No. 6 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.33 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.64 | | UAL
United
| | Letter Agreement No. 7 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.34 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.65 | | UAL
United
| | Letter Agreement No. 8 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.35 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.66 | | UAL
United
| | Letter Agreement No. 9 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.36 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.67 | | UAL
United
| | Letter Agreement No. 10 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.37 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.68 | | UAL
United
| | Letter Agreement No. 11 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.38 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.69 | | UAL
United
| | Letter Agreement No. 12 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.39 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | | | |
| | |
*^10.70 | | UAL
United
| | Letter Agreement No. 13 to the Airbus A350-900XWB Purchase Agreement, dated March 5, 2010, by and among Airbus S.A.S and United Air Lines. Inc. (filed as Exhibit 10.40 to UAL’sForm 10-Q for the quarter ended March 31, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.71 | | UAL
United
| | Amendment No. 1 to the Airbus A350-900XWB Purchase Agreement, dated June 25, 2010, by and among Airbus S.A.S and United Air Lines, Inc. (filed as Exhibit 10.6 to UAL’sForm 10-Q for the quarter ended June 30, 2010, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.72 | | UAL
United
| | Amendment No. 2 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.8 to UAL’s Form10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.73 | | UAL
United
| | Amended and Restated Letter Agreement No. 5 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.12 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.74 | | UAL
United
| | Amended and Restated Letter Agreement No. 6 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.13 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.75 | | UAL
United
| | Amended and Restated Letter Agreement No. 7 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.14 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.76 | | UAL
United
| | Amended and Restated Letter Agreement No. 10 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.15 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.77 | | UAL
United
| | Amended and Restated Letter Agreement No. 12 to the Airbus A350-900XWB Purchase Agreement, dated June 19, 2013 (filed as Exhibit 10.16 to UAL’sForm 10-Q for the quarter ended June 30, 2013, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.78 | | UAL
United
| | Letter Agreement No. 14 to the Airbus A350-900XWB Purchase Agreement, dated May 6, 2016,2017, including letter agreements related thereto, between Airbus S.A.S. and United Airlines, Inc. (filed as Exhibit 10.610.1 to UAL’sUAL's Form10-Q for the quarter ended JuneSeptember 30, 2016,2017, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.79 | | UAL
United
|
| †10.44 | UAL
United | |
| | |
*^10.80 | | UAL
United
|
| ^10.45 | UAL
United | |
| | |
*^10.81 | | UAL
United
|
| ^10.46 | UAL
United | |
| | | | |
| | |
*^10.82 | | UAL
United
|
| ^10.47 | UAL
United | |
| | |
*^10.83 | | UAL
United
|
| ^10.48 | UAL
United | |
| | |
*^10.84 | | UAL
United
|
| ^10.49 | UAL
United | |
| | |
|
| | |
*^10.8510.50 | UAL
United | UAL
United
| | |
| | |
*^10.86 | | UAL
United
|
| ^10.51 | UAL
United | |
| | |
*^10.87 | | UAL
United
|
| ^10.52 | UAL
United | |
| | |
*^10.88 | | UAL
United
|
| ^10.53 | UAL
United | |
| | |
*^10.89 | | UAL
United
|
| ^10.54 | UAL
United | |
| | |
*^10.90 | | UAL
United
|
| ^10.55 | UAL
United | |
| | |
*^10.91 | | UAL
United
|
| ^10.56 | UAL
United | |
| | |
*^10.92 | | UAL
United
|
| ^10.57 | UAL
United | |
| | |
*^10.93 | | UAL
United
|
| ^10.58 | UAL
United | |
| | | | |
| | |
*^10.94 | | UAL
United
|
| ^10.59 | UAL
United | |
| | |
*^10.95 | | UAL
United
|
| ^10.60 | UAL
United | |
| | |
*^10.96 | | UAL
United
|
| ^10.61 | UAL
United | |
| | |
*^10.97 | | UAL
United
|
| ^10.62 | UAL
United | |
| | |
*^10.98 | | UAL
United
|
| ^10.63 | UAL
United | |
| | |
*^10.99 | | UAL
United
|
| ^10.64 | UAL
United | |
| | |
*^10.100 | | UAL
United
|
| ^10.65 | UAL
United | |
| | |
*^10.101 | | UAL
United
|
| ^10.66 | UAL
United | |
| | |
|
| | |
*^10.102 ^10.67 | UAL
United | UAL
United
| | |
| | |
*^10.103 | | UAL
United
|
| ^10.68 | UAL
United | |
| | |
*^10.104 | | UAL
United
|
| ^10.69 | UAL
United | |
| | |
*^10.105 | | UAL
United
|
| ^10.70 | UAL
United | |
| | | | |
| | |
*^10.106 | | UAL
United
|
| ^10.71 | UAL
United | |
| | |
*^10.107 | | UAL
United
|
| ^10.72 | UAL
United | |
| | |
*^10.108 | | UAL
United
|
| ^10.73 | UAL
United | |
| | |
*^10.109 | | UAL
United
|
| ^10.74 | UAL
United | |
| | |
*^10.110 | | UAL
United
|
| ^10.75 | UAL
United | |
| | |
*^10.111 | | UAL
United
|
| ^10.76 | UAL
United | |
| | |
*^10.112 | | UAL
United
|
| ^10.77 | UAL
United | |
| | |
*^10.113 | | UAL
United
|
| ^10.78 | UAL
United | |
| | |
*^10.114 | | UAL
United
|
| ^10.79 | UAL
United | |
| | |
*^10.115 | | UAL
United
|
| ^10.80 | UAL
United | |
| | |
*^10.116 | | UAL
United
|
| ^10.81 | UAL
United | |
| | |
*^10.117 | | UAL
United
|
| ^10.82 | UAL
United | |
| | | | |
| | |
*^10.118 | | UAL
United
|
| ^10.83 | UAL
United | |
| | |
*^10.119 | | UAL
United
|
| ^10.84 | UAL
United | |
| | |
|
| | |
*^10.120 ^10.85 | UAL
United | UAL
United
| | |
| | |
*^10.121 | | UAL
United
|
| ^10.86 | UAL
United | |
| | |
*^10.122 | | UAL
United
|
| ^10.87 | UAL
United | |
| | |
*^10.123 | | UAL
United
|
| ^10.88 | UAL
United | |
| | |
*^10.124 | | UAL
United
|
| ^10.89 | UAL
United | |
| | |
*^10.125 | | UAL
United
|
| ^10.90 | UAL
United | |
| | |
*^10.126 | | UAL
United
|
| ^10.91 | UAL
United | |
| | |
*^10.127 | | UAL
United
|
| ^10.92 | UAL
United | |
| | |
*^10.128 | | UAL
United
|
| ^10.93 | UAL
United | |
| | |
*^10.129 | | UAL
United
|
| ^10.94 | UAL
United | |
| | | | |
| | |
*^10.130 | | UAL
United
|
| ^10.95 | UAL
United | |
| | |
*^10.131 | | UAL
United
|
| ^10.96 | UAL
United | |
| | |
*^10.132 | | UAL
United
|
| ^10.97 | UAL
United | |
| | |
*^10.133 | | UAL
United
|
| ^10.98 | UAL
United | |
| | |
*^10.134 | | UAL
United
|
| ^10.99 | UAL
United | |
| | |
*^10.135 | | UAL
United
|
| ^10.100 | UAL
United | |
| | |
*^10.136 | | UAL
United
|
| ^10.101 | UAL
United | |
| | |
*^10.137 | | UAL
United
|
| ^10.102 | UAL
United | |
|
| | |
*^10.138 | | UAL
United
|
| ^10.103 | UAL
United | |
| | |
*^10.139 | | UAL
United
|
| ^10.104 | UAL
United | |
| | |
*^10.140 | | UAL
United
|
| ^10.105 | UAL
United | |
| | |
*^10.141 | | UAL
United
|
| ^10.106 | UAL
United | |
| | |
*^10.142 | | UAL
United
|
| ^10.107 | UAL
United | |
| | | | |
| | |
*^10.143 | | UAL
United
|
| ^10.108 | UAL
United | |
| | |
*^10.144 | | UAL
United
|
| ^10.109 | UAL
United | |
| | |
*^10.145 | | UAL
United
|
| ^10.110 | UAL
United | |
| | |
*^10.146 | | UAL
United
|
| ^10.111 | UAL
United | |
| | |
*^10.147 | | UAL
United
|
| ^10.112 | UAL
United | |
| | |
*^10.148 | | UAL
United
|
| ^10.113 | UAL
United | |
| | |
*^10.149 | | UAL
United
|
| ^10.114 | UAL
United | |
| | |
*^10.150 | | UAL
United
|
| ^10.115 | UAL
United | |
| | |
*^10.151 | | UAL
United
|
| ^10.116 | UAL
United | |
| | |
*^10.152 | | UAL
United
|
| ^10.117 | UAL
United | |
| | |
*^10.153 | | UAL
United
|
| ^10.118 | UAL
United | |
| | |
*^10.154 | | UAL
United
|
| ^10.119 | UAL
United | |
| | |
| | | | |
| | |
*^10.155 ^10.120 | UAL
United | UAL
United
| | |
| | |
*^10.156 | | UAL
United
|
| ^10.121 | UAL
United | |
| | |
*^10.157 | | UAL
United
|
| ^10.122 | UAL
United | |
| | |
*^10.158 | | UAL
United
|
| ^10.123 | UAL
United | |
| | |
*^10.159 | | UAL
United
|
| ^10.124 | UAL
United | |
| | |
*^10.160 | | UAL
United
| | Agreement, dated May 7, 2003, by and among Continental and the United States of America, acting through the Transportation Security Administration (filed as Exhibit 10.1 to Continental’s Form10-Q for the quarter ended June 30, 2003, Commission file number1-10323, and incorporated herein by reference) |
| ^10.125 | UAL
United | |
*^10.161 | | UAL
United
| | |
| | |
*^10.162 | | UAL
United
|
| ^10.126 | UAL
United | |
| | |
*^10.163 | | UAL
United
|
| ^10.127 | UAL
United | |
| | |
*^10.164 | | UAL
United
|
| ^10.128 | UAL
United | |
| | |
*^10.165 | | UAL
United
|
| ^10.129 | UAL
United | |
| | |
*^10.166 | | UAL
United
|
| ^10.130 | UAL
United | |
| | | | |
| | |
*^10.167 | | UAL
United
|
| ^10.131 | UAL
United | |
| | |
*^10.168 | | UAL
United
|
| ^10.132 | UAL
United | |
| | |
*^10.169 | | UAL
United
|
| ^10.133 | UAL
United | |
| | |
*^10.170 | | UAL
United
|
| ^10.134 | UAL
United | |
| | |
*^10.171 | | UAL
United
|
| ^10.135 | UAL
United | |
| | |
*^10.172 | | UAL
United
|
| ^10.136 | UAL
United | |
|
| | |
*^10.173 | | UAL
United
|
| ^10.137 | UAL
United | |
| | |
^10.174 | | |
| ^10.138 | UAL
United | | |
| | |
*^10.175 | | UAL
United
|
| ^10.139 | UAL
United | |
| | |
*^10.176 | | UAL
United
|
| ^10.140 | UAL
United | |
| | |
*^10.177 | | UAL
United
|
| ^10.141 | UAL
United | |
| | |
*^10.178 | | UAL
United
|
| ^10.142 | UAL
United | |
| | |
*^10.179 | | UAL
United
|
| ^10.143 | UAL
United | |
| | | | |
| | |
*^10.180 | | UAL
United
|
| ^10.144 | UAL
United | |
| | |
*^10.181 | | UAL
United
|
| ^10.145 | UAL
United | |
| | |
*^10.182 | ^10.146 | UAL
United | | |
| | |
^10.183 | | UAL
United
|
| ^10.147 | UAL
United | |
| | |
| ^10.148 | UAL
United | |
| | |
| ^10.149 | UAL
United | |
| | |
| ^10.150 | UAL
United | |
| | |
| ^10.151 | UAL
United | |
| | |
|
| | |
*^10.184 ^10.152 | UAL
United | |
| | UAL
United
|
| ^10.153 | UAL
United | Letter Agreement No.6-1162-KKT-080, dated July 12, 2012, among Boeing, United Continental Holdings, Inc., United Air Lines, Inc., and Continental Airlines, Inc. (filed as Exhibit 10.4 to UAL’sUAL's Form10-Q for the quarter ended September 30, 2012, Commission file number1-6033, and incorporated herein by reference) |
| | |
*^10.185 | | UAL
United
|
| ^10.154 | UAL
United | |
| | |
*^10.186 | | UAL
United
|
| ^10.155 | UAL
United | |
| | |
*^10.187 | | UAL
United
|
| ^10.156 | UAL
United | |
| | |
*^10.188 | | UAL
United
|
| ^10.157 | UAL
United | |
| | |
*^10.189 | | UAL
United
|
| ^10.158 | UAL
United | |
| | |
*^10.190 | | UAL
United
|
| ^10.159 | UAL
United | |
| | |
*^10.191 | | UAL
United
|
| ^10.160 | UAL
United | |
| | |
*^10.192 | | UAL
United
|
| ^10.161 | UAL
United | |
| | | | |
| | |
*^10.193 | | UAL
United
|
| ^10.162 | UAL
United | |
| | |
^10.194 | | |
| ^10.163 | UAL
United | |
| | | |
| ^10.164 | UAL
United | |
| | |
| ^10.165 | UAL
United | |
| | |
| ^10.166 | UAL
United | |
| | |
| ^10.167 | UAL
United | |
| | |
|
| | |
*10.19510.168 | UAL
United | UAL
United
| | Amended and Restated Credit and Guaranty Agreement, dated as of March 27, 2013,29, 2017, among ContinentalUnited Airlines, Inc. and United Air Lines, Inc., asco-borrowers, borrower, United Continental Holdings, Inc., as parent and a guarantor, the subsidiaries of United Continental Holdings, Inc. from time to time party thereto other than theco-borrowers borrower party thereto from time to time, as guarantors, the lenders party thereto from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to UAL’sUAL's Form8-K filed March 28, 2013,April 3, 2017, Commission file number1-6033, and incorporated herein by reference) |
| | |
*10.196 | | UAL
United
|
| 10.169 | UAL
United | |
| | |
| 10.170 | UAL
United | |
| | |
*10.197 | | UAL
United
| | Second Amendment to Credit and Guaranty Agreement, dated as of July 25, 2014 (filed as Exhibit 10.1 to UAL’s Form8-K filed September 19, 2014, Commission file number1-6033, and incorporated herein by reference) |
| | |
*10.198 | | UAL
United
| | Third Amendment to Credit and Guaranty Agreement, dated as of September 15, 2014 (filed as Exhibit 10.2 to UAL’s Form8-K filed September 19, 2014, Commission file number1-6033, and incorporated herein by reference) |
| | |
*10.199 | | UAL
United
| | Fourth Amendment to Credit and Guaranty Agreement, dated as of May 24, 2016 (filed as Exhibit 10.4 to UAL’s Form10-Q for the quarter ended June 30, 2016,2018, Commission file number1-6033, and incorporated herein by reference) |
| | |
| | | | | Computation of Ratios
|
| | |
12.1 | | UAL | | United Continental Holdings, Inc. and Subsidiary Companies ComputationList of Ratio of Earnings to Fixed Charges |
| | |
12.2 | | United | | United Airlines, Inc. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges |
| | Subsidiaries |
| | | | | List of Subsidiaries
|
| | |
| 21 | UAL United | UAL
United
| | |
| | |
| | | |
| | | Consents of Experts and Counsel |
| | |
23.1 | | |
| 23.1 | UAL | | |
| | |
23.2 | | |
| 23.2 | United | | |
| | |
| | | |
| |
| Rule 13a-14(a)/15d-14(a) Certifications |
| | |
31.1 | | |
| 31.1 | UAL | | |
| | | | |
| | |
31.2 | | |
| 31.2 | UAL | | |
| | |
31.3 | | |
| 31.3 | United | | |
| | |
31.4 | | |
| 31.4 | United | | |
| | |
| | | |
| | | Section 1350 Certifications |
| | |
32.1 | | |
| 32.1 | UAL | | |
| | |
32.2 | | |
| 32.2 | United | | |
| | |
| | | |
| | | Interactive Data File |
| | |
101 | | UAL
United
|
| 101 | UAL United | The following materials from each of United Continental Holdings, Inc.’s's and United Airlines, Inc.’s's Annual Reports on Form10-K for the year ended December 31, 2016,2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Statements of Consolidated Operations, (ii) the Statements of Consolidated Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Statements of Consolidated Cash Flows, (v) the Statements of Consolidated Stockholders’Stockholders' Equity (Deficit) and (vi) the Combined Notes to Consolidated Financial Statements. |
| † | Indicates management contract or compensatory plan or arrangement. Pursuant to Item 601(b)(10), United and Continental areis permitted to omit certain compensation-related exhibits from this report and therefore only UAL is identified as the registrant for purposes of those items. |
| |
| ^ | Confidential portion of this exhibit has been omitted and filed separately with the SEC pursuant to a request for confidential treatment. |
132
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| | |
| | UNITED CONTINENTAL HOLDINGS, INC. UNITED AIRLINES, INC. (Registrants) |
| |
| By: | /s/ Gerald Laderman |
| | Gerald Laderman |
| | Executive Vice President and Chief Financial Officer |
| | |
| | |
Date: February 28, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of United Continental Holdings, Inc. and in the capacities and on the date indicated.
|
| |
| Signature | Capacity |
| |
| /s/ Oscar Munoz | Chief Executive Officer, Director |
| Oscar Munoz | (Principal Executive Officer) |
| |
| /s/ Gerald Laderman | Executive Vice President and Chief Financial Officer |
| Gerald Laderman | (Principal Financial Officer) |
| |
| /s/ Chris Kenny | Vice President and Controller |
| Chris Kenny | (Principal Accounting Officer) |
| |
| /s/ Carolyn Corvi | Director |
| Carolyn Corvi | |
| |
| /s/ Jane C. Garvey | Director |
| Jane C. Garvey | |
| |
| /s/ Barney Harford | Director |
| Barney Harford | |
| |
| /s/ Michele J. Hooper | Director |
| Michele J. Hooper | |
| |
| /s/ Todd M. Insler | Director |
| Todd M. Insler | |
|
| |
| /s/ Walter Isaacson | Director |
| Walter Isaacson | |
| |
| /s/ James A.C. Kennedy | Director |
| James A.C. Kennedy | |
| |
| Director |
| William R. Nuti | |
| |
| /s/ Sito Pantoja | Director |
| Sito Pantoja | |
| |
| /s/ Edward M. Philip | Director |
| Edward M. Philip | |
| |
| /s/ Edward L. Shapiro | Director |
| Edward L. Shapiro | |
| |
| /s/ David J. Vitale | Director |
| David J. Vitale | |
| |
| /s/ James M. Whitehurst | Director |
| James M. Whitehurst | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of United Airlines, Inc. and in the capacities and on the date indicated.
|
| |
| Signature | Capacity |
| |
| /s/ Oscar Munoz | Chief Executive Officer, Director |
| Oscar Munoz | (Principal Executive Officer) |
| |
| /s/ Gerald Laderman | Executive Vice President and Chief Financial Officer, Director |
| Gerald Laderman | (Principal Financial Officer) |
| |
| /s/ Chris Kenny | Vice President and Controller |
| Chris Kenny | (Principal Accounting Officer) |
| |
| /s/ Gregory L. Hart | Director |
| Gregory L. Hart | |
| |
| /s/ J. Scott Kirby | Director |
| J. Scott Kirby | |
| |
Date: February 28, 2019
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2018, 2017 and 2016
|
| | | | | | | | | | | | | | | | | | | |
(In millions) Description | Balance at Beginning of Period | | Additions Charged to Costs and Expenses | | Deductions (a) | | Other | | Balance at End of Period |
| Allowance for doubtful accounts: | | | | | | | | | |
| 2018 | $ | 7 |
| | $ | 17 |
| | $ | 16 |
| | $ | — |
| | $ | 8 |
|
| 2017 | 10 |
| | 20 |
| | 23 |
| | — |
| | 7 |
|
| 2016 | 18 |
| | 18 |
| | 26 |
| | — |
| | 10 |
|
| Obsolescence allowance—spare parts: | | | | | | | | | |
| 2018 | $ | 354 |
| | $ | 73 |
| | $ | 15 |
| | $ | — |
| | $ | 412 |
|
| 2017 | 295 |
| | 75 |
| | 17 |
| | 1 |
| | 354 |
|
| 2016 | 235 |
| | 61 |
| | 16 |
| | 15 |
| | 295 |
|
| Valuation allowance for deferred tax assets: | | | | | | | | | |
| 2018 | $ | 63 |
| | $ | 2 |
| | $ | 6 |
| | $ | — |
| | $ | 59 |
|
| 2017 | 68 |
| | 11 |
| | 27 |
| | 11 |
| | 63 |
|
| 2016 | 48 |
| | 47 |
| | 27 |
| | — |
| | 68 |
|
(a) Deduction from reserve for purpose for which reserve was created.
