SEC Filing - United Airlines Holdings, Inc.

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

UAL Corporation
................................................................................

(Name of Registrant as Specified In Its Charter)

................................................................................

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:
...........................................................................

2) Aggregate number of securities to which transaction applies:
...........................................................................

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
...........................................................................

4) Proposed maximum aggregate value of transaction:
...........................................................................

5) Total fee paid:
...........................................................................

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
..........................................................
2) Form, Schedule or Registration Statement No.:
..........................................................
3) Filing Party:
..........................................................
4) Date Filed:
..........................................................

[UAL CORPORATION LOGO]

March 12, 1998

Dear Fellow Owners:

Our Company had its best year yet in 1997. For the third consecutive year,
our Company posted record fully distributed net earnings. These results
demonstrate that we are on the right track and that United Airlines is indeed
"rising" to new heights.

We are past the half-way point of the ESOP stock allocation period, which
occurs from 1994 to 2000. In this time, we have made considerable progress in
improving our balance sheet, raising our credit rating, and enhancing customer
satisfaction. Yet, we have many challenges ahead with our customer satisfaction
philosophy, earning an investment grade rating and achieving our strategic plan
objectives. To reflect upon our progress and discuss the direction for the
future of our Company, the Board of Directors joins me in inviting you to attend
the 1998 Annual Meeting of Stockholders and to vote on the matters described in
the enclosed proxy statement.

Your vote is important, because it was your faith and commitment to our
Company's future that made it possible to turn our Company around. To be sure
your shares are represented at the meeting, please use the "vote-by-phone"
option described on the enclosed proxy or voting direction card, or sign and
return the card in the envelope provided, even if you plan to attend the meeting
in person.

I hope you will be able to attend the meeting and I look forward to seeing
you. If you plan to attend, please detach the admission card attached to your
proxy or voting direction card and bring it with you to the meeting.

Sincerely yours,

/s/ Gerald Greenwald

Gerald Greenwald
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT

The Annual Meeting of Stockholders of UAL Corporation, a Delaware
corporation (the "Company"), will be held in the Auditorium of the Museum of
Science and Industry, 57th Street and Lake Shore Drive, Chicago, IL 60637 on
Thursday, May 7, 1998 at 10:00 a.m., local time, to:

1. Elect a Board of Directors as follows:

(a) Five Public Directors, to be elected by the holders of Common Stock;

(b) Four Independent Directors, to be elected by the holders of Class I
Junior Preferred Stock; and

(c) One ALPA Director, one IAM Director and one Salaried/Management
Employee Director, to be elected by the holders of Class Pilot MEC Junior
Preferred Stock, Class IAM Junior Preferred Stock and Class SAM Junior
Preferred Stock, respectively.

2. Ratify the appointment of independent public accountants.

3. Transact any other business that is properly brought before the meeting.

Only stockholders of record at the close of business on March 9, 1998, will
be entitled to vote at the meeting. PLEASE NOTE THAT ATTENDANCE AT THE MEETING
WILL BE LIMITED TO STOCKHOLDERS AS OF THE RECORD DATE (OR THEIR AUTHORIZED
REPRESENTATIVES) HOLDING AN ADMISSION TICKET. THE ADMISSION TICKET IS LOCATED ON
THE LOWER PORTION OF YOUR PROXY OR VOTING DIRECTION CARD.

Francesca M. Maher
Vice President--General Counsel
and Secretary

Chicago, Illinois
March 12, 1998

IMPORTANT

WE HOPE YOU WILL ATTEND THE STOCKHOLDERS MEETING. TO ENSURE PROPER
REPRESENTATION AT THE MEETING, STOCKHOLDERS SHOULD VOTE THEIR PROXIES BY
TELEPHONE AS DESCRIBED ON THE ENCLOSED PROXY CARD OR DATE, SIGN AND MAIL THEIR
PROXIES IN THE FORM ENCLOSED EVEN THOUGH THEY PLAN TO ATTEND THE MEETING.
SIMILARLY, PARTICIPANTS IN THE UAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
(THE "ESOP") MAY GIVE THEIR VOTING DIRECTION BY TELEPHONE AS DESCRIBED ON THE
ACCOMPANYING VOTING DIRECTION CARD OR DATE, SIGN AND MAIL THEIR VOTING DIRECTION
CARD IN THE FORM ENCLOSED. OTHER REQUESTS FOR PROXIES OR VOTING DIRECTION FROM
BROKERS, TRUSTEES OR FIDUCIARIES SHOULD BE PROCESSED AS DESCRIBED IN THE
ACCOMPANYING MATERIALS.

Please note that the Company's audited financial statements and certain
other financial information are included as an Appendix to this Proxy Statement.
This Proxy Statement and the accompanying proxy card are being mailed to
stockholders beginning approximately March 12, 1998.
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PROPOSAL NO. 1

ELECTION OF DIRECTORS

Except where authority has been withheld by a stockholder, the enclosed
proxy will be voted at the 1998 Annual Meeting of Stockholders of the Company or
any adjournments or postponements thereof (the "Meeting") for the election of
the respective nominee(s) named below for a term of one year and until their
successors are duly elected and qualified. The terms of all incumbent directors
will expire at the Meeting. The Board of Directors expects all nominees named
below to be available for election.

DIRECTORS TO BE ELECTED BY HOLDERS OF COMMON STOCK

PUBLIC DIRECTORS

Five Public Directors are to be elected by the holders of Common Stock, par
value $.01 per share ("Common Stock"). Each nominee was previously elected by
the holders of Common Stock and has served continuously as a Public Director
since the date of his election. The term "Public Director" is used as defined in
the Restated Certificate of Incorporation, as amended, of the Company (the
"Charter").

If a nominee unexpectedly becomes unavailable before election, proxies from
holders of Common Stock will be voted for the person designated by the Board of
Directors or the appropriate Board Committee in accordance with the requirements
of the Charter. No person other than the directors of the Company is responsible
for the naming of nominees.

- ----------------------------------------------------------------------------------------------------------
(1) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NOMINEE (2) OTHER BUSINESS AFFILIATIONS AGE SINCE
- ----------------------------------------------------------------------------------------------------------

John A. Edwardson (1) President (1994) and Chief Operating Officer 48 1994
(1995) of the Company and its wholly owned
subsidiary, United Air Lines, Inc. ("United").
Executive Vice President and Chief Financial
Officer, Ameritech Corporation
(telecommunications) (1991-1994).
(2) Director, Household International, Inc.
- ----------------------------------------------------------------------------------------------------------
Gerald Greenwald (1) Chairman and Chief Executive Officer of the 62 1994
Company and United (1994). Chairman, Tatra Truck
Company, Czech Republic (truck manufacturing)
(1993-1994); and President, Olympia & York
Development Limited (real estate development
company in the process of a financial
restructuring at the time Mr. Greenwald agreed
to serve as president and certain subsidiaries
of which filed for protection under federal
bankruptcy laws in connection with such re-
structuring) (1992-1993).
(2) Director, Aetna Inc. and Time Warner Inc.
- ----------------------------------------------------------------------------------------------------------
John F. McGillicuddy (1) Retired Chairman and Chief Executive Officer, 67 1984
Chemical Banking Corporation (banking and
finance) (1993). Chairman and Chief Executive
Officer, Chemical Banking Corporation
(1992-1993).
(2) Director, Southern Peru Copper Corporation and
USX Corporation.
- ----------------------------------------------------------------------------------------------------------

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James J. O'Connor (1) Effective March 16, 1998, retired Chairman and 61 1984
Chief Executive Officer, Unicom Corporation
(holding company) and its wholly owned
subsidiary, Commonwealth Edison Company
(supplier of electricity). Chairman and Chief
Executive Officer, Unicom Corporation
(1994-3/16/98) and Commonwealth Edison Company
(1980-3/16/98).
(2) Director, Corning Incorporated, First Chicago
NBD Corporation, and The Tribune Company.
- ----------------------------------------------------------------------------------------------------------
Paul E. Tierney, Jr. (1) Managing Member, Development Capital, LLC (in- 55 1990
vestment management) (1997). Managing
Director, Gollust, Tierney and Oliver, Inc.
(investment banking) (1990-1996).
(2) Director, Liz Claiborne, Inc., and C & B
Publishing PLC.
- ----------------------------------------------------------------------------------------------------------

DIRECTORS TO BE ELECTED BY HOLDERS OF OTHER CLASSES OF STOCK

The following classes of directors are to be elected by the holder of
certain classes of stock of the Company other than Common Stock. THE HOLDERS OF
COMMON STOCK DO NOT VOTE ON THE ELECTION OF THESE DIRECTORS. Each nominee (other
than Mr. Creighton, who was nominated for the first time prior to the Meeting)
was previously elected by the holders of the applicable class of stock of the
Company and has served continuously as a director of the Company for the period
succeeding the date of his election. If a nominee unexpectedly becomes
unavailable before election, or the Company is notified that a substitute
nominee has been selected, votes will be cast pursuant to the authority granted
by the proxies from the respective holder(s) for the person who may be
designated as a substitute nominee or, if applicable, in accordance with the
nomination procedures identified below.

INDEPENDENT DIRECTORS -- ELECTED BY HOLDERS OF CLASS I STOCK

Four Independent Directors (as defined in the Charter) are to be elected by
the four Independent Directors as the holders of Class I Junior Preferred Stock
of the Company ("Class I Stock"). Each nominee has been nominated by the
Independent Director Nomination Committee and, pursuant to a Stockholders
Agreement among the holders of Class I Stock, the Company, the Air Line Pilots
Association, International ("ALPA"), and the International Association of
Machinists and Aerospace Workers ("IAM"), each such holder has agreed to vote in
favor of such nominees. No person, other than the members of the Independent
Director Nomination Committee, is responsible for the naming of the nominees.

John W. Creighton, Jr. (1) Director (1988) and advisor (12/1/97), retired 65 --
President (1988-1997) and Chief Executive Officer
(1991-1997), Weyerhaeuser Company (forest
products).
(2) Director, Unocal Corporation.
- ----------------------------------------------------------------------------------------------------------
Duane D. Fitzgerald (1) Retired Chairman (1996), and former President 58 1994
(1988-1996) and Chief Executive Officer (1991-
1996), Bath Iron Works Corporation
(shipbuilding) and former Vice President of
its parent company, General Dynamics
Corporation (1995-1996).
(2) Director, Central Maine Power Co.
- ----------------------------------------------------------------------------------------------------------

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Richard D. McCormick (1) Chairman (1992), President (1986) and Chief 57 1994
Executive Officer (1991), US WEST, Inc.
(telecommunications).
(2) Director, Norwest Corporation.
- ----------------------------------------------------------------------------------------------------------
John K. Van de Kamp (1) President, Thoroughbred Owners of California 62 1994
(trade association) (1996). Partner, Dewey
Ballantine (law firm) (1991-1996).
(2) Member, Advisory Board, Falcon Classic Cable
Income Properties, Ltd.
- ----------------------------------------------------------------------------------------------------------

ALPA DIRECTOR -- ELECTED BY HOLDER OF CLASS PILOT MEC STOCK

One ALPA Director (as defined in the Charter) is to be elected by the
United Airlines Pilots Master Executive Council, ALPA ("ALPA-MEC"), the holder
of the Class Pilot MEC Junior Preferred Stock of the Company ("Class Pilot MEC
Stock"). The ALPA-MEC has advised the Company that it has nominated and intends
to re-elect Michael H. Glawe as the ALPA Director.

Michael H. Glawe (1) Chairman, ALPA-MEC (labor union) (1996). 50 1996
Chairman, ALPA-MEC Grievance Committee
(1993-1995), and Captain, B727, United, for
the past five years.
- ----------------------------------------------------------------------------------------------------------

IAM DIRECTOR -- ELECTED BY HOLDER OF CLASS IAM STOCK

One IAM Director (as defined in the Charter) is to be elected by the IAM,
the holder of the Class IAM Junior Preferred Stock of the Company ("Class IAM
Stock"). The IAM has advised the Company that it has nominated and intends to
re-elect John Peterpaul as the IAM Director.

John F. Peterpaul (1) Retired General Vice President, IAM (labor 62 1994
union) (1994). General Vice President, IAM, for
the past five years.
- ----------------------------------------------------------------------------------------------------------

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SALARIED/MANAGEMENT EMPLOYEE DIRECTOR -- ELECTED BY HOLDERS OF CLASS SAM STOCK

One Salaried/Management Employee Director (as defined in the Charter) is to
be elected by the holders of the Class SAM Junior Preferred Stock of the Company
("Class SAM Stock"), who are Deval L. Patrick, the Salaried/Management Employee
Director, and William P. Hobgood, Senior Vice President-People of the Company.
Mr. Patrick has been nominated for re-election by the "System Roundtable," a
body of salaried and management employees of United empowered to review and
discuss issues relating to the Company and their effect on salaried and
management employees. Pursuant to a Stockholders Agreement among the holders of
Class SAM Stock and the Company, each such holder has agreed to vote in favor of
the System Roundtable nominee.

Deval L. Patrick (1) Partner, Day, Berry & Howard (law firm) 41 10/17/97
(1997). Assistant Attorney General, Civil Rights
Division, U.S. Department of Justice (law
enforcement) (1994-1997). Partner, Hill &
Barlow (law firm) (1986-1994).
- ----------------------------------------------------------------------------------------------------------

CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS

The Board of Directors of the Company held a total of nine meetings in
1997. All directors except John F. McGillicuddy attended 75 percent or more of
the total of such meetings and meetings of Board Committees of which they were
members.

COMMITTEES

The Board of Directors has Executive, Audit, Compensation, Compensation
Administration, CAP, Labor, Independent Director Nomination, Outside Public
Director Nomination, Pension and Welfare Plans Oversight and Transaction
Committees. Set forth below is a brief description of the functions performed,
the names of the committee members and the number of meetings held by each
committee during 1997.

EXECUTIVE COMMITTEE. The Executive Committee is authorized to exercise the
powers of the Board of Directors in the management of the business and affairs
of the Company, with certain exceptions. The Executive Committee is also
responsible for safety and security oversight for United, periodically reviewing
Board effectiveness and overseeing the compensation arrangements for
non-employee directors. The Executive Committee held four meetings in 1997.
Committee members: Gerald Greenwald, Chairman, and Duane D. Fitzgerald, Michael
H. Glawe, Richard D. McCormick, John F. Peterpaul and Paul E. Tierney, Jr.

AUDIT COMMITTEE. The Audit Committee reviews with the Company's independent
public accountants the annual financial statements of the Company prior to
publication, reviews the work of and approves non-audit services performed by
such independent accountants, makes annual recommendations to the Board for the
appointment of independent public accountants for the ensuing year, and reviews
the effectiveness of the financial and accounting functions, organization,
operations and management of the Company and its subsidiaries and affiliates.
The Audit Committee held two meetings in 1997. Committee members: Duane D.
Fitzgerald, Chairman, and Richard D. McCormick, John F. McGillicuddy, James J.
O'Connor, Paul E. Tierney, Jr., John K. Van de Kamp and Paul A. Volcker.

COMPENSATION COMMITTEE. The Compensation Committee reviews and approves the
compensation and benefits of all officers of the Company and reviews general
policy matters relating to compensation and benefits of non-union employees of
the Company and its subsidiaries. The Committee also administers the equity
incentive compensation plans of the Company, except for responsibilities
reserved for the Compensation Administration Committee. The Compensation
Committee held six meetings in 1997. Committee

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members: John F. McGillicuddy, Chairman, and Duane D. Fitzgerald, Michael H.
Glawe, Gerald Greenwald, Richard D. McCormick, Deval L. Patrick and John F.
Peterpaul.

COMPENSATION ADMINISTRATION COMMITTEE. The Compensation Administration
Committee administers the stock option plans and executive compensation programs
of the Company to the extent such functions cannot or are not appropriate to be
performed by the Compensation Committee in light of any provision of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
securities laws, or other applicable laws or regulations, and also oversees the
evaluation process for CEO performance. The Compensation Administration
Committee held six meetings in 1997. Committee members: John F. McGillicuddy,
Chairman, and Duane D. Fitzgerald and Richard D. McCormick.

CAP COMMITTEE. The CAP Committee oversees implementation of the Company's
Competitive Action Plan to improve United's competitiveness on many short-haul
routes, pursuant to which "Shuttle by United" was established. The CAP Committee
has the exclusive authority to approve on behalf of the Company any
modifications of or amendments to the Competitive Action Plan, other than those
matters reserved to the Labor Committee. The CAP Committee held two meetings in
1997. Committee members: Paul E. Tierney, Jr., Chairman, and Michael H. Glawe,
Gerald Greenwald, John F. McGillicuddy, James J. O'Connor, John F. Peterpaul,
John K. Van de Kamp and Paul A. Volcker.

LABOR COMMITTEE. The Labor Committee reviews and approves the entering into
of, and modifications and amendments to, collective bargaining agreements to
which the Company or any of its subsidiaries is a party, with certain
exceptions. The Committee held fourteen meetings in 1997. Committee members:
Gerald Greenwald, Chairman, and Duane D. Fitzgerald and Paul E. Tierney, Jr.

INDEPENDENT DIRECTOR NOMINATION COMMITTEE. The Independent Director
Nomination Committee nominates candidates to become Independent Director members
of the Board of Directors, fills vacancies in Independent Director positions and
appoints Independent Directors to serve on Board Committees. The Committee held
six meetings in 1997. Committee members: Paul A. Volcker, Chairman, and Duane D.
Fitzgerald, Michael H. Glawe, Richard D. McCormick, Deval L. Patrick, John F.
Peterpaul and John K. Van de Kamp.

OUTSIDE PUBLIC DIRECTOR NOMINATION COMMITTEE. The Outside Public Director
Nomination Committee nominates candidates to become Outside Public Director (as
defined in the Charter) members of the Board of Directors, fills vacancies in
Outside Public Director positions and appoints Outside Public Directors to serve
on Board Committees. The Outside Public Director Nomination Committee will
consider nominees recommended by stockholders, who may submit recommendations by
addressing a letter to the Committee Chairman at UAL Corporation, P. O. Box
66919, Chicago, Illinois 60666. Qualification requirements for Outside Public
Directors are specified in the Charter. The Committee held one meeting in 1997.
Committee members: James J. O'Connor, Chairman, and John F. McGillicuddy and
Paul E. Tierney, Jr.

PENSION AND WELFARE PLANS OVERSIGHT COMMITTEE. The Pension and Welfare
Plans Oversight Committee oversees compliance by the Company and its
subsidiaries with laws governing employee benefit plans maintained by the
Company and its subsidiaries. The Committee held two meetings in 1997. Committee
members: John K. Van de Kamp, Chairman, and John A. Edwardson, Michael H. Glawe,
James J. O'Connor, Deval L. Patrick, John F. Peterpaul and Paul A. Volcker.

TRANSACTION COMMITTEE. The Transaction Committee is authorized to evaluate
and advise the Board with respect to any proposed merger or consolidation of the
Company or any of its subsidiaries with or into, the sale, lease or exchange of
all or substantially all of the Company's or any of its subsidiaries' property
or assets to, or a significant business transaction with, any Labor Affiliate
(as defined in the Charter). The Transaction Committee held no meetings in 1997.
Committee members: Richard D. McCormick, Chairman, and Duane D. Fitzgerald, John
F. McGillicuddy, James J. O'Connor, Paul E. Tierney, Jr., John K. Van de Kamp
and Paul A. Volcker.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Messrs. Greenwald and Glawe serve on the Compensation Committee, but not
the Compensation Administration Committee. Messrs. Glawe and Greenwald are
employees of the Company. Mr. Glawe is also the Chairman of the ALPA-MEC and an
officer of ALPA. United and ALPA are parties to a collective bargaining
agreement for United's pilots represented by ALPA.

COMPENSATION OF DIRECTORS

Each non-employee director receives an annual retainer of $18,000 and is
paid $900 for each meeting attended. The non-employee Chairman of each Committee
other than the Compensation Administration Committee receives an additional
retainer of $2,700 per year. Each non-employee member of a Committee receives a
fee of $900 for each Committee meeting attended. The above fees reflect the 10%
reduction in Board compensation that was instituted in January 1993 and
reaffirmed by the Board in September 1994. During 1997, following the mid-term
wage increases for Company employees who are ESOP participants, the Board
considered, but decided to reject, a restoration of the reduction in the Board's
meeting fee and retainer compensation in cash. Instead, the Board approved an
increase in the annual deferred stock grant for non-employee directors (see
below) over two years which equates to a Common Stock value at December 1997
that is approximately equal to the average value of the fee and retainer
reduction (25 shares in 1997 and an additional 25 shares in 1998 and
thereafter). Non-employee directors also receive 400 shares of Common Stock
annually, which, pursuant to Stock Ownership Guidelines, they are to keep
throughout their tenure on the Board. Directors may elect to receive all or any
portion of their cash retainer and fees in Common Stock, as well as to defer
their stock and cash compensation for federal income tax purposes. Each
non-employee director is also credited annually with 139 deferred stock units
representing Common Stock. All such deferred credits are unfunded and are not
settled until after the director leaves the Board. Directors who are employees
of the Company or any of its subsidiaries, including Messrs. Greenwald,
Edwardson and Glawe, do not receive any retainer fee, meeting fee or Common
Stock for their service on the Board of Directors or any Committee.

The Company considers it important for its directors to understand its
business and have exposure to its operations and employees. For this reason, the
Company provides free transportation and free cargo shipment on United to each
director of the Company and his spouse and eligible dependent children. The
directors are reimbursed by the Company for income taxes resulting from actual
use of the travel and shipment privilege. A director who was a director upon the
change in control of the Company on July 12, 1994, is entitled to continue such
travel and cargo benefits for life. The cost of this policy in 1997 for each
director, including cash payments made in January 1998 for income tax liability,
was as follows:

NAME COST($)
---- -------

John A. Edwardson............... 55,781
Duane D. Fitzgerald............. 20,657
Michael H. Glawe................ 0
Gerald Greenwald................ 29,437
Richard D. McCormick............ 37,232
John F. McGillicuddy............ 13,872

NAME COST($)
---- -------

James J. O'Connor............... 13,628
Deval L. Patrick................ 0
John F. Peterpaul............... 3,163
Paul E. Tierney, Jr. ........... 65,814
John K. Van de Kamp............. 33,941
Paul A. Volcker................. 7,534

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BENEFICIAL OWNERSHIP OF SECURITIES

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the number of shares of Common Stock and of
voting preferred stock held in the ESOP beneficially owned as of March 9, 1998,
by each director, nominee for director and executive officer included in the
Summary Compensation Table, and by all directors and executive officers of the
Company as a group. Unless indicated otherwise by footnote, the owner exercises
sole voting and investment power over the securities (other than unissued
securities, the ownership of which has been imputed to such owner). Certain
directors and executive officers of the Company also beneficially own shares of
various other classes of preferred stock of the Company. See "Certain Other
Beneficial Owners."

VOTING PREFERRED
COMMON STOCK PERCENT STOCK BENEFICIALLY PERCENT
NAME OF DIRECTOR OR EXECUTIVE OFFICER AND GROUP BENEFICIALLY OWNED OF CLASS OWNED OF CLASS
- ----------------------------------------------- ------------------ -------- ------------------ --------

John W. Creighton, Jr. ...................... 1,000 * --
John A. Edwardson............................ 576,855(1) 1.0 6,950(2) *
Duane D. Fitzgerald.......................... 4,687(3) * --
Michael H. Glawe............................. -- 2,950(4) *
Gerald Greenwald............................. 957,556(5) 1.7 10,568(2) *
Richard D. McCormick......................... 5,952(6) * --
John F. McGillicuddy......................... 7,119(7) * --
James J. O'Connor............................ 4,772(8) * --
Deval L. Patrick............................. 427(3) * --
John F. Peterpaul............................ 2,046(9) * --
Paul E. Tierney, Jr. ........................ 37,580(10) * --
John K. Van de Kamp.......................... 2,034(3) * --
Paul A. Volcker.............................. 4,263(11) * --
James E. Goodwin............................. 147,104(12) * 3,493(2) *
Douglas A. Hacker............................ 154,881(13) * 4,200(2) *
Stuart I. Oran............................... 79,695(14) * 4,162(2) *
Directors and Executive Officers as a Group
(20 persons)............................... 2,227,795(15) 3.9 41,010(16) 2.4

- ---------------

* Less than 1%

(1) Includes 434,000 shares that Mr. Edwardson has the right to acquire within
60 days of March 9, 1998, by the exercise of stock options and 1,240 shares
held indirectly by Mr. Edwardson's daughters.

(2) Reflects beneficial ownership of Class S ESOP Voting Junior Preferred Stock
("Class S Voting Stock") owned through the ESOP.

(3) Reflects beneficial ownership of Common Stock represented by deferred stock
units under the UAL Corporation 1995 Directors Plan (the "1995 Plan"). All
directors have deferred receipt of Common Stock deliverable in respect of
deferred stock units under the 1995 Plan until retirement from the Board.

(4) Reflects beneficial ownership of Class P ESOP Voting Junior Preferred Stock
("Class P Voting Stock") owned through the ESOP.

(5) Includes 706,000 shares that Mr. Greenwald has the right to acquire within
60 days of March 9, 1998, by the exercise of stock options, 6,684 shares
held indirectly by Mr. Greenwald's wife and 1,043 shares held indirectly by
a United 401(k) plan (calculated as of December 31, 1997).

(6) Includes 3,754 shares of Common Stock represented by deferred stock units
under the 1995 Plan.

(7) Includes 4,519 shares of Common Stock represented by deferred stock units
under the 1995 Plan.

(8) Includes 1,772 shares of Common Stock represented by deferred stock units
under the 1995 Plan.

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(9) Includes 446 shares of Common Stock represented by deferred stock units
under the 1995 Plan.

(10) Includes 1,764 shares of Common Stock represented by deferred stock units
under the 1995 Plan.

(11) Includes 1,863 shares of Common Stock represented by deferred stock units
under the 1995 Plan.

(12) Includes 106,500 shares that Mr. Goodwin has the right to acquire within 60
days of March 9, 1998, by the exercise of stock options and 10,000 shares
held indirectly by Mr. Goodwin's wife.

(13) Includes 120,800 shares that Mr. Hacker has the right to acquire within 60
days of March 9, 1998, by the exercise of stock options.

(14) Includes 41,500 shares that Mr. Oran has the right to acquire within 60
days of March 9, 1998, by the exercise of stock options.

(15) Includes 1,578,550 shares that directors or executive officers have the
right to acquire within 60 days of March 9, 1998, by the exercise of stock
options, shares represented by deferred stock units under the 1995 Plan,
shares held indirectly as discussed in footnotes (1), (5) and (12) and an
additional 93 shares held in a United 401(k) plan (calculated as of
December 31, 1997).

(16) Reflects ownership of Class S Voting Stock owned through the ESOP. No
director or executive officer other than Mr. Glawe beneficially owns shares
of Class P Voting Stock.

CERTAIN OTHER BENEFICIAL OWNERS

The following table shows the number of shares of the Company's voting
securities beneficially owned by any person or group known to the Company as of
March 9, 1998, to be the beneficial owner of more than five percent (5%) of any
class of the Company's voting securities.

AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP OF CLASS
- ------------------- -------------- ----------------- --------

State Street Bank and Trust Company, Common Stock 38,455,298(1) 39.4%
Trustee Class P Voting Stock 3,303,219(1) 100%
225 Franklin Street Class M ESOP Voting Junior Preferred Stock 2,739,574(1) 100%
Boston, MA 02110 Class S Voting Stock 1,233,614(1) 100%

AXA Assurances I.A.R.D. Mutuelle Common Stock 9,050,618(2) 15.3%
AXA Assurances Vie Mutuelle
21, Rue de Chateaudun
75009 Paris France
Alpha Assurances Vie Mutuelle
100-101 Terrasse Boieldieu
92042 Paris La Defense
France
AXA Courtage Assurance Mutuelle
24, Rue Louis le Grand
75002 Paris France
AXA-UAP
23, Avenue Matignon
75008 Paris France
The Equitable Companies Incorporated
787 Seventh Avenue
New York, NY 10019

Janus Capital Corporation Common Stock 4,745,189(3) 8.1%
Thomas H. Bailey
100 Fillmore Street
Denver, CO 80206-4923

Oppenheimer Group, Inc. Common Stock 3,247,716(4) 5.54%
Oppenheimer Capital
Oppenheimer Tower, World
Financial Center
New York, NY 10281

9
12

AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP OF CLASS
- ------------------- -------------- ----------------- --------

United Airlines Pilots Class Pilot MEC Stock 1(5) 100%
Master Executive Council
Air Line Pilots Association,
International
6400 Shafer Court, Suite 700
Rosemont, IL 60018

International Association of Class IAM Stock 1(6) 100%
Machinists and Aerospace Workers
District #141
9000 Machinists Place
Upper Marlboro, MD 20772

Deval L. Patrick Class SAM Stock 2(7) 66.67%
c/o Day, Berry & Howard
260 Franklin Street
Boston, MA 02110

William P. Hobgood Class SAM Stock 1(7) 33.33%
Senior Vice President-People
United Airlines
P.O. Box 66100
Chicago, IL 60666

Paul A. Volcker Class I Stock 1(8) 25%
610 Fifth Avenue
Suite 420
New York, NY 10020

Duane D. Fitzgerald Class I Stock 1(8) 25%
c/o UAL Corporation
P.O. Box 66919
Chicago, IL 60666

Richard D. McCormick Class I Stock 1(8) 25%
US WEST, Inc.
7800 E. Orchard Road
Englewood, CO 80111-2533

John K. Van de Kamp Class I Stock 1(8) 25%
c/o Dewey Ballantine
333 S. Hope Street
Los Angeles, CA 90071-3003

- ---------------

(1) Based on Schedule 13G dated February 10, 1998, in which the reporting person
reported that as of December 31, 1997, (i) as trustee under the ESOP (the
"ESOP Trustee"), it had shared voting power over 3,303,219 shares of Class
P Voting Stock representing 25.4% of the voting power of the Company,
2,739,574 shares of Class M ESOP Voting Junior Preferred Stock ("Class M
Voting Stock," and together with the Class P Voting Stock and the Class S
Voting Stock, the "Voting Preferred Stocks") representing 20.4% of the
voting power of the Company, and 1,233,614 shares of Class S Voting Stock
representing 9.2% of the voting power of the Company, and shared
dispositive power over 8,652,618 shares of Class 1 ESOP Convertible
Preferred Stock and 806,260 shares of Class 2 ESOP Convertible Preferred
Stock, each convertible into quadruple that number of shares of Common
Stock ("Shares"), as well as 2,906 Shares issuable upon conversion of the
Voting Preferred Stocks, and (ii) as trustee or discretionary advisor for
various collective investment funds and other employee benefit plans and
other index accounts, it had sole dispositive power over 314,140 Shares and
sole voting power over 302,740 of such Shares. The reporting person
disclaims beneficial ownership of all shares reported. Voting power of
Voting Preferred Stocks is limited to matters other than the vote for
directors.

(2) Based on Schedule 13G/A (Amendment No. 8) dated January 9, 1998 in which AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances
Vie Mutuelle and AXA Courtage Assurance Mutuelle, AXA-UAP and The Equitable
Companies Incorporated reported, as of December 31, 1997, sole voting power
for 5,758,284 of such Shares, shared voting power for 48,000 of such

10
13

Shares, and sole dispositive power for 9,050,618 of such Shares. Such
amounts include 267,300 Shares issuable upon exercise of options.

(3) Based on Schedule 13G/A (Amendment No. 2) dated February 9, 1998, in which,
as of December 31, 1997, Janus Capital Corporation and Thomas H. Bailey
reported shared voting and dispositive power over all such Shares. Janus
Capital Corporation and Thomas H. Bailey disclaim beneficial ownership of
all such Shares.

(4) Based on Schedule 13G dated January 17, 1997, in which the reporting
persons, on behalf of subsidiary companies and/or certain investment
advisory clients or discretionary accounts, reported shared voting and
dispositive power for all such Shares. The reporting persons disclaim
beneficial ownership of all such Shares.

(5) Share elects one ALPA Director and has one vote on all matters submitted to
the holders of Common Stock other than the election of directors.

(6) Share elects one IAM Director and has one vote on all matters submitted to
the holders of Common Stock other than the election of directors.

(7) Shares elect one Salaried/Management Employee Director and each share has
one vote on all matters submitted to the holders of Common Stock other than
the election of directors. Pursuant to a Stockholders Agreement, the
holders of Class SAM Stock have agreed to vote their shares in favor of the
election of the Salaried/Management Employee Director nominated by the
System Roundtable of United salaried and management employees.

(8) Shares elect four Independent Directors and do not vote on other matters
except as required by law. Pursuant to a Stockholders Agreement dated as of
July 12, 1994, the holders of Class I Stock have agreed to vote their
shares in favor of the election of the Independent Directors nominated by
the Independent Director Nomination Committee of the Board of Directors of
the Company.

The foregoing information in footnotes (1) through (4) is based on a
review, as of March 9, 1998, by the Company of statements filed with the
Securities and Exchange Commission under Sections 13(d) and 13(g) of the
Securities Exchange Act of 1934 (the "Exchange Act").

11
14
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the following performance graph and report immediately
following shall not be incorporated by reference into any such filings.

UAL CORPORATION
RELATIVE MARKET PERFORMANCE
TOTAL RETURN 1993-1997

[PERFORMANCE GRAPH]

1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
UAL Corp. 100 115.76 99.92 204.13 285.90 423.13
S&P 500 100 110.08 115.53 153.45 188.68 251.63
D-J Airline Group(1) 100 123.24 82.37 119.33 132.26 220.63

Source: Compustat Database

- ---------------
(1) Alaska Air, AMR, Delta, Southwest, USAirways

12
15

EXECUTIVE COMPENSATION

UAL CORPORATION COMPENSATION AND COMPENSATION ADMINISTRATION COMMITTEES REPORT

PHILOSOPHY

The Company's executive compensation program is designed to attract, retain
and motivate top quality and experienced officers. The program provides industry
competitive compensation opportunities, supports a pay-for-performance culture
and emphasizes pay-at-risk. The program is heavily oriented toward incentive
compensation tied to the annual and longer-term financial performance of the
Company and to its longer-term return to stockholders. The Company's
compensation program provides, among other matters, that the program will be
administered in a manner consistent with the philosophy of an employee-owned
company.

COMPONENTS

There are two components to the executive compensation program:

- Cash compensation.

- Stock compensation.

The cash compensation program is composed of base salary and annual
incentive compensation. Base salaries are less than at other large domestic air
carriers, which include the three largest of the five carriers in the Relative
Market Performance Graph on the preceding page. Base salaries, which were
reduced by 8.25% in July 1994, also are substantially less than other companies
in general industry of comparable size. Consistent with salary increases awarded
to management employees under the terms of the ESOP (the "Midterm Adjustment"),
officers were awarded increases from a total officer salary increase pool of 4%
in July 1997. In determining the amounts of the increases, the size of the pool,
individual performance and competitive salary relationships were taken into
account.

Annual incentive compensation provides an opportunity for additional
earnings. Under the program, an incentive pool is created based upon the
Company's earnings; each year the Compensation Committee approves a schedule of
annual incentive pool funding relative to specified earnings targets. The CEO
recommends to the Compensation Committee (or the Compensation Administration
Committee, in the case of incentive awards intended to qualify under Section
162(m) of the Internal Revenue Code) incentive awards for each officer based
upon an assessment of each officer's contribution over the preceding year. The
assessment is based upon, among other things, an appraisal prepared annually for
each officer on his or her managerial skills and the performance by him or her
of assigned responsibilities. Before making a recommendation, the CEO discusses
such appraisals with other members of senior management and considers these
discussions, along with an overall evaluation of corporate performance and
industry competitive data. The Compensation Committee makes a final
determination of awards for officers, including the CEO (but excluding the other
proxy-named officers), who is assessed by the Compensation Committee using a
comparable process established under his Employment Agreement. The awards for
the other proxy-named officers are made by the Compensation Administration
Committee based on a pre-established formula in full compliance with Section
162(m) of the Internal Revenue Code.

The normal stock compensation program is comprised entirely of annual stock
options. Option grants are determined in consideration of individual performance
and contribution and airline industry practice, using the same group referred to
above for base salary and annual incentive compensation. The CEO recommends
stock option grants for each officer to the Compensation Committee (or the
Compensation Administration Committee, in the case of awards which qualify for
certain exemptions from Section 16 of the Exchange Act pursuant to Rule 16b-3 or
Section 162(m) qualified grants). While there are no specific target award
levels or weighting of factors considered in determining stock grants, grants
are made within grant-range guidelines for each officer level. The Committee
determines stock awards for the CEO based upon a comparable process and makes a
final determination on stock awards for all other officers.

Stock options may not be granted at less than fair market value on the date
of grant. Stock options carry a 10-year term and typically vest ratably over a
four-year period. The Company's stock option plan includes
13
16

provisions to preserve, to the maximum extent possible, the deductibility by the
Company of amounts awarded under the plan.

The officer compensation program in total is primarily focused on promoting
pay-for-performance and emphasizing pay-at-risk, and heavily oriented toward
stockholder interests through the use of long-term incentives that create a
direct linkage between officer rewards and increased stockholder value. The
long-term incentive component, which is composed totally of stock-based
incentives, represents over half the total income opportunity for the officers.

The Company has eliminated restricted stock as a component of its normal
compensation program. However, to enable the Company to attract high quality
management at the most senior officer levels within the Company, sign-on
compensation packages for these officers at the time of hiring may include cash
and restricted or other stock awards in addition to compensation of the types
described above. These compensation packages are often the subject of
negotiation, and may have vesting provisions for stock options that vary from
the normal schedule. In addition, restricted stock may be used on an individual
basis for a very limited number of United employees in response to compelling
business requirements, such as for recruitment or retention of key management
employees.

STOCK OWNERSHIP GUIDELINES

To encourage accumulation and retention of Common Stock by Company
officers, guidelines have been adopted providing for minimum ownership of Common
Stock at the following multiples of annual salary: Chairman and Chief Executive
Officer and President and Chief Operating Officer, five times; Executive and
Senior Vice Presidents, two times; and Vice Presidents, one times. Furthermore,
officers are also expected to retain a portion of the stock received upon
exercise of options or vesting of restricted stock awards until the value of
their holdings equals or exceeds double the specified minimums. Unexercised
stock options, unvested restricted stock and ESOP stock ownership are not
recognized for purposes of these guidelines.

CEO COMPENSATION

The compensation package for Mr. Greenwald was established pursuant to a
five year Employment Agreement negotiated by Mr. Greenwald with ALPA and the IAM
in 1994 (the "Employment Agreement"). As part of the Employment Agreement, a
base salary rate of $665,188 was established for Mr. Greenwald, giving effect to
the 8.25% reduction. As part of the Midterm Adjustment, Mr. Greenwald's annual
base salary increased 4% to $691,800 in July 1997. In determining the amount of
the increase, the size of the pool, Mr. Greenwald's performance and competitive
salary relationships were taken into account. A non-guaranteed target bonus of
$725,000 per year has also been established under the Employment Agreement,
which was paid to Mr. Greenwald in 1998 (in Common Stock) since his 1997
performance was consistent with the Board Committee's objectives and directions,
and corporate performance did not compel a lesser bonus. In making those
determinations, the applicable Board Committee took into account (i) airline
industry trends and (ii) the Company's cumulative profitability since the
transaction date. No weighting was given to any particular factor. These are
standards for performance evaluation that were established under the Employment
Agreement. Mr. Greenwald received a stock option grant in 1997 subject to the
Company's normal vesting schedule, in full compliance with Section 162(m) of the
Internal Revenue Code.

COMPENSATION FOR THE OTHER NAMED OFFICERS

As part of the Midterm Adjustment, the other named executive officers were
awarded increases ranging from 2% to 4% in July 1997 from a total officer salary
increase pool of 4%. In determining the amounts of the increases, the size of
the pool, individual performance and competitive salary relationships were taken
into account. In 1998 each of the named executive officers received an incentive
compensation award for 1997 performance, which was granted pursuant to the
normal incentive compensation plan terms according to a pre-established formula
in full compliance with Section 162(m) of the Internal Revenue Code. Each such
officer received a stock option grant in 1997 subject to the Company's normal
vesting schedule, in full compliance with Section 162(m) of the Internal Revenue
Code.

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17

COMPENSATION CONSULTANT AND COMPETITIVE DATA

The Compensation Committee and Compensation Administration Committee
consult with independent compensation advisors on executive compensation
matters. The Committees also have access to competitive data on compensation
levels for officer positions.

UAL CORPORATION COMPENSATION COMMITTEE

Richard D. McCormick, Chairman Gerald Greenwald
Duane D. Fitzgerald James J. O'Connor
Michael H. Glawe Deval L. Patrick
John F. Peterpaul

UAL CORPORATION COMPENSATION ADMINISTRATION COMMITTEE

Richard D. McCormick, Chairman James J. O'Connor
Duane D. Fitzgerald

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SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- ----------------------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($) ($) ($)(1) (#) ($)(2)
- ---------- ---- ------- ------- ------------ ---------- ------------ ------------

Greenwald 1997 670,490 725,000 94,839(3) 0 47,550 427,048
1996 657,184 725,000 103,548(3) 0 132,000 350,169
1995 657,184 725,000 79,006(3) 1,820,000 0 254,234

Edwardson 1997 463,363 458,750 54,043 0 27,800 253,302
1996 454,694 458,750 25,345 0 88,000 198,039
1995 455,222 455,000 6,962 1,251,250 0 132,704

Oran 1997 316,199 280,755 9,001 0 16,150 176,120
1996 310,255 280,755 9,001 0 50,000 138,715
1995 310,750 270,000 10,145 426,563 0 84,371

Hacker 1997 299,470 220,000 10,333 0 15,250 122,116
1996 293,600 220,000 9,522 0 46,000 85,530
1995 293,600 210,000 9,138 682,500 0 60,187

Goodwin 1997 249,712 189,391 904 0 15,250 108,597

- ---------------

Greenwald = Gerald Greenwald, Chairman and Chief Executive Officer
Edwardson = John A. Edwardson, President and Chief Operating Officer
Oran = Stuart I. Oran, Executive Vice President
Hacker = Douglas A. Hacker, Senior Vice President and Chief Financial Officer
Goodwin = James E. Goodwin, Senior Vice President -- North America of United Air Lines, Inc.

- ---------------

(1) The restricted stock granted in 1995 vests in five equal annual installments
commencing one year from the date of grant. The number and aggregate value,
respectively, of restricted holdings as of fiscal year-end is: Mr.
Greenwald, 78,400 shares, $7,252,000; Mr. Edwardson, 74,400 shares,
$6,882,000; Mr. Oran, 19,000 shares, $1,757,500; Mr. Hacker, 14,400 shares,
$1,332,000; and Mr. Goodwin, 12,000 shares, $1,110,000. Officers are
entitled to dividends, if any, paid on such shares.

(2) Amounts include value of shares of ESOP preferred stock allocated to the
officer's account for 1997, 1996 and 1995 as follows, based upon the
applicable year-end closing price of the Common Stock multiplied by the
number of shares of Common Stock issuable upon conversion of such ESOP
preferred stock: Mr. Greenwald, $309,598, $221,797, $125,246; Mr.
Edwardson, $204,333, $145,775, $80,851; Mr. Oran, $131,350, $92,303,
$38,315; Mr. Hacker, $115,163, $81,006, $56,964; and Mr. Goodwin, $97,958
(1997 only). Balance represents compensation attributable to split dollar
insurance program premiums.

(3) Amount includes $41,868 in 1997 and 1996 and $38,498 in 1995 attributable to
term life insurance benefits and $15,000 in 1996 and 1995 attributable to
automobile benefits.

16
19

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning stock options granted
during 1997 by the Company to the named executive officers. The hypothetical
present values of stock options granted in 1997 are calculated under a modified
Black-Scholes model, a mathematical formula used to value options. The actual
amount, if any, realized upon exercise of stock options will depend upon the
amount by which the market price of the Common Stock on the date of exercise
exceeds the exercise price. The individuals named below will not be able to
realize a gain from the stock options granted unless, during the exercise
period, the market price of the Common Stock is above the exercise price of the
options. SUCH AN INCREASE IN THE MARKET PRICE OF THE COMMON STOCK WOULD ALSO
BENEFIT ALL STOCKHOLDERS OF THE CORPORATION.

NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE HYPOTHETICAL
OPTIONS/SARS EMPLOYEES IN OR BASE PRESENT VALUE AT
GRANTED FISCAL YEAR PRICE EXPIRATION DATE OF GRANT
NAME (#000S)(1) 1997 ($/SH) DATE ($000S)(2)
---- ------------ ------------ -------- ---------- ----------------

Gerald Greenwald................ 47.55 10.6 $78.00 5/20/07 1,335
John A. Edwardson............... 27.80 6.2 $78.00 5/20/07 781
Stuart I. Oran.................. 16.15 3.6 $78.00 5/20/07 454
Douglas A. Hacker............... 15.25 3.4 $78.00 5/20/07 428
James E. Goodwin................ 15.25 3.4 $78.00 5/20/07 428

- ---------------

(1) Options become exercisable in four equal annual installments commencing May
20, 1998, one year from the date of grant.

(2) To realize hypothetical present values upon the exercise of the options, the
market price would have increased from $78.00 to $106.08. The modified
Black-Scholes model used to calculate the hypothetical values at date of
grant considers a number of factors to estimate the option's present value,
including the stock's historic volatility calculated using the monthly
closing price of Common Stock over a thirty-four month period (July 1994
through April 1997), the estimated average holding period of the option,
interest rates and the stock's expected dividend yield. The assumptions
used in the valuation of the options were: stock price volatility -- .33,
holding period -- 4 years, interest rate -- 6.5%, and dividend
yield -- 0.00%.

BECAUSE THE STOCK OPTIONS DESCRIBED ABOVE ARE NOT TRANSFERABLE, THE
CORPORATION BELIEVES THE GRANT DATE PRESENT VALUES SHOWN ABOVE MAY BE
OVERSTATED.

There is no assurance that the hypothetical present values of stock options
presented in the table above represent the actual values of such options, and
the hypothetical values shown should not be construed as predictions by the
Company as to the future value of the Common Stock.

17
20

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES(1)

NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
EXERCISE REALIZED AT FY-END (#000S) AT FY-END ($000S)
NAME (#000S) ($000S) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- ------------------------- -------------------------

Gerald Greenwald........... N/A N/A 673/306.55 46,068/15,748
John A. Edwardson.......... N/A N/A 412/223.80 28,146/12,075
Stuart I. Oran............. 53.286(2) 3,409(2) 40/81.15 2,412/3,622
Douglas A. Hacker.......... 7.938(2) 1,424(2) 109.3/74.75 7,433/3,317
James E. Goodwin........... 8.790(2) 1,551(2) 96.5/57.75 6,982/2,267

- ---------------

(1) Each option granted prior to July 12, 1994 (a "Pre-Closing Option"), is
exercisable for two shares of Common Stock and $84.81 in cash (after
adjustment for the four-for-one Common Stock split in 1996). Value of
Pre-Closing Options includes the cash amount deliverable upon exercise.

(2) Shares having an aggregate value of $1,110,947.30, $462,172 and $503,373
were withheld by the Company from the exercise proceeds for Messrs. Oran,
Hacker and Goodwin, respectively, to cover tax withholding obligations on
the value realized upon exercise.

PENSION PLAN TABLE

YEARS OF PARTICIPATION
FINAL -----------------------------------------------------------------------
AVERAGE PAY 15 20 25 30 35 40
- ----------- -------- -------- ---------- ---------- ---------- ----------

$ 200,000.............. $ 48,000 $ 64,000 $ 80,000 $ 96,000 $ 112,000 $ 128,000
400,000.............. 96,000 128,000 160,000 192,000 224,000 256,000
600,000.............. 144,000 192,000 240,000 288,000 336,000 384,000
800,000.............. 192,000 256,000 320,000 384,000 448,000 512,000
1,000,000.............. 240,000 320,000 400,000 480,000 560,000 640,000
1,200,000.............. 288,000 384,000 480,000 576,000 672,000 768,000
1,400,000.............. 336,000 448,000 560,000 672,000 784,000 896,000
1,600,000.............. 384,000 512,000 640,000 768,000 896,000 1,024,000
1,800,000.............. 432,000 576,000 720,000 864,000 1,008,000 1,152,000
2,000,000.............. 480,000 640,000 800,000 960,000 1,120,000 1,280,000
2,200,000.............. 528,000 704,000 880,000 1,056,000 1,232,000 1,408,000
2,400,000.............. 576,000 768,000 960,000 1,152,000 1,344,000 1,536,000
2,600,000.............. 624,000 832,000 1,040,000 1,248,000 1,456,000 1,664,000
2,800,000.............. 672,000 896,000 1,120,000 1,344,000 1,568,000 1,792,000

The above illustration is based on retirement at age 65 and selection of a
straight life annuity (other annuity options are available, which would reduce
the amounts shown above). The amount of the normal retirement benefit under the
plan is the product of 1.6% times years of credited participation in the plan
times final average pay (highest five of last 10 years of covered compensation).
The retirement benefit amount is not offset by the participant's social security
benefit. Compensation used in calculating benefits under the plan includes base
salary and amounts shown as bonus in the Summary Compensation Table. If actual
base salary is below the pre-July 12, 1994 base salary rate, base salary is
adjusted to the pre-July 12, 1994 base salary rate. Under the qualified plan,
years of participation for persons named in the cash compensation table are as
follows: Mr. Greenwald -- 3 years; Mr. Edwardson -- 3 years; Mr. Oran -- 3
years; Mr. Hacker -- 4 years and Mr. Goodwin -- 30 years. The amounts shown do
not reflect limitations imposed by the Internal Revenue Code on retirement
benefits that may be paid under plans qualified under the Internal Revenue Code.
United

18
21

has agreed to provide under non-qualified plans the portion of the retirement
benefits earned under the pension plan that would otherwise be subject to
Internal Revenue Code limitations.

The Employment Agreement entitles Mr. Greenwald to an annual pension equal
to the greater of the pension that would accrue under the Company plans with
credit for 30 years of service or $500,000 per year. This pension is payable at
any time elected by Mr. Greenwald following retirement or termination of
employment. Mr. Greenwald's retirement benefit will continue to be paid to his
spouse at 67% of his benefit level under a joint survivor annuity. Pursuant to
the Employment Agreement, a revocable trust has been funded to provide funding
for the additional pension obligation for Mr. Greenwald.

The Company has agreed to supplement Messrs. Edwardson's and Oran's
benefits under the qualified pension plans by granting them credit for
additional years of service -- 10 years for Mr. Edwardson, and 20 years for Mr.
Oran. In addition, the Company has agreed to waive the service requirement for
benefit vesting under the qualified pension plan for Messrs. Edwardson and Oran
and to impose no decrement to the pension benefit based on age at retirement for
Messrs. Edwardson and Oran.

EMPLOYMENT CONTRACTS AND ARRANGEMENTS

The Employment Agreement provides that Mr. Greenwald is paid a
non-guaranteed target bonus of $725,000 per year if his performance is
"consistent with the applicable Board Committee's objectives and directions" and
the Company's performance "does not compel" a lesser bonus. In addition, the
applicable Board Committee will take into account (i) airline industry trends
and (ii) the Company's financial performance (including cumulative profitability
since July 12, 1994) in determining the extent of Mr. Greenwald's bonus. The
applicable Board Committee also has the discretion to award a bonus in excess of
the target amount. The options and restricted stock received by Mr. Greenwald
upon commencement of employment pursuant to the Employment Agreement vest on any
termination of Mr. Greenwald's employment other than termination by the Company
for cause or a voluntary resignation. The options, to the extent vested, will
remain outstanding for 10 years, notwithstanding termination of Mr. Greenwald's
employment for any reason, including "cause."

If Mr. Greenwald's employment is terminated by the Company without "cause"
or by him for "good reason," a base salary of $725,000 and guaranteed $725,000
bonus would continue for 3 years and certain benefits would continue through the
end of the Employment Agreement term, at which time Mr. Greenwald would retire.
Generally, the Company will not be entitled to a deduction for Federal income
tax purposes with respect to the amounts described above to the extent that such
amounts exceed $1 million in any year.

The Company has agreed that, in the event of a termination of employment of
Mr. Edwardson by the Company without cause or by Mr. Edwardson with good reason,
the Company shall pay to Mr. Edwardson a lump sum equal to the greater of his
base salary and bonus paid in the prior 12-month period and the amounts, if any,
payable pursuant to standard severance arrangements, if any, then applicable to
senior executive officers of the Company. In the event of a termination without
cause within five years after commencement of employment, Mr. Oran is entitled
to a cash payment equal to his base salary and annual bonus paid in the prior
12-month period, as well as immediate vesting of any of his initial option
grants that would have otherwise vested within 12 months after the date of
termination.

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22

PROPOSAL NO. 2

APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors, at the recommendation of the Audit Committee, has
appointed, subject to approval by the stockholders, the firm of Arthur Andersen
LLP as independent public accountants, to examine the financial statements of
the Company for the year 1998. It is anticipated that a representative of Arthur
Andersen LLP will be present at the meeting and will have the opportunity to
make a statement, if he or she desires to do so, and will be available to
respond to appropriate questions at that time. If the stockholders do not
approve the appointment of Arthur Andersen LLP, the selection of independent
public accountants will be reconsidered by the Board of Directors.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR 1998.

OTHER MATTERS

The Board of Directors knows of no other proposals to be presented for
consideration at the Meeting, but if other matters do properly come before the
Meeting, the persons named in the proxy will vote the shares according to their
best judgment.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

An amended Form 5 for 1996 with respect to four transactions was
inadvertently filed late in 1997 for Gerald Greenwald. The transactions involved
gifts of shares of Common Stock from Mr. Greenwald to his wife and from the
Greenwalds to their new grandchild.

SUBMISSION OF STOCKHOLDER PROPOSALS

Any stockholder proposal submitted for consideration at the Company's 1999
Annual Meeting of Stockholders must be received by November 12, 1998, by the
Secretary of the Company, Francesca M. Maher, UAL Corporation, P.O. Box 66919,
Chicago, Illinois 60666 and must otherwise comply with rules promulgated by the
Securities and Exchange Commission.

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23

VOTING RIGHTS AND PROXY INFORMATION

This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of the Company at the Annual
Meeting of Stockholders called to be held on Thursday, May 7, 1998. The Board of
Directors has fixed the close of business on March 9, 1998, as the record date
(the "Record Date") for determining the holders of capital stock of the Company
who are entitled to notice of and to vote at the Meeting. The following chart
identifies the number of shares of each class of voting stock of the Company
outstanding as of the Record Date, the number of holders of each such class as
of the Record Date entitled to vote at the Meeting, the aggregate and per share
votes for shares of each class for all matters on which such shares vote, and
the class of directors, if any, with respect to which each class of stock is
entitled to vote:

AGGREGATE
SHARES NUMBER VOTES PER VOTING FOR
TITLE OF CLASS OUTSTANDING OF VOTES HOLDERS OF RECORD SHARE DIRECTORS
- --------------------- ----------- ------------- -------------------- --------- ---------------

Common Stock 57,594,396 57,594,396 13,198 1 Class elects 5
Public
Directors
Class P Voting Stock 4,700,561 32,542,753.55 1 (ESOP Trustee) 6.92 --
Class M Voting Stock 3,864,842 26,136,976.84 1 (ESOP Trustee) 6.76 --
Class S Voting Stock 1,729,706 11,713,420.27 1 (ESOP Trustee) 6.77 --
Class Pilot MEC Stock 1 1 1 (ALPA-MEC) 1 Class elects
1 ALPA Director
Class IAM Stock 1 1 1 (IAM) 1 Class elects
1 IAM Director
Class SAM Stock 3 3 2 (SAM Director and 1 Class elects
Senior Vice 1 SAM Director
President-People)
Class I Stock 4 4 4 (Independent 1 Class elects
Directors) 4 Independent
Directors

The Voting Preferred Stocks held by a trust established under a
tax-qualified employee stock ownership plan (the "Qualified ESOP") that have
been allocated to individual participants in the ESOP will be voted by
participants, as named fiduciaries under the Employee Retirement Income Security
Act of 1974, as amended, on a confidential pass-through basis. The ESOP Trustee
generally is obligated to vote as instructed by the participants to whom the
Voting Preferred Stock has been allocated, and the outstanding shares command
the entire voting power of each class of Voting Preferred Stock. The Class P
Voting Stock allocated to former employees who were members of ALPA will be
voted by the ESOP Trustee. The ESOP Trustee will (except as may be required by
law) vote the unallocated or otherwise unvoted shares in the Qualified ESOP in
proportions directed by participants who give instructions to the ESOP Trustee
with respect to such shares; each participant who is an employee has the right
to give such directions to the ESOP Trustee in the proportion that the
participant's allocated shares bears to the allocated shares of all participants
giving such directions. Shares held by the ESOP Trustee under a non-qualified
employee stock ownership plan (the "Supplemental ESOP") will be voted as
instructed by the administrative committee appointed under the Supplemental
ESOP. The Supplemental ESOP provides that the administrative committee will
consider the views of participants concerning the vote, but is not required to
take any particular action in response to those views.

The holders of Common Stock, the Voting Preferred Stocks, the Class Pilot
MEC Stock, the Class IAM Stock and the Class SAM Stock will vote together as a
single class on all items of business at the Meeting except the election of
directors. The presence in person or by proxy of the holders of a majority of
the total voting power of the shares of all such classes outstanding at the
Record Date is necessary to constitute a quorum at the Meeting for all items of
business other than the election of directors. The Class I Stock does not vote
on any matter other than the election of the Independent Directors.

21
24

The presence in person or by proxy of the holders of a majority of the
total voting power of the outstanding shares entitled to vote on the election of
a particular class of director(s) is necessary to constitute a quorum at the
Meeting for the election of director(s) of such class.

Under the Delaware General Corporation Law and the Charter, (i) the
affirmative vote of the holders of the shares of capital stock present in person
or represented by proxy at the Meeting representing a plurality of the votes
cast on the matter will be required to elect each of the directors to be elected
by the applicable class of capital stock, and (ii) the affirmative vote of the
holders of the shares of capital stock representing a majority of the votes
present in person or represented by proxy at the Meeting and entitled to be cast
on the matter will be required to approve the appointment of Arthur Andersen
LLP.

IF NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED FOR THE ELECTION OF
DIRECTORS OF THE CLASS, IF ANY, ON WHICH THE SHARES REPRESENTED BY THE PROXY ARE
ENTITLED TO VOTE AND FOR THE APPOINTMENT OF ARTHUR ANDERSEN LLP. If the enclosed
proxy is properly returned by dating, executing, and mailing, or the proxy is
voted properly by using the telephone procedures specified, the proxy will be
voted at the Meeting in accordance with the instructions indicated by such
proxy. The Board of Directors of the Company does not know of any matters, other
than as described in this Notice of Annual Meeting and Proxy Statement, that are
to come before the Meeting. If a proxy is given, the persons named in the proxy
will have authority to vote in accordance with their best judgment on any other
matter that is properly presented at the Meeting for action, including without
limitation any proposal to adjourn the Meeting or concerning the conduct of the
Meeting.

Abstentions will have the effect of a vote against the ratification of the
appointment of Arthur Andersen LLP and any other matters presented for a vote of
the stockholders (other than the election of directors). As to abstentions, the
shares of capital stock are considered present at the Meeting. The abstentions
are not, however, affirmative votes for the matters presented for a vote and,
therefore, they will have the same effect as votes against any matter presented
for a vote of the stockholders other than the election of directors, as to which
they will have no effect. Broker non-votes will have no effect on the outcome of
the vote on any of the matters presented for a vote of stockholders at the
Meeting and will not be counted for purposes of establishing a quorum.

If a quorum is not present at the time the Meeting is convened for any
particular purpose, or if for any other reason the Company believes that
additional time should be allowed for the solicitation of proxies, the Company
may adjourn the Meeting with a vote of the stockholders then present. The
persons named in the enclosed form of proxy may vote any shares of capital stock
for which they have voting authority in favor of such an adjournment.

Any proxy may be revoked by the person giving it at any time before it is
voted. The Company has not established any specified formal procedure for
revocation. A proxy may be revoked by a later proxy delivered using the
telephone voting procedures or by mail to the Secretary of the Company. A proxy
may also be revoked by written notice of revocation mailed to the Secretary of
the Company. Attendance at the Meeting will not automatically revoke a proxy,
but a holder of Common Stock in attendance may request a ballot and vote in
person, thereby revoking a prior granted proxy.

Special voting rules will apply if you are an ESOP participant holding
Voting Preferred Stock through the ESOP Trustee. Telephone, as well as mail,
procedures are available with respect to these shares. Please consult the
accompanying materials for information concerning the voting of these shares.

GENERAL

A copy of the Company's summary Annual Report for the year ended December
31, 1997, has been mailed to each stockholder on or about March 12, 1998. The
audited financial statements of the Company, along with certain other financial
information, are included in the Appendix to this Notice of Meeting and Proxy
Statement. Additional copies of the summary Annual Report and this Notice of
Annual Meeting and Proxy Statement, including the Appendix, and accompanying
proxy may be obtained from Georgeson & Company, Inc., Wall Street Plaza, New
York, New York 10005 or from the Secretary of the Company. A COPY OF THE
COMPANY'S FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION MAY BE OBTAINED
WITHOUT
22
25

CHARGE BY WRITING TO FRANCESCA M. MAHER, SECRETARY, UAL CORPORATION, P.O. BOX
66919, CHICAGO, ILLINOIS 60666.

Proxies are being solicited by and on behalf of the Board. All expenses of
this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be borne by the Company. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
material to beneficial owners of Common Stock and Voting Preferred Stock held of
record by such persons, and the Company may reimburse such custodians, nominees
and fiduciaries for their reasonable expenses. To assure the presence in person
or by proxy of the largest number of stockholders possible, the Company has
engaged Georgeson & Co. to solicit proxies on behalf of the Company. The Company
has agreed to pay such firm a proxy solicitation fee of $7,500 and to reimburse
such firm for its reasonable out-of-pocket expenses.

STOCKHOLDERS WHO PLAN TO ATTEND THE MEETING MUST DETACH THE ADMISSION CARD
ATTACHED TO THE PROXY OR VOTING DIRECTION CARD BEFORE MAILING AND BRING THE
ADMISSION CARD TO THE MEETING.

YOUR VOTE IS IMPORTANT! -- SEE THE ENCLOSED PROXY OR VOTING DIRECTION CARD FOR
PROCEDURES TO VOTE BY TELEPHONE OR MAIL.

23
26

APPENDIX

UAL CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED FINANCIAL STATEMENTS AND RELATED FINANCIAL INFORMATION

INDEX

PAGE
----

Selected Financial Data and Operating Statistics............ A-2
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. A-3
Quantitative and Qualitative Disclosures About Market
Risk...................................................... A-12
Report of Independent Public Accountants.................... A-14
Statements of Consolidated Operations....................... A-15
Statements of Consolidated Financial Position............... A-16
Statements of Consolidated Cash Flows....................... A-18
Statements of Consolidated Stockholders' Equity............. A-19
Notes to Consolidated Financial Statements.................. A-20

A-1
27

SELECTED FINANCIAL DATA AND OPERATING STATISTICS

YEAR ENDED DECEMBER 31
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AND RATES)

Operating revenues................ $ 17,378 $ 16,362 $ 14,943 $ 13,950 $ 13,325
Earnings (loss) before
extraordinary item and
cumulative effect of accounting
changes......................... 958 600 378 77 (31)
Extraordinary loss on early
extinguishment of debt, net of
tax............................. (9) (67) (29) -- (19)
Cumulative effect of accounting
changes, net of tax............. -- -- -- (26) --
Net earnings (loss)............... 949 533 349 51 (50)
Per share amounts, diluted:
Earnings (loss) before
extraordinary item and
cumulative effect of accounting
changes......................... 9.04 5.85 5.23 0.19 (0.66)
Extraordinary loss on early
extinguishment of debt.......... (0.09) (0.79) (0.41) -- (0.19)
Cumulative effect of accounting
changes......................... -- -- -- (0.34) --
Net earnings (loss)............... 8.95 5.06 4.82 (0.15) (0.85)
Total assets at year-end.......... 15,803 12,677 11,641 11,764 12,840
Long-term debt and capital lease
obligations, including current
portion, and redeemable
preferred stock................. 4,278 3,385 4,102 4,077 3,735

Revenue passengers................ 84 82 79 74 70
Revenue passenger miles........... 121,426 116,697 111,811 108,299 101,258
Available seat miles.............. 169,110 162,843 158,569 152,193 150,728
Passenger load factor............. 71.8% 71.7% 70.5% 71.2% 67.2%
Breakeven passenger load factor... 66.0% 66.0% 66.1% 68.2% 65.5%
Passenger revenue per passenger
mile (in cents)................ 12.6 12.4 11.8 11.3 11.6
Operating revenue per available
seat mile (in cents)........... 10.3 10.0 9.4 9.1 8.7
Operating expense per available
seat mile (in cents)........... 9.5 9.3 8.9 8.8 8.5
Operating expense per available
seat mile excluding ESOP
charges (in cents)............. 8.9 8.9 8.6 8.6 --
Fuel gallons consumed............. 2,964 2,883 2,822 2,697 2,699
Average price per gallon of jet
fuel (in cents)................ 69.5 72.2 59.5 58.8 63.6

A-2
28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This section contains forward-looking statements which are identified with an
asterisk(*). Factors that could significantly impact the expected results
referenced in the forward-looking statements are listed in the last paragraph of
the section, "Outlook for 1998."

On July 12, 1994, the stockholders of UAL Corporation ("UAL") approved a
plan of recapitalization that provides an approximately 55% equity and voting
interest in UAL to certain employees of United Air Lines, Inc. ("United") in
exchange for wage concessions and work-rule changes. The employees' equity
interest is being allocated to individual employee accounts through the year
2000 under Employee Stock Ownership Plans ("ESOPs") which were created as part
of the recapitalization. Since the ESOP shares are being allocated over time,
the current ownership interest held by employees is substantially less than 55%.
The entire ESOP voting interest is currently exercisable, which is voted by the
ESOP trustee at the direction of, and on behalf of, the employees participating
in the ESOPs.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY --

UAL's total of cash and cash equivalents and short-term investments was
$845 million at December 31, 1997, compared to $697 million at December 31,
1996. Operating activities during the year generated $2.567 billion and the
Company's sale of its interest in the Apollo Travel Services Partnership
provided $539 million in cash proceeds (see "Sale of Affiliate"). Cash was used
primarily to fund net additions to property and equipment and to repurchase
common stock.

Property additions, including aircraft, aircraft spare parts, facilities
and ground equipment, amounted to $2.812 billion, while property dispositions
resulted in proceeds of $83 million. In 1997, United took delivery of fourteen
B777, five B747, two B757, five A320 and four A319 aircraft. Twenty-four of
these aircraft were purchased and six were acquired under capital leases. Three
of the aircraft purchased during the year were later sold and then leased back.
Additionally, United acquired two B767 and one DC10-10 off-lease during 1997.

Consistent with a plan announced early in the year, the Company made
payments of $250 million for the repurchase of 2.9 million shares of common
stock. Financing activities also included the early extinguishment of $151
million in principal amount of various debt securities, mandatory repayments of
long-term debt totaling $136 million, payments under capital lease obligations
of $147 million, deposits of an equivalent $112 million in Japanese yen, German
marks and French francs with certain banks in connection with the financing of
certain aircraft acquired under capital lease transactions, as well as the
issuance of $597 million of enhanced pass through certificates.

Included in cash and cash equivalents at December 31, 1997 were $111
million of securities held by third parties under securities lending agreements,
as well as collateral in the amount of 102% of the value of the securities lent.
United is obligated to reacquire the securities from the borrower at the end of
the contract.

As of December 31, 1997, UAL had a working capital deficit of $2.300
billion as compared to $2.321 billion at December 31, 1996. Historically, UAL
has operated with a working capital deficit and, as in the past, UAL expects to
meet all of its obligations as they become due. In addition, UAL may from time
to time repurchase on the open market, in privately negotiated purchases or
otherwise, debentures or preferred stock.

United has available a $750 million revolving credit facility, as well as a
separate $227 million short-term borrowing facility, as described in Note 7
"Short-Term Borrowings" in the Notes to Consolidated Financial Statements.

A-3
29

PRIOR YEARS. Operating activities in 1996 generated cash flows of $2.453
billion. Cash was used primarily to repay long-term debt and to fund net
additions to property and equipment. In addition to the early extinguishment of
$641 million in principal amount of various debt securities, UAL made mandatory
repayments of long-term debt totaling $150 million and payments under capital
lease obligations of $112 million during the year. Financing activities also
included payments of $324 million for conversions of all of UAL's outstanding
6 3/8% convertible debentures, $84 million for repurchases of UAL's Series B
preferred stock and deposits of an equivalent $110 million in Japanese yen with
certain banks in connection with the financing of certain capital lease
transactions. Property additions amounted to $1.538 billion, while property
dispositions resulted in proceeds of $55 million.

Operating activities in 1995 generated cash flows of $1.624 billion. Cash
was used primarily to repay long-term debt, reacquire preferred stock, reduce
short-term borrowings and to fund net additions to property and equipment. In
addition to the early extinguishment of $750 million in principal amount of
various debt securities, UAL made mandatory repayments of long-term debt
totaling $102 million. Payments under capital lease obligations amounted to $80
million during the year and short-term borrowings were reduced by $269 million.
In addition, UAL spent $131 million to repurchase Series B preferred stock to be
held in treasury. Property additions, including the acquisition of 39 previously
leased aircraft, amounted to $1.111 billion. Property dispositions resulted in
proceeds of $578 million.

CAPITAL COMMITMENTS --

At December 31, 1997, commitments for the purchase of property and
equipment, principally aircraft, approximated $5.6 billion, after deducting
advance payments. Of this amount an estimated $2.6 billion is due to be spent in
1998. These amounts do not include a recent order with Airbus Industrie for an
additional 10 A319 and 20 A320 aircraft to be delivered through 2001. The
aircraft included in this latest order are expected to be used to satisfy growth
opportunities, and thus, the Company now expects its passenger fleet to grow by
at least 30 aircraft by the year 2002. For further details, see Note 18
"Commitments, Contingent Liabilities and Uncertainties" in the Notes to
Consolidated Financial Statements.

CAPITAL RESOURCES --

Funds necessary to finance aircraft acquisitions are expected to be
obtained from internally generated funds, external financing arrangements or
other external sources.

At December 31, 1997, United's senior unsecured debt was rated BB+ by
Standard and Poor's ("S & P") and Baa3 by Moody's Investors Service Inc.
("Moody's"). UAL's Series B preferred stock and redeemable preferred securities
were rated BB- by S & P and Ba3 by Moody's. In December 1997, S & P affirmed its
ratings and revised its outlook to positive from stable on UAL and United.

RESULTS OF OPERATIONS

SUMMARY OF RESULTS --

UAL's earnings from operations were $1.259 billion in 1997, compared to
operating earnings of $1.123 billion in 1996. UAL's net earnings in 1997 were
$949 million ($14.83 per share, basic; $8.95 per share, diluted), compared to
net earnings of $533 million in 1996 ($7.57 per share, basic; $5.06 per share,
diluted).

These earnings include extraordinary losses of $9 million and $67 million,
after tax, on early extinguishment of debt, in 1997 and 1996, respectively. In
addition, 1997 includes an after-tax gain on the ATS/Galileo transaction (see
"Sale of Affiliate") of $235 million ($3.99 per share, basic and $2.40 per
share, diluted). The per share amounts for 1996 include the effects on equity of
preferred stock transactions (see Note 4 "Per Share Amounts" in the Notes to
Consolidated Financial Statements).

Management believes that a more complete understanding of UAL's results can
be gained by viewing them on a pro forma, "Fully Distributed" basis. This
approach considers all ESOP shares which will ultimately be distributed to
employees throughout the ESOP period (rather than just the shares committed to
be released) to be immediately outstanding and thus fully distributed.
Consistent with this method, the ESOP
A-4
30

compensation expense is excluded from Fully Distributed net earnings, and ESOP
convertible preferred stock dividends are not deducted from earnings
attributable to common stockholders. No adjustments are made to Fully
Distributed earnings to reflect future salary increases. A comparison of results
reported on a Fully Distributed basis to results reported under generally
accepted accounting principles (GAAP) is as follows:

DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
GAAP FULLY GAAP FULLY
(DILUTED) DISTRIBUTED (DILUTED) DISTRIBUTED
--------- ----------- --------- -----------

Net Income..................................... $ 949 $1,546 $ 533 $ 960
------ ------ ------ ------
Per Share:
Earnings before preferred stock transactions,
gains on sales and extraordinary loss........ $ 6.64 $ 9.97 $ 6.42 $ 7.71
Gains on sales of ATS/Galileo, net............. 2.40 1.79 -- --
Preferred stock transactions, net.............. -- -- (0.57) (0.37)
Extraordinary loss, net........................ (0.09) (0.07) (0.79) (0.51)
------ ------ ------ ------
$ 8.95 $11.69 $ 5.06 $ 6.83
====== ====== ====== ======

1997 COMPARED WITH 1996 --

OPERATING REVENUES. Operating revenues increased $1.016 billion (6%) and
United's revenue per available seat mile (unit revenue) increased 2% to 10.25
cents. Passenger revenues increased $877 million (6%) due to a 4% increase in
United's revenue passenger miles and a 2% increase in yield to 12.55 cents.
Available seat miles across the system were up 4% year over year resulting in a
slight increase to system passenger load factor of 0.1 points to 71.8%. The
following analysis by market is based on information reported to the U.S.
Department of Transportation ("DOT"):

Latin American revenue passenger miles increased 2%, despite no increase in
capacity. Strengthening economies in Latin American countries as well as an
improved mix of high-yield passengers helped produce an 8% increase in yield.
Atlantic revenue passenger miles increased 20% on 19% higher capacity reflecting
increased frequencies and the utilization of larger B777 aircraft. Strong U.S.
and European economies provided a positive pricing environment resulting in a 3%
increase in Atlantic yield. Pacific revenue passenger miles and yield remained
flat despite 3% higher capacity reflecting a weak Japanese economy and a
stronger U.S. dollar. Domestic revenue passenger miles increased 3% on 2% higher
capacity. Domestic yield increased 1%, despite the fact that the U.S. airline
ticket tax was in effect for only four months of 1996 versus ten months of 1997.
New legislation, effective October 1, 1997, includes a gradual reduction in the
10% U.S. airline ticket tax to 7.5% by the year 2002, a phasing in of a $3 "head
tax" per domestic flight segment over the same period, an increase in round-trip
international departure and arrival taxes from $6 to $24 per passenger and a tax
on the purchase of frequent flyer miles. The Company expects that the new
legislation will increase United's annual tax burden by approximately $80
million, but is unable to determine how much of this increase it will be able to
pass on to its customers.

Cargo revenues increased $119 million (15%) on increases of 24% in freight
ton miles and 6% in mail ton miles, as a result of a new dedicated freighter
operation utilizing four DC10-30s and the introduction of long-range B777-200B
aircraft. A 5% lower freight yield was only partially offset by a 2% higher mail
yield for an overall decrease in cargo yield of 4%.

Other operating revenues increased $20 million (2%) due to increases in
frequent flyer program partner related revenues and fuel sales to third parties,
partially offset by the loss of ATS revenues resulting from its sale in July
1997 (see "Sale of Affiliate").

OPERATING EXPENSES. Operating expenses increased $880 million (6%) and
United's cost per available seat mile increased 2% from 9.33 to 9.53 cents,
including ESOP compensation expense. Without the ESOP compensation expense,
United's 1997 cost per available seat mile would have been 8.94 cents, an
increase of less than 1% from 1996. ESOP compensation expense increased $302
million (44%), reflecting the increase in

A-5
31

the estimated average fair value of ESOP stock committed to be released to
employees as a result of UAL's higher common stock price. Salaries and related
costs increased $299 million (6%) as a result of increased staffing in certain
customer-contact positions, as well as mid-term wage adjustments which took
effect July 1, 1997. Commissions increased $42 million (3%) due to increased
commissionable revenues, partially offset by the change in the commission
structure which United implemented in the third quarter of 1997. United lowered
the base commission paid to travel agents from 10% to 8% (up to a maximum of
$50) on all tickets purchased in the U.S. and Canada for both domestic and
international travel. This action is expected to save approximately $100 million
annually in commission costs. Purchased services increased $98 million (8%) due
principally to volume-related increases in computer reservations fees, credit
card discounts and communication charges. Aircraft maintenance increased $154
million (34%) due to increased purchased maintenance as well as the timing of
maintenance cycles. Depreciation and amortization decreased $35 million (5%)
despite the acquisition of new aircraft, due to lower depreciation on DC10-10
aircraft which are scheduled for retirement, gains on asset sales of $23 million
in 1997 compared to $11 million in 1996, and a $30 million charge in 1996 to
reduce the carrying value of aircraft seats being replaced. Aircraft fuel
decreased $21 million (1%) despite a 3% increase in consumption, due to a 4%
decrease in the price of fuel from 72.2 cents to 69.5 cents a gallon.

OTHER INCOME AND EXPENSE. Other income (expense) amounted to $265 million
in income in 1997 compared to $153 million in expense in 1996. Interest
capitalized, primarily on aircraft advance payments, increased $27 million
(35%). Interest expense decreased $9 million (3%) due to the prepayment of
long-term debt in 1996. Interest income decreased $5 million (9%) due to lower
average interest rates. In addition, 1997 included a $275 million gain on the
sale of ATS and a $103 million gain on the initial public offering of Galileo
stock. 1996 included a $20 million charge for the settlement of litigation
related to the travel agency commission cap implemented by the Company in
February 1995.

1996 COMPARED WITH 1995 --

OPERATING REVENUES. Operating revenues increased $1.419 billion (10%).
United's revenue per available seat mile increased 7% to 10.02 cents. Passenger
revenues increased $1.238 billion (9%) due to a 4% increase in United's revenue
passenger miles and a 5% increase in yield to 12.35 cents. The following
analysis by market is based on information reported to the DOT:

Yield increases in the domestic (7%), Atlantic (7%) and Latin American (4%)
markets were partially offset by a 4% decrease in Pacific yield. Domestic yield
increased as a result of a larger proportion of high yield business traffic and
fare levels influenced by the expiration of the Federal passenger excise tax
from January through August. A weaker Japanese yen versus the dollar had a
significant negative impact on 1996 Pacific yield. Both domestic and
international revenue passenger miles increased by 4%. Available seat miles
increased 3% for the system, reflecting increases of 4% in the Pacific and Latin
American and 3% in domestic markets. Atlantic available seat miles remained
unchanged. As a result, system passenger load factor increased 1.2 points to
71.7%.

Cargo revenues increased $16 million (2%). Freight ton miles increased 6%
and mail ton miles increased 5%. A 6% lower freight yield was only partially
offset by a 3% higher mail yield for an overall decrease in cargo yield of 3%.

Other operating revenues increased $165 million (17%) due to increases in
frequent flyer program partner related revenues, contract maintenance and fuel
sales to third parties.

OPERATING EXPENSES. Operating expenses increased $1.125 billion (8%).
United's cost per available seat mile increased 5% from 8.87 cents to 9.32
cents. ESOP compensation expense increased $181 million (36%), reflecting the
increase in the estimated average fair value of ESOP stock committed to be
released to employees as a result of UAL's higher common stock price. Aircraft
fuel increased $402 million (24%) due to a 2% increase in consumption and a 21%
increase in the average price per gallon of fuel from 59.5 cents to 72.2 cents.
Without the increases in ESOP compensation expense and aircraft fuel, United's
cost per available seat mile would have increased 2%. Salaries and related costs
increased $193 million (4%) due principally to increased staffing in certain
customer-contact positions. Other expenses increased $166 million (9%) due
A-6
32

principally to costs associated with sales to third parties of fuel, contract
maintenance and other work. Purchased services increased $125 million (12%) due
principally to volume-related increases in computer reservations fees, credit
card discounts and communication charges. Aircraft maintenance increased $42
million (10%) due to increased purchased maintenance, as well as the timing of
maintenance cycles. Depreciation and amortization increased $95 million (14%)
due principally to a $30 million charge to reduce the carrying value of aircraft
seats and to a $41 million gain recorded in 1995 on the disposition of certain
aircraft. Commissions were flat year over year despite an increase in
commissionable revenues due to lower average commission rates. These lower rates
were partially attributable to the full year effects of a new travel agent
commission plan introduced in 1995. Aircraft rent decreased $57 million (6%) due
to the acquisition of 39 aircraft off-lease in the second half of 1995.

OTHER INCOME AND EXPENSE. Other expense amounted to $153 million in 1996
compared to $208 million in 1995. Interest capitalized, primarily on aircraft
advance payments, increased $35 million (83%). Interest expense decreased $104
million (26%) due to the prepayment of long-term debt in 1995 and 1996 and the
conversion of convertible debentures in the second quarter of 1996. Interest
income decreased $41 million (42%) due to lower investment balances. Equity in
earnings of affiliates increased $16 million (33%) due to higher earnings from
Galileo International resulting from increased booking revenues. Included in
other expense for 1996 is a $20 million charge for the settlement of litigation
related to the travel agency commission cap implemented by the Company in 1995.

OTHER INFORMATION

SALE OF AFFILIATE --

In July 1997, United completed the sale of its interest in the Apollo
Travel Services Partnership ("ATS"), a 77% owned affiliate whose accounts were
consolidated, to Galileo International, Inc. ("Galileo"), heretofore a 38% owned
affiliate accounted for under the equity method, for $539 million in cash. This
transaction resulted in a pre-tax gain of approximately $405 million. Of this
amount, $275 million was recognized during the third quarter and the balance
will be recognized over the next 25 years, the estimated remaining life of the
assets acquired by Galileo.

Galileo raised a portion of the proceeds used to purchase ATS through the
completion of an initial public offering of 16,799,700 shares of its common
stock, representing 16.0% of its economic interest, at $24.50 per share for net
proceeds of approximately $390 million. This transaction resulted in a reduction
of the Company's ownership in Galileo from 38% to 32%. In accordance with the
Company's policy of recognizing gains or losses on the sale of a subsidiary's
stock, based on the difference between the offering price and the Company's
carrying amount of such stock, the Company recognized a pre-tax gain of $103
million during the third quarter. Pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 109, the Company also recorded $40 million of deferred
taxes related to this gain.

In connection with the sale, United entered into an additional services
agreement under which the Company will provide certain marketing and other
services designed to increase the competitiveness of Galileo's business and to
generate additional bookings and revenues for Galileo. Under this agreement,
United could receive up to $154 million (on a present value basis) in the sixth
year following the sale, based on specified improvements in air booking revenues
over a five-year period.

United continues to account for Galileo under the equity method and will
continue to purchase computer reservations services under its existing services
agreement with Galileo.

LABOR AGREEMENTS AND WAGE ADJUSTMENTS --

The 1994 recapitalization resulted in new labor agreements for certain
employee groups and a new corporate governance structure, which was designed to
achieve balance between the various employee-owner groups and public
stockholders. The labor agreements and governance structure could inhibit
management's ability to alter strategy in a volatile, competitive industry by
restricting certain operating and financing activities, including the sale of
assets, the issuance of equity securities and the ability to furlough employees.

A-7
33

Consistent with the various agreements supporting the July 1994
recapitalization, in 1997 employees represented by the Air Line Pilots'
Association, International ("ALPA") and the International Association of
Machinists and Aerospace Workers ("IAM") ratified mid-term wage adjustments
providing for 5% increases in wage rates in July 1997 and 1998. Further, the
agreement with ALPA calls for a corresponding 5% increase in both 1997 and 1998
to "book rates" (book rates are used to compute certain other employee
benefits), and the agreement with the IAM provided for lump sum payments for all
IAM employees and increases in hourly license premium and skill pay for
mechanics. These agreements also provide for restoration of wage rates for the
two groups in the year 2000 to levels that existed prior to the recapitalization
in July 1994, as well as restoration of the Company's contribution to the
pilots' defined contribution plan from its current rate of 1% to its pre-ESOP
rate of 9% in the year 2000.

Also during the year, the Company announced the details of the mid-term
wage adjustments for United States salaried and management employees. Salaried
employees received a 5% increase in July 1997, as well as a lump-sum payment,
and will receive an additional 5% increase in July 1998. Management employees
received a 4% increase in July 1997, and will receive an additional 4% increase
in July 1998. Also, management employees not participating in the Company's
Incentive Compensation Plan will participate in a three-year profit-sharing plan
that could pay an additional amount in 1999 and 2000, if the Company meets
specific pre-tax earnings objectives in 1998 and 1999, respectively. These
employees already received the maximum annual profit sharing payout, 3.75% of
annual wages, in February 1998, based on 1997's financial performance.

On October 1, 1997, the Association of Flight Attendants ("AFA") ratified a
new contract which will remain in effect through March 1, 2006. Included in the
contract was a lump sum payment of 7% in December 1997 and future lump sum
payments of 4% in December 1998 and 1999 and 5% in 2001, 2003 and 2005; as well
as minimum 2% wage increases in 2000, 2002 and 2004. Additionally, the contract
includes a series of arbitrations beginning in 2001 which can award additional
compensation increases, subject to meeting Vision 2000 goals as discussed below.
The agreement also provides for benefits and work rule changes and a number of
service quality and productivity enhancements designed to help the Company
achieve its customer satisfaction objectives.

The wage, benefit and work-rule adjustments outlined above are consistent
with the Company's objective, known as Vision 2000, to put employee compensation
on a competitive level with peer group compensation at the conclusion of the
agreements outlined above. The ultimate cost to the Company of Vision 2000,
particularly given that peer group compensation is subject to change between now
and the conclusion of the agreements, is not determinable. However, as a result
of these changes, the Company expects that its annual salaries and related costs
will increase at a faster rate than its major competitors from now through the
year 2000.

FOREIGN OPERATIONS --

United generates revenues and incurs expenses in numerous foreign
currencies. These expenses include aircraft leases, commissions, catering,
personnel costs, reservation and ticket office services, customer service
expenses and aircraft maintenance. Changes in foreign currency exchange rates
impact operating income through changes in foreign currency-denominated
operating revenues and expenses. Despite the adverse (favorable) effects a
strengthening (weakening) foreign currency may have on U.S. originating traffic,
a strengthening (weakening) of foreign currencies tends to increase (decrease)
reported revenue and operating income because United's foreign
currency-denominated operating revenue generally exceeds its foreign
currency-denominated operating expense for each currency.

By carrying passengers and cargo in both directions between the U.S. and
almost every major economic region in the world and by selling its services in
each local country, United attempts to mitigate its exposure to fluctuations in
any single foreign currency. The Company's biggest net exposures are typically
for Japanese yen, Hong Kong dollars and Australian dollars. During 1997,
yen-denominated operating revenue net of yen-denominated operating expense was
approximately 62 billion yen (approximately $541 million), Hong Kong
dollar-denominated operating revenue net of Hong Kong dollar-denominated
operating expense was approxi-

A-8
34

mately 1,692 million Hong Kong dollars (approximately $219 million) and
Australian dollar-denominated operating revenue net of Australian
dollar-denominated operating expense was approximately 218 million Australian
dollars (approximately $161 million). United hedges some of the risk of exchange
rate volatility on its anticipated future net yen and net Hong Kong dollar cash
flows by purchasing put options for each respective currency. To reduce some of
the costs of this hedging program, the Company also sells call options in each
currency from time to time. United attempts to reduce its exposure to
transaction gains and losses by converting excess local currencies generated to
U.S. dollars and by entering into currency forward or exchange contracts. The
total notional amount of outstanding currency options and forward exchange
contracts, and their respective fair market values as of December 31, 1997, are
summarized in Quantitative and Qualitative Disclosures About Market Risk on page
A-12.

United's foreign operations involve insignificant amounts of physical
assets; however, there are sizable intangible assets related to acquisitions of
foreign route authorities. Operating authorities in international markets are
governed by bilateral aviation agreements between the United States and foreign
countries. Changes in U.S. or foreign government aviation policies can lead to
the alteration or termination of existing air service agreements that could
adversely impact the value of United's international route authority.
Significant changes in such policies could also have a material impact on UAL's
operating revenues and results of operations.

In January 1998, the governments of Japan and the United States announced
details of a new four-year aviation agreement which liberalizes the aviation
market between the U.S. and Japan. Under the accord, United has been designated
an "incumbent carrier" and as such, will be permitted to offer service between
any points in the U.S. and any points in Japan and will also be entitled to fly
beyond Japan to other points in Asia without restriction. Further, United will
be able to code-share flights with Japanese, third country or other U.S.
airlines if it chooses. While these rights give more flexibility to the Company
than it had under the previous U.S.-Japan aviation agreement, many of United's
competitors also received benefits in the form of greater access to the
U.S.-Japan market. Further, access to Tokyo's Narita airport is constrained by
current capacity limitations on takeoff and landing slots. Thus, while
supportive of the new agreement, the Company is unable to predict what overall
effect, if any, the new agreement will have on its future financial results as
long as the current capacity limitations at Narita are in existence. However,
upon completion of a second runway at Narita, the Company expects the current
capacity limitations to be relaxed and believes it will be able to realize
significant financial benefits as a result of the flexibility received under the
new U.S.-Japan aviation agreement.*

DEFERRED TAX ASSETS --

UAL's consolidated balance sheet at December 31, 1997 includes a net
deferred tax asset of $165 million, compared to $359 million at December 31,
1996. The net deferred tax asset is composed of approximately $2.257 billion of
deferred tax assets and $2.092 billion of deferred tax liabilities. The deferred
tax assets include, among other things, $918 million related to obligations for
postretirement and other employee benefits, $398 million related to gains on
sales and leasebacks, $382 million related to rent expense and $137 million
related to alternative minimum tax ("AMT") credit carryforwards. Management
believes it is more likely than not that future taxable income will be
sufficient to utilize the deferred tax assets at December 31, 1997.*

AIRPORT RENTS AND LANDING FEES --

United is charged facility rental and landing fees at virtually every
airport at which it operates. In recent years, many airports have increased or
sought to increase rates charged to airlines as a means of compensating for
increasing demands upon airport revenues. Airlines have challenged certain of
these increases through litigation and in some cases have not been successful.
The Federal Aviation Administration ("FAA") and the DOT have instituted an
administrative hearing process to judge whether rate increases are legal and
valid. However, to the extent the limitations on such charges are relaxed or the
ability of airlines to challenge such charges is restricted, the rates charged
by airports may increase substantially. Management cannot predict the magnitude
of any such increase.
A-9
35

YEAR 2000 COMPLIANCE --

Over the next two years, most large companies will face a potentially
serious business problem because many software applications and computer
equipment developed in the past may not properly recognize calendar dates
beginning in the year 2000. This problem could cause computers to either shut
down or provide incorrect data. United began taking measures to address this
problem in late 1995 and has created a Year 2000 Project office, headed by a
senior officer of the Company, to manage and coordinate the Company's efforts to
identify and fix critical date-sensitive systems. The scope of the Company's
efforts is divided into two major phases, review of internally used software as
well as review of other potential operational impacts and relationships with key
business partners. The status of the Company's efforts in each of these areas is
as follows:

The Company has completed its assessment of over 40,000 mainframe-based and
network-based programs used internally in connection with key business
applications, and has estimated that it will cost approximately $15 million to
modify these programs to make them Year 2000 compliant. Through December 31,
1997, $4 million has been spent and recognized as expense in the Company's
results of operations. The Company's plan is to have all applications not
compliant as of December 31, 1997 modified and tested by December 31, 1998.

United has not yet completed its assessment of the impact of Year 2000 on
operational systems such as aircraft avionics, flight simulators and airport
operations as well as relationships with key business partners, including the
FAA, other governmental agencies and suppliers. This assessment involves a five
stage process: Identification, Assessment of Impacts, Development of Remediation
Approach, Prioritization of Efforts, and Testing and Implementation of
Remediation Approach. The Company will carry out this task through a
company-wide effort, assisted by consultants, to address internal issues, and
jointly with industry trade groups, to address issues related to key business
partners which are common to other air carriers. The Company has not completed
the development of the remediation approach for all affected areas. As a result,
the Company cannot estimate what the total cost will be to implement remediation
efforts for all critical operational systems but it is possible that such costs
will be material. The Company expects to complete the assessment and development
stages of this plan by September 1998, at which time it expects to be able to
make a reasonable cost estimate. Implementation of all remediation efforts is
scheduled to be completed by March 31, 1999.

The Company has started an ongoing program to review the status of key
supplier Year 2000 compliance efforts. While the Company believes it is taking
all appropriate steps to assure Year 2000 compliance, it is dependent on key
business partner compliance to some extent. The Year 2000 problem is pervasive
and complex as virtually every computer operation will be affected in some way.
Consequently, no assurance can be given that Year 2000 compliance can be
achieved without costs that might affect future financial results or cause
reported financial information not to be necessarily indicative of future
operating results or future financial condition.

ENVIRONMENTAL AND LEGAL CONTINGENCIES --

United has been named as a Potentially Responsible Party at certain
Environmental Protection Agency ("EPA") cleanup sites which have been designated
as Superfund Sites. United's alleged proportionate contributions at the sites
are minimal; however, at sites where the EPA has commenced litigation, potential
liability is joint and several. Additionally, United has participated and is
participating in remediation actions at certain other sites, primarily airports.
The estimated cost of these actions is accrued when it is determined that it is
probable that United is liable. Such accruals have not been material.
Environmental regulations and remediation processes are subject to future
change, and determining the actual cost of remediation will require further
investigation and remediation experience. Therefore, the ultimate cost cannot be
determined at this time. However, while such cost may vary from United's current
estimate, United believes the difference between its accrued reserve and the
ultimate liability will not be material.*

UAL has certain other contingencies resulting from this and other
litigation and claims incident to the ordinary course of business. Management
believes, after considering a number of factors, including (but not limited to)
the views of legal counsel, the nature of such contingencies and prior
experience, that the ultimate
A-10
36

disposition of these contingencies is not likely to materially affect UAL's
financial condition, operating results or liquidity.*

NEW ACCOUNTING PRONOUNCEMENTS --

The Financial Accounting Standards Board ("FASB") has issued SFAS No. 130,
"Reporting Comprehensive Income" which establishes standards for displaying
comprehensive income and its components in a full set of general purpose
financial statements; SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" which establishes standards for reporting information
about operating segments in financial statements; and SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which revises
disclosure requirements for pension and other postretirement benefit plans. Each
of these statements are effective for fiscal years beginning after December 15,
1997, and are not expected to have a material impact on the Company's financial
position or results of operations.

OUTLOOK FOR 1998 --

The recent economic downturn in Asia, where currency devaluations and debt
crises have negatively affected growth through most of the region and pushed
some countries into recession, has caused a fall-off in Pacific revenue
passenger miles through the first two months of the year. As a result, the
Company expects full-year system revenues to be lower than originally planned
when it released 1998 revenue and cost guidance last December. In keeping with
the Company's contingency planning, United is taking steps to respond to and
offset the effects on profits from the weakness of the Asian market. These
measures include the re-allocation of capacity and the revision of discretionary
spending plans. Furthermore, some costs, such as fuel, are expected to be below
earlier estimates, resulting in lower than previously anticipated full-year
expenses.

All factors considered, the Company anticipates continued strong
performance in 1998. Real Gross Domestic Product in the U.S. is assumed to
continue to grow moderately at a rate of about 2.5% and the system capacity of
U.S. airlines is expected to grow at around 3% in 1998, approximately the same
as its 1997 growth rate. United's available seat miles are expected to increase
2.5%, with 3.5% growth domestically and 1.5% growth internationally. Revenue per
available seat mile is forecast to be up approximately 1%. Costs per available
seat mile excluding ESOP charges are expected to increase approximately 1%.

For the first quarter, United expects total system revenue per available
seat mile to decrease by 3.5% versus the same period last year, on 2.5% higher
capacity. Costs per available seat mile excluding ESOP charges are expected to
decrease approximately 3% over the first quarter of 1997. The Company's outlook
is consistent with the current First Call consensus earnings estimate of $1.55
per fully distributed share for the first quarter.

The information included in the above outlook section, as well as certain
statements made throughout the Management's Discussion and Analysis of Financial
Condition and Results of Operations that are identified by an asterisk(*), is
forward-looking and involves risks and uncertainties that could result in actual
results differing materially from expected results. It is not reasonably
possible to itemize all of the many factors and specific events that could
affect the outlook of an airline operating in the global economy. Some factors
that could significantly impact expected capacity, unit revenues, fully
distributed unit costs and fully distributed earnings per share include the
airline pricing environment, industry capacity decisions, willingness of
customers to travel, the success of the Company's cost control efforts, fuel
cost, costs of safety and security measures, actions of the U.S., foreign and
local governments, the effect of the U.S. excise tax on travel, foreign currency
exchange rate fluctuations, the Asian economic environment and travel patterns,
the economic environment of the airline industry, the general economic
environment and other factors discussed herein. With respect to the
forward-looking statement set forth in the "Environmental and Legal
Contingencies" section, some of the factors that could affect the ultimate
disposition of these contingencies are changes in applicable laws, the
development of facts in individual cases, settlement opportunities and the
actions of plaintiffs, judges and juries.

A-11
37

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK -- United's exposure to market risk associated with
changes in interest rates relates primarily to its debt obligations and
short-term investments. United does not use derivative financial instruments in
its investments portfolio. United's policy is to manage interest rate risk
through a combination of fixed and floating rate debt and entering into swap
agreements, depending upon market conditions. A portion of the borrowings are
denominated in foreign currencies which exposes the Company to risks associated
with changes in foreign exchange rates. In addition, the Company has placed
foreign currency deposits (primarily for Japanese yen, French francs and German
marks) to meet foreign currency lease obligations designated in the respective
currencies. The unrealized mark-to-market gains or losses on the foreign
currency obligations are offset by the losses or gains on the foreign currency
deposits.

EXPECTED MATURITY DATES
--------------------------------------------------------------------
FAIR
1998 1999 2000 2001 2002 THEREAFTER TOTAL VALUE
----- ----- ----- ----- ----- ---------- ------ ------
(IN MILLIONS)

ASSETS
Cash equivalents
Fixed rate............... $ 295 $-- $-- $-- $-- $-- $ 295 $ 295
Avg. interest rate.... 6.00% -- -- -- -- -- 6.00%
Short term investments
Fixed rate............... $ 460 $-- $-- $-- $-- $-- $ 460 $ 460
Avg. interest rate.... 5.87% -- -- -- -- -- 5.87%
Variable rate............ $ 90 $-- $-- $-- $-- $-- $ 90 $ 90
Avg. interest rate.... 5.90% -- -- -- -- -- 5.90%
Foreign currency deposits
Fixed rate -- yen
deposits.............. $-- $-- $-- $-- $-- $ 254 $ 254 $ 281
Avg. interest rate.... -- -- -- -- -- 3.23% 3.23%
Fixed rate -- FF
deposits.............. $-- $-- $-- $-- $-- $ 4 $ 4 $ 4
Avg. interest rate.... -- -- -- -- -- 5.82% 5.82%
Fixed rate -- DM
deposits.............. $ 2 $ 2 $ 2 $ 2 $ 2 $ 50 $ 60 $ 60
Avg. interest rate.... 6.86% 6.86% 6.86% 6.86% 6.86% 6.86% 6.86%
LONG TERM DEBT
U.S. Dollar denominated
Fixed rate debt.......... $ 22 $ 24 $ 25 $ 27 $ 30 $1,373 $1,501 $1,725
Avg interest rate..... 8.54% 8.54% 8.49% 8.45% 8.45% 8.92% 8.88%
Variable rate debt....... $ 190 $ 19 $ 19 $ 19 $ 534 $ 32 $ 813 $ 813
Avg interest rate..... 6.42% 6.19% 6.19% 6.20% 6.15% 6.64% 6.23%
Japanese Yen denominated
Fixed rate debt.......... $ 8 $ 9 $ 9 $-- $-- $-- $ 26 $ 27
Avg interest rate..... 7.90% 7.90% 7.90% -- -- -- 7.90%

FOREIGN CURRENCY RISK -- United has established a foreign currency hedging
program using currency forwards and currency options (purchasing put options or
selling call options) to hedge exposure to the Japanese yen and Hong Kong
dollar. The goal of the hedging program is to effectively manage risk associated
with fluctuations in the value of the foreign currency, thereby making financial
results more stable and predictable. United does not use currency forwards or
currency options for trading purposes.

A-12
38

NOTIONAL AVERAGE ESTIMATED
AMOUNT CONTRACT RATE FAIR VALUE
---------- --------------- ------------
(IN MILLIONS, EXCEPT AVERAGE CONTRACT RATES)

Forward exchange contracts
Japanese Yen........................................... $122 97.53 $(29)
Currency options
Japanese Yen -- Put options............................ $200 120.35 $ 14
-- Call options........................... $132 112.42 $ (1)
Hong Kong Dollar -- Put options........................ $ 44 8.11 $--
-- Call options....................... $ 46 7.88 $ (1)

PRICE RISK (AIRCRAFT FUEL) -- At December 31, 1997, the Company had
contracted to purchase approximately 6% of the Company's 1998 fuel requirements
at an average fixed price of $0.52 per gallon. To hedge a portion of the
remaining risk associated with changes in the price of aircraft fuel, United has
entered into certain fuel option contracts. The option contracts, which involve
either purchasing call options and simultaneously selling put options (collar
strategy) or purchasing call options, are designed to provide protection against
sharp increases in the price of aircraft fuel. In addition, to a limited extent
United trades short-term heating oil futures and option contracts, which are
immaterial.

NOTIONAL AVERAGE ESTIMATED
AMOUNT CONTRACT RATE FAIR VALUE
---------- --------------- ------------
(IN MILLIONS, EXCEPT AVERAGE CONTRACT RATES)

Purchased call contracts -- Crude oil.................... $458 $19.95/bbl $ 10
-- Heating oil................. $206 $0.54/gal $ 3
Sold put contracts -- Crude oil.......................... $403 $19.24/bbl $(28)
-- Heating oil....................... $200 $0.53/gal $(13)

A-13
39

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and
Board of Directors of UAL Corporation:

We have audited the accompanying statements of consolidated financial
position of UAL Corporation (a Delaware corporation) and subsidiary companies as
of December 31, 1997 and 1996, and the related statements of consolidated
operations, consolidated cash flows and consolidated stockholders' equity for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UAL
Corporation and subsidiary companies as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Chicago, Illinois
February 26, 1998

A-14
40

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE)

YEAR ENDED DECEMBER 31
-----------------------------
1997 1996 1995
------- ------- -------

Operating revenues:
Passenger................................................. $15,342 $14,465 $13,227
Cargo..................................................... 892 773 757
Other operating revenues.................................. 1,144 1,124 959
------- ------- -------
17,378 16,362 14,943
------- ------- -------
Operating expenses:
Salaries and related costs................................ 5,018 4,719 4,526
ESOP compensation expense................................. 987 685 504
Aircraft fuel............................................. 2,061 2,082 1,680
Commissions............................................... 1,508 1,466 1,471
Purchased services........................................ 1,285 1,187 1,062
Aircraft rent............................................. 942 952 1,009
Landing fees and other rent............................... 863 846 803
Depreciation and amortization............................. 724 759 664
Aircraft maintenance...................................... 603 449 407
Other operating expenses.................................. 2,128 2,094 1,928
------- ------- -------
16,119 15,239 14,054
------- ------- -------
Earnings from operations.................................... 1,259 1,123 889
------- ------- -------
Other income (expense):
Interest expense.......................................... (286) (295) (399)
Interest capitalized...................................... 104 77 42
Interest income........................................... 52 57 98
Equity in earnings of affiliates.......................... 66 64 48
Gain on sale of partnership interest...................... 275 -- --
Gain on sale of affiliate's stock......................... 103 -- --
Miscellaneous, net........................................ (49) (56) (57)
------- ------- -------
265 (153) (268)
------- ------- -------
Earnings before income taxes, distributions on preferred
securities and extraordinary item......................... 1,524 970 621
Provision for income taxes.................................. 561 370 243
------- ------- -------
Earnings before distributions on preferred securities and
extraordinary item........................................ 963 600 378
Distributions on preferred securities, net.................. (5) -- --
Extraordinary loss on early extinguishment of debt, net..... (9) (67) (29)
------- ------- -------
Net earnings $ 949 $ 533 $ 349
======= ======= =======
Per share, basic:
Earnings before extraordinary item........................ $ 14.98 $ 8.76 $ 6.98
Extraordinary loss on early extinguishment of debt, net... (0.15) (1.19) (0.59)
------- ------- -------
Net earnings.............................................. $ 14.83 $ 7.57 $ 6.39
======= ======= =======
Per share, diluted:
Earnings before extraordinary item........................ $ 9.04 $ 5.85 $ 5.23
Extraordinary loss on early extinguishment of debt, net... (0.09) (0.79) (0.41)
------- ------- -------
Net earnings.............................................. $ 8.95 $ 5.06 $ 4.82
======= ======= =======

See accompanying notes to consolidated financial statements.
A-15
41

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED FINANCIAL POSITION

(IN MILLIONS)

DECEMBER 31
------------------
1997 1996
------- -------

Assets
Current assets:
Cash and cash equivalents................................. $ 295 $ 229
Short-term investments.................................... 550 468
Receivables, less allowance for doubtful accounts (1997 --
$15; 1996 -- $24)...................................... 1,051 962
Aircraft fuel, spare parts and supplies, less obsolescence
allowance (1997 -- $29; 1996 -- $31)................... 355 369
Deferred income taxes..................................... 244 227
Prepaid expenses and other................................ 453 427
------- -------
2,948 2,682
------- -------
Operating property and equipment:
Owned --
Flight equipment....................................... 10,382 8,393
Advances on flight equipment........................... 972 943
Other property and equipment........................... 2,842 2,989
------- -------
14,196 12,325
Less -- Accumulated depreciation and amortization...... 5,116 5,380
------- -------
9,080 6,945
------- -------
Capital leases --
Flight equipment.......................................... 2,221 1,775
Other property and equipment.............................. 98 106
------- -------
2,319 1,881
Less -- Accumulated amortization.......................... 625 583
------- -------
1,694 1,298
------- -------
10,774 8,243
------- -------
Other assets:
Investments in affiliates................................. 223 103
Intangibles, less accumulated amortization (1997 -- $374;
1996 -- $353).......................................... 703 524
Deferred income taxes..................................... -- 132
Aircraft lease deposits................................... 318 168
Other..................................................... 837 825
------- -------
2,081 1,752
------- -------
$15,803 $12,677
======= =======

See accompanying notes to consolidated financial statements.

A-16
42

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED FINANCIAL POSITION

(IN MILLIONS)

DECEMBER 31
-----------------
1997 1996
------- -------

Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt maturing within one year................... $ 235 $ 165
Current obligations under capital leases.................. 171 132
Advance ticket sales...................................... 1,267 1,189
Accounts payable.......................................... 1,030 994
Accrued salaries, wages and benefits...................... 869 906
Accrued aircraft rent..................................... 830 800
Other accrued liabilities................................. 846 817
------- -------
5,248 5,003
------- -------
Long-term debt.............................................. 2,092 1,661
------- -------
Long-term obligations under capital leases.................. 1,679 1,325
------- -------
Other liabilities and deferred credits:
Deferred pension liability................................ 364 178
Postretirement benefit liability.......................... 1,361 1,290
Deferred gains............................................ 1,210 1,151
Accrued aircraft rent..................................... 368 328
Deferred income taxes..................................... 79 --
Other..................................................... 450 448
------- -------
3,832 3,395
------- -------
Company-obligated mandatorily redeemable preferred
securities of a subsidiary trust.......................... 101 102
------- -------
Minority interest........................................... -- 31
------- -------
Preferred stock committed to Supplemental ESOP.............. 514 165
------- -------
Stockholders' equity:
Serial preferred stock (Note 11).......................... -- --
ESOP preferred stock (Note 12)............................ -- --
Common stock at par, $0.01 par value; authorized
200,000,000 shares; issued 61,288,039 shares at
December 31, 1997 and 59,519,096 shares at December 31,
1996................................................... 1 1
Additional capital invested............................... 2,876 2,160
Retained earnings (deficit)............................... 309 (566)
Unearned ESOP preferred stock............................. (177) (202)
Stock held in treasury, at cost --
Preferred, 10,149,129 depositary shares at December 31,
1997 and 1996 (Note 11)............................... (302) (302)
Common, 3,967,553 shares at December 31, 1997 and
701,616 shares at December 31, 1996................... (361) (83)
Other..................................................... (9) (13)
------- -------
2,337 995
------- -------
Commitments and contingent liabilities (Note 18)

$15,803 $12,677
======= =======

See accompanying notes to consolidated financial statements.

A-17
43

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(IN MILLIONS)

YEAR ENDED DECEMBER 31
-----------------------------
1997 1996 1995
------- ------- -------

Cash and cash equivalents at beginning of year.............. $ 229 $ 194 $ 500
------- ------- -------
Cash flows from operating activities:
Net earnings.............................................. 949 533 349
Adjustments to reconcile to net cash provided by operating
activities --
ESOP compensation expense.............................. 987 685 504
Extraordinary loss on debt extinguishment, net of
tax.................................................. 9 67 29
Gain on sale of partnership interest................... (275) -- --
Gain on sale of affiliate's stock...................... (103) -- --
Pension funding less than (greater than) expense....... 43 (279) (275)
Deferred postretirement benefit expense................ 139 130 125
Depreciation and amortization.......................... 724 759 664
Provision for deferred income taxes.................... 194 69 214
Undistributed earnings of affiliates................... (16) (49) (38)
Increase in receivables................................ (222) (10) (62)
Increase in other current assets....................... -- (105) (109)
Increase in advance ticket sales....................... 78 89 80
Increase (decrease) in accrued income taxes............ 20 84 (52)
Increase in accounts payable and accrued liabilities... 16 294 79
Amortization of deferred gains......................... (64) (63) (79)
Other, net............................................. 88 249 195
------- ------- -------
2,567 2,453 1,624
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment.................... (2,812) (1,538) (1,111)
Proceeds on disposition of property and equipment...... 83 55 578
Proceeds on disposition of partnership interest........ 539 -- --
Decrease (increase) in short-term investments.......... (82) 482 83
Other, net............................................. (29) 18 (28)
------- ------- -------
(2,301) (983) (478)
------- ------- -------
Cash flows from financing activities:
Reacquisition of preferred stock....................... -- (84) (131)
Repurchase of common stock............................. (250) -- --
Proceeds from issuance of long-term debt............... 597 -- --
Repayment of long-term debt............................ (301) (791) (852)
Principal payments under capital leases................ (147) (112) (80)
Conversion of subordinated debentures.................. -- (324) --
Decrease in short-term borrowings...................... -- -- (269)
Aircraft lease deposits................................ (112) (110) (77)
Cash dividends......................................... (10) (22) (49)
Other, net............................................. 23 8 6
------- ------- -------
(200) (1,435) (1,452)
------- ------- -------
Increase (decrease) in cash and cash equivalents during the
year...................................................... 66 35 (306)
------- ------- -------
Cash and cash equivalents at end of year.................... $ 295 $ 229 $ 194
======= ======= =======

See accompanying notes to consolidated financial statements.

A-18
44

UAL CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY

(IN MILLIONS, EXCEPT PER SHARE)

UNEARNED
ADDITIONAL RETAINED ESOP
PREFERRED COMMON CAPITAL EARNINGS PREFERRED TREASURY
STOCK STOCK INVESTED (DEFICIT) STOCK STOCK OTHER TOTAL
--------- ------ ---------- --------- --------- -------- ----- ------

Balance at December 31, 1994................ $-- $-- $1,287 $(1,335) $ (83) $(161) $(24) $ (316)
------ ----- ------ ------- ----- ----- ---- ------
Year ended December 31, 1995:
Net earnings.............................. -- -- -- 349 -- -- -- 349
Cash dividends on preferred stock ($6.25
per Series A; $1.44 per Series B)....... -- -- -- (40) -- -- -- (40)
Exchange of Series A debentures........... -- -- (546) -- -- -- -- (546)
Issuance and amortization of ESOP
preferred stock......................... -- -- 604 -- (100) -- -- 504
Reacquisition of Series B preferred
stock................................... -- -- -- -- -- (131) -- (131)
ESOP dividend ($8.89 per share)........... -- -- 5 (13) 8 -- -- --
Preferred stock committed to
Supplemental ESOP....................... -- -- (59) -- -- -- -- (59)
Pension liability adjustment.............. -- -- -- -- -- -- (60) (60)
Other..................................... -- -- 62 -- -- 10 (12) 60
------ ----- ------ ------- ----- ----- ---- ------
Balance at December 31, 1995................ -- -- 1,353 (1,039) (175) (282) (96) (239)
------ ----- ------ ------- ----- ----- ---- ------
Year ended December 31, 1996:
Net earnings.............................. -- -- -- 533 -- -- -- 533
Cash dividends on preferred stock ($1.44
per Series B)........................... -- -- -- (20) -- -- -- (20)
Conversion of Series A debentures......... -- -- 217 -- -- -- -- 217
Exchange of Series B preferred stock...... -- -- (102) -- -- -- -- (102)
Issuance and amortization of ESOP
preferred stock......................... -- -- 735 -- (50) -- -- 685
Reacquisition of Series B preferred
stock................................... -- -- -- -- -- (84) -- (84)
ESOP dividend ($8.89 per share)........... -- -- 17 (40) 23 -- -- --
Preferred stock committed to
Supplemental ESOP....................... -- -- (106) -- -- -- -- (106)
Pension liability adjustment.............. -- -- -- -- -- -- 76 76
Other..................................... -- 1 46 -- -- (19) 7 35
------ ----- ------ ------- ----- ----- ---- ------
Balance at December 31, 1996................ -- 1 2,160 (566) (202) (385) (13) 995
------ ----- ------ ------- ----- ----- ---- ------
Year ended December 31, 1997:
Net earnings.............................. -- -- -- 949 -- -- -- 949
Cash dividends on preferred stock ($1.44
per Series B)........................... -- -- -- (10) -- -- -- (10)
Common stock repurchases.................. -- -- -- -- -- (250) -- (250)
Issuance and amortization of ESOP
preferred stock......................... -- -- 993 -- (6) -- -- 987
ESOP dividend ($8.89 per share)........... -- -- 36 (67) 31 -- -- --
Preferred stock committed to
Supplemental ESOP....................... -- -- (349) -- -- -- -- (349)
Other..................................... -- -- 36 3 -- (28) 4 15
------ ----- ------ ------- ----- ----- ---- ------
Balance at December 31, 1997................ $-- $ 1 $2,876 $ 309 $(177) $(663) $ (9) $2,337
====== ===== ====== ======= ===== ===== ==== ======

See accompanying notes to consolidated financial statements.
A-19
45

UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) BASIS OF PRESENTATION -- UAL Corporation ("UAL") is a holding company
whose principal subsidiary is United Air Lines, Inc. ("United"). The
consolidated financial statements include the accounts of UAL and all of its
majority-owned affiliates (collectively "the Company"). All significant
intercompany transactions are eliminated. Investments in affiliates are carried
on the equity basis. Certain prior-year financial statement items have been
reclassified to conform to the current year's presentation.

(B) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(C) AIRLINE REVENUES -- Passenger fares and cargo revenues are recorded as
operating revenues when the transportation is furnished. The value of unused
passenger tickets is included in current liabilities.

(D) CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS -- Cash in excess
of operating requirements is invested in short-term, highly liquid,
income-producing investments. Investments with a maturity of three months or
less on their acquisition date are classified as cash and cash equivalents.
Other investments are classified as short-term investments.

From time to time, United lends certain of its securities classified as
cash and cash equivalents and short-term investments to third parties. United
requires collateral in an amount exceeding the value of the securities and is
obligated to reacquire the securities at the end of the contract. United
accounts for these transactions as secured lendings rather than sales, and so
does not remove the securities from the balance sheet.

At December 31, 1997 and 1996, $440 million and $418 million, respectively,
of investments in debt securities included in cash and cash equivalents and
short-term investments were classified as available-for-sale, and $287 million
and $232 million, respectively, were classified as held-to-maturity. Investments
in debt securities classified as available-for-sale are stated at fair value
based on the quoted market prices for the securities, which does not differ
significantly from their cost basis. Investments classified as held-to-maturity
are stated at cost which approximates market due to their short-term maturities.
The proceeds from sales of available-for-sale securities are included in
interest income for each respective year.

(E) DERIVATIVE FINANCIAL INSTRUMENTS --

FOREIGN CURRENCY -- From time to time, United enters into Japanese yen
forward exchange contracts to minimize gains and losses on the revaluation of
short-term yen-denominated liabilities. The yen forwards typically have a 30-day
maturity and are marked to fair value at the end of each accounting period. The
unrealized mark-to-market gains and losses generally offset the losses and gains
recorded on the liabilities.

United has also entered into forwards and swaps to reduce exposure to
currency fluctuations on yen-denominated capital lease obligations. The
forwards' and swaps' cash flows mirror those of the capital leases. The premiums
on the forwards and swaps, as measured at inception, are being amortized over
their respective lives as components of interest expense. Any gains or losses
realized upon early termination of these forwards and swaps are deferred and
recognized in income over the remaining life of the underlying exposure.

Finally, the Company hedges some of the risks of exchange rate volatility
on its anticipated future net yen and net Hong Kong dollar cash flows by
purchasing put options for each respective currency with little or no intrinsic
value. The amount and duration of these options are synchronized with specific
expected inflows, and thus, the put options have been designated as a hedge. The
Company also sells call options in each of these currencies from time to time.
The premiums on purchased option contracts are amortized over the lives of the
contracts. Unrealized gains on purchased put option contracts are deferred until
contract expiration and then

A-20
46
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognized as a component of passenger revenue, and unrealized losses on written
call options are recorded in "Miscellaneous, net" at the end of each accounting
period.

INTEREST RATES -- United may from time to time enter into swaps to reduce
exposure to interest rate fluctuations in connection with certain debt, capital
leases and operating leases. The swaps' cash flows mirror those of the
underlying exposures. The premiums on the swaps, as measured at inception, are
amortized over their respective lives as components of interest expense. Any
gains or losses realized upon the early termination of these swaps are deferred
and recognized in income over the remaining life of the underlying exposure.

AIRCRAFT FUEL -- United uses a collar option strategy to hedge a portion of
its price risk related to future aircraft fuel purchases. The collars, which
have been designated as a hedge, involve the purchase of fuel call options with
the simultaneous sale of fuel put options with identical expiration dates.
Premiums on fuel collar option contracts are deferred and amortized over the
life of the contract. Gains or losses recognized upon contract expiration are
recorded as a component of aircraft fuel expense. In addition, to a limited
extent, United trades short-term heating oil futures and options contracts.
Unrealized losses on these contracts are recorded currently in income while
unrealized gains are deferred until contract expiration. Both gains and losses
are recorded as a component of aircraft fuel expense.

(F) AIRCRAFT FUEL, SPARE PARTS AND SUPPLIES -- Aircraft fuel and
maintenance and operating supplies are stated at average cost. Flight equipment
spare parts are stated at average cost less an obsolescence allowance.

(G) OPERATING PROPERTY AND EQUIPMENT -- Owned operating property and
equipment is stated at cost. Property under capital leases, and the related
obligation for future minimum lease payments, are initially recorded at an
amount equal to the then present value of those lease payments.

Depreciation and amortization of owned depreciable assets is based on the
straight-line method over their estimated service lives. Leasehold improvements
are amortized over the remaining period of the lease or the estimated service
life of the related asset, whichever is less. Aircraft are depreciated to
estimated salvage values, generally over lives of 10 to 30 years; buildings are
depreciated over lives of 25 to 45 years; and other property and equipment are
depreciated over lives of 3 to 15 years.

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 service lives. Lease terms are 10 to 30 years for aircraft and flight
simulators and 25 years for buildings. Amortization of capital leases is
included in depreciation and amortization expense.

Maintenance and repairs, including the cost of minor replacements, are
charged to maintenance expense accounts. Costs of additions to and renewals of
units of property are charged to property and equipment accounts.

(H) INTANGIBLES -- Intangibles consist primarily of route acquisition costs
and intangible pension assets (see Note 15). Route acquisition costs are
amortized over 40 years.

(I) MILEAGE PLUS AWARDS -- United accrues the estimated incremental cost of
providing free travel awards earned under its Mileage Plus frequent flyer
program (including awards earned from mileage credits sold) when such award
levels are reached. United, through its wholly-owned subsidiary, Mileage Plus
Holdings, Inc., sells mileage credits to participating partners in the Mileage
Plus program. The resulting revenue is recorded in other operating revenues
during the period in which the credits are sold.

(J) DEFERRED GAINS -- Gains on aircraft sale and leaseback transactions are
deferred and amortized over the lives of the leases as a reduction of rental
expense.

A-21
47
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(K) ADVERTISING COSTS -- Advertising costs, which are included in other
operating expenses, are expensed as incurred. Advertising expense was $190
million, $184 million and $194 million in 1997, 1996 and 1995, respectively.

(2) EMPLOYEE STOCK OWNERSHIP PLANS AND RECAPITALIZATION

On July 12, 1994, the stockholders of UAL approved a plan of
recapitalization to provide an approximately 55% equity interest in UAL to
certain employees of United in exchange for wage concessions and work-rule
changes. The employees' equity interest is being allocated to individual
employees through the year 2000 under Employee Stock Ownership Plans ("ESOPs")
which were created as a part of the recapitalization.

The ESOPs cover employees represented by the Air Line Pilots' Association,
International, the International Association of Machinists and Aerospace Workers
and U.S. management and salaried employees. The ESOPs include a "Leveraged
ESOP", a "Non-Leveraged ESOP" and a "Supplemental ESOP." Both the Leveraged ESOP
and the Non-Leveraged ESOP are tax qualified plans while the Supplemental ESOP
is not a tax qualified plan. The purpose of having the three ESOPs is to deliver
the agreed-upon shares to employees in a manner which utilizes the tax
incentives available to tax qualified ESOPs to the greatest degree possible.
Accordingly, shares are delivered to employees primarily through the Leveraged
ESOP, secondly, through the Non-Leveraged ESOP, and lastly, through the
Supplemental ESOP.

The equity interests are being delivered to employees through two classes
of preferred stock (Class 1 and Class 2 ESOP Preferred Stock, collectively "ESOP
Preferred Stock"), and the voting interests are being delivered through three
separate classes of preferred stocks (Class P, M and S Voting Preferred Stock,
collectively, "Voting Preferred Stock"). The Class 1 ESOP Preferred Stock is
being delivered to an ESOP trust in seven separate sales through January 1, 2000
under the Leveraged ESOP, four of which have already taken place. Based on
Internal Revenue Code Limitations, shares of the Class 2 ESOP Preferred Stock
are either contributed to the Non-Leveraged ESOP or allocated as "book entry"
shares to the Supplemental ESOP, annually through the year 2000. The classes of
preferred stock are described more fully in Note 12, ESOP Preferred Stock.

The Leveraged ESOP and Non-Leveraged ESOP are being accounted for under
AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP"). For the Leveraged ESOP, as shares of Class 1 ESOP
Preferred Stock are sold to an ESOP trust, the Company reports the issuance as a
credit to additional capital invested and records a corresponding charge to
unearned ESOP preferred stock. Shares are committed to be released to employees
on a pro rata basis through April 12, 2000. ESOP compensation expense is
recorded for the average market value of the shares committed to be released
during the period with a corresponding credit to unearned ESOP preferred stock
for the cost of the shares. Any difference between the market value of the
shares and the cost of the shares is charged or credited to additional capital
invested. For the Non-Leveraged ESOP, the Class 2 ESOP Preferred Stock is
recorded as additional capital invested as the shares are committed to be
contributed, with the offsetting entry to ESOP compensation expense. The ESOP
compensation expense is based on the average fair value of the shares committed
to be contributed in accordance with the SOP. The Supplemental ESOP is being
accounted for under Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees."

Shares of ESOP Preferred Stock are legally released or allocated to
employee accounts as of year-end. Dividends on the ESOP Preferred Stock are also
paid at the end of the year. Dividends on unallocated shares are used by the
ESOP to pay down the loan from UAL and are not considered dividends for
financial reporting purposes. Dividends on allocated shares are satisfied by
releasing shares from the ESOP's suspense account to the employee accounts and
are charged to equity.

A-22
48
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ESOP compensation expense was $987 million, $685 million and $504 million
in 1997, 1996 and 1995, respectively. During 1997, 2,345,745 shares of Class 1
ESOP Preferred Stock, 190,307 shares of Class 2 ESOP Preferred Stock and
2,534,687 shares of Voting Preferred Stock were allocated to employee accounts,
and another 537,917 shares of Class 2 ESOP Preferred Stock were allocated in the
form of "book entry" shares, effective December 31, 1996. Another 48,982 shares
of Class 2 ESOP Preferred Stock previously allocated in book entry form were
issued and either contributed to the qualified plan or converted and sold on
behalf of terminating employees. At December 31, 1997, the year-end allocation
of Class 1 ESOP Preferred Stock to employee accounts had not yet been completed.
There were 2,087,535 shares of Class 1 ESOP Preferred Stock committed to be
released and 888,386 shares held in suspense by the ESOP as of December 31,
1997. For the Class 2 ESOP Preferred Stock, 986,438 shares were committed to be
contributed to employees at December 31, 1997. The market value of the unearned
ESOP shares recorded on the balance sheet at December 31, 1997 and 1996 was $344
million and $309 million, respectively.

For the Class 2 ESOP Preferred Stock committed to be contributed to
employees under the Supplemental ESOP, employees can elect to receive their
"book entry" shares in cash upon termination of employment. The estimated market
value of such shares at December 31, 1997 and 1996 was $679 million and $206
million, respectively.

(3) OTHER INCOME (EXPENSE) -- MISCELLANEOUS

Other income (expense) -- "miscellaneous, net" consisted of the following:

1997 1996 1995
---- ---- ----
(IN MILLIONS)

Foreign exchange gains (losses)............................. $(19) $ (8) $(20)
Minority interests.......................................... (15) (21) (23)
Travel agency litigation settlement......................... -- (20) --
Other....................................................... (15) (7) (14)
---- ---- ----
$(49) $(56) $(57)
==== ==== ====

(4) PER SHARE AMOUNTS

In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," effective December 31, 1997. As a
result, the Company's reported earnings per share for 1996 and 1995 have been
restated.

Basic earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
In addition, diluted earnings per share amounts include

A-23
49
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

potential common shares including ESOP shares committed to be released, and
assume the conversion of convertible debentures (for periods not actually
converted) and elimination of related interest.

1997 1996 1995
------ ----- -----

EARNINGS ATTRIBUTABLE TO COMMON STOCKHOLDERS (MILLIONS)
Net Income.................................................. $ 949 $ 533 $ 349
Preferred stock dividends................................... (77) (60) (53)
Preferred stock transactions(1)............................. -- (48) 20
------ ----- -----
Earnings attributable to common stockholders (Basic)........ $ 872 $ 425 $ 316
Interest on convertible debentures, net of tax.............. -- 2 23
Other....................................................... -- 1 4
------ ----- -----
Earnings attributable to common stockholders (Diluted)...... $ 872 $ 428 $ 343
====== ===== =====
SHARES (MILLIONS)
Weighted average shares outstanding (Basic)................. 58.8 56.1 49.6
Convertible ESOP preferred stock............................ 35.9 24.0 11.9
Incremental shares related to convertible debentures and
other..................................................... 2.7 4.5 9.7
------ ----- -----
Weighted average number of shares (Diluted)................. 97.4 84.6 71.2
====== ===== =====
EARNINGS PER SHARE
Basic....................................................... $14.83 $7.57 $6.39
Diluted..................................................... $ 8.95 $5.06 $4.82

- ---------------

1 In April 1995, UAL issued convertible subordinated debentures in
exchange for Series A preferred stock and recorded a non-cash increase of
$45 million in additional capital invested representing the excess of the
carrying value of the preferred stock exchanged over the fair value of the
debentures. In December 1996, a UAL-controlled trust issued
trust-originated preferred securities in exchange for shares of Series B
preferred stock and recorded a non-cash decrease of $27 million in
additional capital invested representing the excess of the fair value of
the new securities over the carrying value of Series B. Also, during 1996
and 1995, the Company repurchased shares of its Series B preferred stock,
resulting in decreases to additional capital invested representing the
excess of amounts paid to reacquire the preferred stock over the
liquidation preference of such stock. These transactions had no effect on
earnings; however, their net impact on UAL's equity is included in the
computation of earnings per share.

(5) AFFILIATES

United owns 32% of Galileo International, Inc. ("Galileo") through a wholly
owned subsidiary. United's investment in Galileo, which owns the Apollo and
Galileo computer reservations systems, is carried on the equity basis. Included
in the Company's retained earnings is approximately $161 million of
undistributed earnings of Galileo and its predecessor companies. The market
value of United's investment in Galileo at December 31, 1997 was $924 million.

In July 1997, United completed the sale of its interest in the Apollo
Travel Services Partnership ("ATS"), a 77% owned affiliate whose accounts were
consolidated, to Galileo for $539 million in cash. See Other Information, "Sale
of Affiliate" in Management's Discussion and Analysis of Financial Condition and
Results of Operations for further details on the transaction.

Under operating agreements with Galileo, United purchases computer
reservations services from Galileo and provides marketing, sales and
communication services to Galileo. Revenues derived from the sale of services to
Galileo amounted to approximately $159 million in 1997, $249 million in 1996 and
$238 million in 1995. The cost to United of services purchased from Galileo
amounted to approximately $134 million in 1997, $114 million in 1996 and $104
million in 1995. In connection with the sale of ATS, United entered into an
additional services agreement with Galileo under which the Company will provide
certain marketing and other services designed to increase the competitiveness of
Galileo's business and to generate additional bookings and revenues for Galileo.
Under this agreement, United could receive up to $154 million (on a present
value basis)

A-24
50
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the sixth year following the sale, based on specified improvements in air
booking revenues over a five-year period.

Prior to the sale to Galileo, ATS contributed the following amounts to the
Company's consolidated results, net of intercompany eliminations and minority
interests:

YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
(IN MILLIONS)

Operating revenues.......................................... $147 $239 $237
Operating income............................................ $ 63 $ 86 $ 90
Earnings before income taxes................................ $ 50 $ 70 $ 76

(6) INCOME TAXES

In 1997, the regular tax liability of the Company exceeded the alternative
minimum tax ("AMT") liability resulting in a utilization of AMT credits. The
federal income tax liability is the greater of the tax computed using the
regular tax system or the tax under the AMT system. However, if the regular tax
liability exceeds the AMT liability and AMT credits are available, the AMT
credits are used to reduce the net tax liability to the amount of the AMT
liability. During 1997, UAL utilized $94 million of AMT credits.

The provision for income taxes is summarized as follows:

1997 1996 1995
---- ---- ----
(IN MILLIONS)

Current --
Federal................................................... $312 $281 $ 29
State..................................................... 55 20 --
---- ---- ----
367 301 29
---- ---- ----
Deferred--
Federal................................................... 178 47 187
State..................................................... 16 22 27
---- ---- ----
194 69 214
---- ---- ----
$561 $370 $243
==== ==== ====

The income tax provision differed from amounts computed at the statutory
federal income tax rate, as follows:

1997 1996 1995
---- ---- ----
(IN MILLIONS)

Income tax provision at statutory rate...................... $533 $339 $217
State income taxes, net of federal income tax benefit....... 46 28 18
ESOP dividends.............................................. (25) (13) (5)
Nondeductible employee meals................................ 26 25 23
Foreign tax credits......................................... (2) (2) (2)
Other, net.................................................. (17) (7) (8)
---- ---- ----
$561 $370 $243
==== ==== ====

A-25
51
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1997 and 1996 are as follows:

1997 1996
---------------------------- ----------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
(IN MILLIONS)

Employee benefits, including
postretirement medical and ESOP...... $ 918 $ 156 $ 644 $ 93
Depreciation, capitalized interest and
transfers of tax benefits............ -- 1,466 -- 1,172
Gains on sale and leasebacks........... 398 -- 428 --
Rent expense........................... 382 -- 351 --
AMT credit carryforwards............... 137 -- 231 --
Other.................................. 422 470 274 304
------ ------ ------ ------
$2,257 $2,092 $1,928 $1,569
====== ====== ====== ======

At December 31, 1997, UAL and its subsidiaries had $137 million of federal
AMT credit carryforwards available for an indefinite period. Management believes
it is more likely than not that future taxable income will be sufficient to
utilize the deferred tax assets at December 31, 1997.

(7) SHORT-TERM BORROWINGS

United has an agreement with a syndicate of banks for a $750 million
revolving credit facility expiring in 2002. Interest on drawn amounts under the
facility is calculated at floating rates based on the London interbank offered
rate ("LIBOR") plus a margin which is subject to adjustment based on certain
changes in the credit ratings of United's long-term senior unsecured debt. Among
other restrictions, the credit facility contains a covenant which restricts
United's ability to grant liens on or otherwise encumber certain identified
assets with a market value of approximately $1.1 billion.

In addition, United has a separate short-term borrowing facility with a
maximum available borrowing amount of $227 million which expires in October
1998.

(8) LONG-TERM DEBT

A summary of long-term debt, including current maturities, as of December
31 is as follows (interest rates are as of December 31, 1997):

1997 1996
------ ------
(IN MILLIONS)

Secured notes, 6.13% to 8.90%, averaging 7.16%, due through
2014...................................................... $1,295 $ 819
Debentures, 9.00% to 11.21%, averaging 9.97%, due through
2021...................................................... 785 936
Convertible debentures, 7.75%, due 2010..................... -- 16
Promissory notes, 6.33% to 11.00%, averaging 6.51%, due
through 2000.............................................. 70 64
Special facility bonds, 5.625%, due 2034.................... 190 --
------ ------
2,340 1,835
------ ------
Less: Unamortized discount on debt.......................... (13) (9)
Current maturities.................................... (235) (165)
------ ------
$2,092 $1,661
====== ======

A-26
52
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to scheduled principal payments, in 1997 and 1996 the Company
repaid $84 million and $149 million, respectively, in principal amount of
secured notes and $51 million and $492 million, respectively, in principal
amount of debentures prior to maturity. These obligations were scheduled to
mature at various times from 2000 through 2021. Extraordinary losses of $9
million and $67 million, respectively, net of tax benefits of $5 million and $40
million, respectively, were recorded, reflecting amounts paid in excess of the
debt carrying value.

On April 8, 1997, Air Wis Services, Inc. ("Air Wis"), a wholly owned
subsidiary of UAL, redeemed all $16 million of its outstanding 7 3/4%
convertible debentures at 100% of the principal amount plus accrued interest.

During 1997, United issued $674 million in enhanced pass through
certificates to refinance certain owned aircraft and aircraft under operating
leases. Net proceeds after refinancing the operating leases was $597 million.

Also in 1997, the California Statewide Communities Development Authority
(the "Authority") issued $190 million in special facilities revenue bonds to
finance the acquisition and construction of certain facilities at the Los
Angeles International Airport ("LAX") which United guarantees payment of under a
payment agreement with the Authority. The bond proceeds are restricted to
expenditures on the LAX facilities and unspent amounts are classified as other
assets in the balance sheet.

At December 31, 1997, United had outstanding a total of $733 million of
long-term debt bearing interest rates at 22 to 90 basis points over LIBOR.

Maturities of long-term debt for each of the four years after 1998 are:
1999 -- $51 million; 2000 -- $53 million; 2001 -- $46 million; and 2002 -- $563
million. Various assets, principally aircraft, having an aggregate book value of
$1.457 billion at December 31, 1997, were pledged as security under various loan
agreements.

(9) LEASE OBLIGATIONS

The Company leases aircraft, airport passenger terminal space, aircraft
hangars and related maintenance facilities, cargo terminals, other airport
facilities, real estate, office and computer equipment and vehicles.

A-27
53
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments as of December 31, 1997, under capital leases
(substantially all of which are for aircraft) and operating leases having
initial or remaining noncancelable lease terms of more than one year are as
follows:

OPERATING LEASES
------------------------ CAPITAL
AIRCRAFT NON-AIRCRAFT LEASES
-------- ------------ -------
(IN MILLIONS)

Payable during --
1998..................................................... $ 946 $ 473 $ 288
1999..................................................... 937 458 262
2000..................................................... 955 447 241
2001..................................................... 939 441 314
2002..................................................... 928 429 277
After 2002............................................... 12,458 7,104 1,321
------- ------ ------
Total minimum lease payments............................... $17,163 $9,352 2,703
======= ======
Imputed interest (at rates of 5.3% to 12.2%)............... (853)
------
Present value of minimum lease payments.................... 1,850
Current portion............................................ (171)
------
Long-term obligations under capital leases................. $1,679
======

As of December 31, 1997, United leased 304 aircraft, 62 of which were under
capital leases. These leases have terms of 4 to 26 years, and expiration dates
range from 1998 through 2020.

In connection with the financing of certain aircraft accounted for as
capital leases, United had on deposit at December 31, 1997 an aggregate 33
billion yen ($254 million), 107 million German marks ($60 million) and 27
million French francs ($4 million) in certain banks and had pledged an
irrevocable security interest in such deposits to the aircraft lessors. These
deposits will be used to pay off an equivalent amount of recorded capital lease
obligations.

Amounts charged to rent expense, net of minor amounts of sublease rentals,
were $1.416 billion in 1997, $1.424 billion in 1996 and $1.439 billion in 1995.
Included in 1997 rental expense was $16 million in contingent rentals, resulting
from changes in interest rates for operating leases under which the rent
payments are based on variable interest rates.

(10) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF A
SUBSIDIARY TRUST

In December 1996, UAL Corporation Capital Trust I (the "Trust") issued $75
million of its 13 1/4% Trust Originated Preferred Securities (the "Preferred
Securities") in exchange for 2,999,304 depositary shares, each representing
1/1000 of one share of Series B 12 1/4% preferred stock (see Note 11).
Concurrent with the issuance of the Preferred Securities and the related
purchase by UAL of the Trust's common securities, the Company issued to the
Trust $77 million aggregate principal amount of its 13 1/4% Junior Subordinated
Debentures (the "Debentures") due 2026. The Debentures are and will be the sole
assets of the Trust. The interest and other payment dates on the Debentures
correspond to the distribution and other payment dates on the Preferred
Securities. Upon maturity or redemption of the Debentures, the Preferred
Securities will be mandatorily redeemed. The Debentures are redeemable at UAL's
option, in whole or in part, on or after July 12, 2004, at a redemption price
equal to 100% of the principal amount to be redeemed, plus accrued and unpaid
interest to the redemption date. Upon the repayment of the Debentures, whether
at maturity, upon redemption or otherwise, the proceeds thereof will be applied
to redeem the Preferred Securities.

A-28
54
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There is a full and unconditional guarantee by UAL of the Trust's
obligations under the securities issued by the Trust. However, the Company's
obligations are subordinate and junior in right of payment to certain other of
its indebtedness. UAL has the right to defer payments of interest on the
Debentures by extending the interest payment period, at any time, for up to 20
consecutive quarters. If interest payments on the Debentures are so deferred,
distributions on the Preferred Securities will also be deferred. During any
deferral, distributions will continue to accrue with interest thereon. In
addition, during any such deferral, UAL may not declare or pay any dividend or
other distribution on, or redeem or purchase, any of its capital stock.

The transaction resulted in a reduction of approximately $102 million to
paid in capital as the fair value of the Preferred Securities issued exceeded
the carrying value ($75 million) of the exchanged Series B preferred stock. The
difference between the assigned value of the Preferred Securities and their
redemption value ($27 million) will be amortized against distributions on the
Preferred Securities over their term. The fair value of the Preferred Securities
at December 31, 1997 was $106 million.

(11) SERIAL PREFERRED STOCK

At December 31, 1997, UAL had outstanding 3,267,477 depositary shares, each
representing 1/1000 of one share of Series B 12 1/4% preferred stock, with a
liquidation preference of $25 per depositary share ($25,000 per Series B
preferred share) and a stated capital of $0.01 per Series B preferred share.
Under its terms, any portion of the Series B preferred stock or the depositary
shares is redeemable for cash after July 11, 2004, at UAL's option, at the
equivalent of $25 per depositary share, plus accrued dividends. The Series B
preferred stock is not convertible into any other securities, has no stated
maturity and is not subject to mandatory redemption.

The Series B preferred stock ranks senior to all other preferred and common
stock, except the Preferred Securities, as to receipt of dividends and amounts
distributed upon liquidation. The Series B preferred stock has voting rights
only to the extent required by law and with respect to charter amendments that
adversely affect the preferred stock or the creation or issuance of any security
ranking senior to the preferred stock. Additionally, if dividends are not paid
for six cumulative quarters, the Series B preferred stockholders are entitled to
elect two additional members to the UAL Board of Directors until all dividends
are paid in full. Pursuant to UAL's restated certificate of incorporation, UAL
is authorized to issue a total of 50,000 shares of Series B preferred stock.

As discussed in Note 10, in December 1996, UAL Corporation Capital Trust I,
a Delaware statutory business trust controlled by UAL, exchanged mandatorily
redeemable preferred securities of the subsidiary trust for 2,999,304 depositary
shares of Series B preferred stock of UAL.

During 1996 and 1995, UAL repurchased 2,553,110 and 4,259,709 depositary
shares, respectively, at an aggregate cost of $84 million and $131 million,
respectively, to be held in treasury. In February 1998, UAL repurchased 64,300
depositary shares at an aggregate cost of $2 million to be held in treasury.

UAL is authorized to issue up to 15,986,584 additional shares of serial
preferred stock.

A-29
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UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(12) ESOP PREFERRED STOCK

The following activity related to UAL's outstanding ESOP preferred stocks
(see Note 2 for a description of the ESOPs):

CLASS 1 ESOP CLASS 2 ESOP ESOP VOTING
------------ ------------ -----------

Balance December 31, 1994......................... 1,789,585 -- 3
--------- ------- ---------
Shares issued..................................... 2,850,103 304,882 1,448,384
Converted to common............................... (7,183) (2,811) (9,994)
--------- ------- ---------
Balance December 31, 1995......................... 4,632,505 302,071 1,438,393
--------- ------- ---------
Shares issued..................................... 2,367,575 381,044 3,073,970
Converted to common............................... (49,618) (38,605) (89,927)
--------- ------- ---------
Balance December 31, 1996......................... 6,950,462 644,510 4,422,436
--------- ------- ---------
Shares issued..................................... 1,848,629 242,877 3,073,969
Converted to common............................... (146,473) (81,127) (229,999)
--------- ------- ---------
Balance December 31, 1997......................... 8,652,618 806,260 7,266,406
========= ======= =========

An aggregate of 17,675,345 shares of Class 1 and Class 2 ESOP Preferred
Stock will be issued to employees under the ESOPs. Each share of ESOP Preferred
Stock is convertible into four shares of UAL common stock and shares are
converted to common as employees retire or otherwise leave the Company. The
stock has a par value of $0.01 per share and is nonvoting. The Class 1 ESOP
Preferred Stock has a liquidation value of $126.96 per share plus all accrued
and unpaid dividends; the Class 2 does not have a liquidation value. The Class 1
ESOP Preferred Stock provides a fixed annual dividend of $8.8872 per share,
which ceases on March 31, 2000; the Class 2 does not pay a fixed dividend.

Class P, M and S Voting Preferred Stocks were established to provide the
voting power to the employee groups participating in the ESOPs. Additional
Voting Preferred Stock is issued as shares of the Class 1 and Class 2 ESOP
Preferred Stock are allocated to employees. In the aggregate, 17,675,345 shares
of Voting Preferred Stock will be issued through the year 2000. The Voting
Preferred Stock outstanding at any time commands voting power for approximately
55% of the vote of all classes of capital stock in all matters requiring a
stockholder vote, other than for the election of members of the Board of
Directors. The Voting Preferred Stock will generally continue to represent
approximately 55% of the aggregate voting power until the "Sunset." The "Sunset"
will occur when the common shares issuable upon conversion of the outstanding
Class 1 and Class 2 ESOP Preferred Stock, plus any common equity (generally
common stock issued or issuable at the time of the recapitalization) and
available unissued ESOP shares held in the ESOPs or any other employee benefit
plans sponsored by the Company for the benefit of its employees represent, in
the aggregate less than 20% of the common equity and available unissued ESOP
shares of the Company. For purposes of defining the "Sunset" employee ownership
is approximately 62% at December 31, 1997. The Voting Preferred Stock has a par
value and liquidation preference of $0.01 per share. The stock is not entitled
to receive any dividends and is convertible into .0004 shares of UAL common
stock.

Class Pilot MEC, IAM, SAM and I junior preferred stock (collectively
"Director Preferred Stocks") were established to effectuate the election of one
or more members to UAL's Board of Directors. One share each of Class Pilot MEC
and Class IAM junior preferred stock is authorized and issued. The Company is
authorized to issue ten shares each of Class SAM and Class I junior preferred
stock. There are three shares of Class SAM and four shares of Class I issued.
Each of the Director Preferred Stocks has a par value and liquidation preference
of $0.01 per share. The stock is not entitled to receive any dividends and Class
I will be

A-30
56
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redeemed automatically upon the transfer of the shares to any person not elected
to the Board of Directors or upon the occurrence of the "Sunset."

(13) COMMON STOCKHOLDERS' EQUITY

Changes in the number of shares of UAL common stock outstanding during the
years ended December 31 were as follows:

1997 1996 1995
---------- ---------- ----------

Shares outstanding at beginning of year.............. 58,817,480 50,718,424 49,756,424
Stock options exercised............................ 840,100 500,174 722,744
Shares issued from treasury under compensation
arrangements.................................... 28,224 25,949 932,584
Shares acquired for treasury....................... (3,269,393) (180,565) (504,444)
Forfeiture of restricted stock..................... (25,120) (70,488) (43,000)
Conversion of Series A debentures.................. -- 7,623,092 38,304
Conversion of ESOP preferred stock................. 911,300 352,929 39,976
Other.............................................. 17,895 (152,035) (224,164)
---------- ---------- ----------
Shares outstanding at end of year.................... 57,320,486 58,817,480 50,718,424
========== ========== ==========

During 1997, the Company repurchased 2,881,092 shares of common stock for a
total purchase price of $250 million.

(14) STOCK OPTIONS AND AWARDS

The Company has granted options to purchase common stock to various
officers and employees. The option price for all stock options is at least 100%
of the fair market value of UAL common stock at the date of grant. Options
generally vest and become exercisable in four equal, annual installments
beginning one year after the date of grant, and generally expire in ten years.

As a result of the 1994 recapitalization, all outstanding options became
fully vested at the time of the transaction and the holders of such options
became eligible to utilize the cashless exercise features of stock options.
Under a cashless exercise, the Company withholds, at the election of the
optionee, from shares that would otherwise be issued upon exercise, that number
of shares having a fair market value equal to the exercise price and/or related
income taxes. For outstanding options eligible for cashless exercise, changes in
the market price of the stock are charged to earnings currently. The expense
recorded for such eligible options was $14 million in 1997, $15 million in 1996
and $27 million in 1995.

Stock options which were outstanding at the time of the recapitalization
are exercisable for shares of old common stock, each of which is in turn
converted into two shares of new common stock and $84.81 in cash upon exercise.
Subsequent to the recapitalization, the Company granted stock options which are
exercisable for shares of new common stock.

The Company has also awarded shares of restricted stock to officers and key
employees. These shares generally vest over a five-year period and are subject
to certain transfer restrictions and forfeiture under certain circumstances
prior to vesting. Unearned compensation, representing the fair market value of
the stock at the measurement date for the award, is amortized to salaries and
related costs over the vesting period. During 1995, 892,852 shares of restricted
stock were issued from treasury. No shares were issued in 1996 and 5,000 shares
were issued in 1997. As of December 31, 1997, 434,220 shares were restricted and
still nonvested. Additionally, 309,120 shares were reserved for future awards
under the plan. In 1997, 1996 and 1995, 25,120, 70,488 and 43,000 shares,
respectively, were forfeited and returned to treasury stock.
A-31
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UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a fair value based method of accounting
for stock options. The Company has elected to continue using the intrinsic value
based method of accounting prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123.
Had compensation cost for awards been determined based on the fair value at the
grant dates consistent with the method of SFAS No. 123, the Company's net income
and earnings per share would have instead been reported as the pro forma amounts
indicated below:

1997 1996 1995
------ ------ ------

Net income (millions).............................. As reported $ 949 $ 533 $ 349
Pro forma $ 944 $ 531 $ 350
Basic earnings per share........................... As reported $14.83 $ 7.57 $ 6.39
Pro forma $14.75 $ 7.55 $ 6.42
Diluted earnings per share......................... As reported $ 8.95 $ 5.06 $ 4.82
Pro forma $ 8.94 $ 5.07 $ 4.84

The weighted-average grant date fair value of restricted shares issued was
$87.44 and $28.88 for shares issued in 1997 and 1995, respectively. The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

1997 1996 1995
----- ----- -----

Risk-free interest rate..................................... 6.4% 6.4% 6.0%
Dividend yield.............................................. 0.0% 0.0% 0.0%
Volatility.................................................. 32.0% 32.0% 30.0%
Expected life (years)....................................... 4.0 4.0 4.0

Stock option activity for the past three years was as follows:

1997 1996 1995
--------------------- --------------------- ----------------------
WTD AVG WTD AVG WTD AVG
SHARES EXER PRICE SHARES EXER PRICE SHARES EXER PRICE
-------- ---------- -------- ---------- --------- ----------

Old Share Options:
Outstanding at beginning of year.... 356,118 $120.80 480,610 $119.95 1,081,100 $132.77
Exercised........................... (187,725) $120.03 (124,117) $117.49 (295,671) $113.61
Surrendered upon exercise of SARs... -- -- -- -- (12,927) $ 75.68
Terminated.......................... -- -- (375) $124.00 (291,892) $175.24
-------- -------- ---------
Outstanding at end of year.......... 168,393 $121.65 356,118 $120.80 480,610 $119.95

Options exercisable at year-end..... 168,393 $121.65 356,118 $120.80 480,610 $119.95

A-32
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UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1997 1996 1995
---------------------- ---------------------- ----------------------
WTD AVG WTD AVG WTD AVG
SHARES EXER PRICE SHARES EXER PRICE SHARES EXER PRICE
--------- ---------- --------- ---------- --------- ----------

New Share Options:
Outstanding at beginning of year... 4,828,990 $31.64 3,767,624 $23.47 3,784,000 $22.59
Granted............................ 449,100 $77.86 1,319,800 $53.46 344,000 $32.40
Exercised.......................... (464,650) $25.58 (251,934) $23.52 (136,376) $22.61
Terminated......................... (37,875) $60.17 (6,500) $32.03 (224,000) $22.91
--------- --------- ---------
Outstanding at end of year......... 4,775,565 $36.37 4,828,990 $31.64 3,767,624 $23.47

Options exercisable at year-end.... 2,518,238 $26.63 1,881,686 $22.89 1,133,140 $22.55
Reserved for future grants at
year-end......................... 4,371,475 4,782,700 1,696,000
Wtd avg fair value of options
granted during the year.......... $27.40 $18.94 $10.84

The following information related to stock options outstanding as of
December 31, 1997:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ------------------------------------
RANGE OF OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICE
- --------------------- ----------------- ---------------- ---------------- ----------------- ----------------

Old Share Options:
$91 to 177......... 168,393 4.9 years $121.65 168,393 $121.65
New Share Options:
$20 to 29.......... 2,962,390 6.6 years $ 22.77 2,177,638 $ 22.66
$37 to 57.......... 1,379,950 8.3 years $ 52.47 339,600 $ 51.95
$60 to 88.......... 433,225 9.5 years $ 78.03 1,000 $ 60.19
--------- ---------
4,775,565 2,518,238

(15) RETIREMENT PLANS

The Company has various retirement plans which cover substantially all
employees. Defined benefit plans covering certain employees (primarily union
ground employees) provide a stated benefit for specified periods of service,
while defined benefit plans for other employees provide benefits based on
employees' years of service and average compensation for a specified period
before retirement. The Company's goal is to fully fund the estimated present
value of its accumulated benefit obligation under the plans. The Company also
provides several defined contribution plans which cover substantially all U.S.
employees who have completed one year of service. For certain groups of
employees (primarily pilots, salaried employees hired after February 1, 1994 and
employees of Mileage Plus, Inc.), the Company contributes an annual amount on
behalf of each participant, calculated as a percentage of the participants'
earnings or a percentage of the participants' contributions.

A-33
59
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the defined benefit plans' funded status and
amounts recognized in the statements of financial position as of December 31:

1997 1996
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(IN MILLIONS)

Actuarial present value of
accumulated benefit obligation..... $(5,263) $(1,273) $(5,344) $(235)
Actuarial present value of projected
benefit obligation................. $(5,792) $(1,481) $(5,812) $(335)
Plan assets at fair value............ 5,950 908 5,850 60
------- ------- ------- -----
Projected benefit obligation in
excess of plan assets.............. 158 (573) 38 (275)
Unrecognized net (gain) loss......... 22 (10) 138 (70)
Prior service cost not yet recognized
in net periodic pension cost....... 159 489 230 216
Remaining unrecognized net asset..... (1) 19 (16) 37
Adjustment required to recognize
minimum liability.................. -- (289) -- (86)
------- ------- ------- -----
Pension asset (liability) recognized
in the statement of consolidated
financial position................. $ 338 $ (364) $ 390 $(178)
======= ======= ======= =====
Actuarial assumptions:
Weighted average discount rate 7.25% 7.75%
Rate of increase in compensation 3.85% 3.15%

Total pension expense for all retirement plans (including defined
contribution plans) was $229 million in 1997, $252 million in 1996 and $193
million in 1995.

Plan assets are invested primarily in governmental and corporate debt
instruments and corporate equity securities.

The net periodic pension cost of defined benefit plans included the
following components:

1997 1996 1995
------ ---- ----
(IN MILLIONS)

Service cost -- benefits earned during the year............. $ 232 $237 $173
Interest cost on projected benefit obligation............... 477 440 396
Actual return on plan assets................................ (1,078) (703) (934)
Net amortization and deferral............................... 585 268 545
------ ---- ----
Net periodic pension cost................................... $ 216 $242 $180
====== ==== ====
Expected average long-term rate of return................... 9.75% 9.75% 9.75%

Changes in interest rates or rates of inflation may impact the assumptions
used in the valuation of pension obligations, including discount rates and rates
of increase in compensation, resulting in increases or decreases in United's
pension liability and net periodic pension cost.

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60
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) OTHER EMPLOYEE BENEFITS

The Company provides certain health care benefits, primarily in the U.S.,
to retirees and eligible dependents. Benefits are generally funded from Company
assets on a current basis, although amounts sufficient to pay claims incurred,
but not yet paid, are held in trust at year-end. Certain plan benefits are
subject to co-payments, deductibles and other limits described in the plans and
the benefits are reduced once a retiree becomes eligible for Medicare. The
Company also provides certain life insurance benefits to retirees. The assets to
fund retiree life insurance benefits are being held in a deposit trust
administration fund with a major insurance company. The Company has reserved the
right, subject to collective bargaining agreements, to modify or terminate the
health care and life insurance benefits for both current and future retirees.

Information on the plans' funded status, on an aggregate basis at December
31, follows:

1997 1996
------ ------
(IN MILLIONS)

Accumulated postretirement benefit obligation:
Retirees.................................................. $ 606 $ 498
Other fully eligible participants......................... 254 193
Other active participants................................. 846 648
------ ------
Total accumulated postretirement benefit obligation......... 1,706 1,339
Unrecognized net gain (loss)................................ (183) 109
Fair value of plan assets................................... (107) (103)
------ ------
Accrued postretirement benefit obligation................... $1,416 $1,345
====== ======
Discount rate............................................... 7.25% 7.75%

Net postretirement benefit costs included the following components:

1997 1996 1995
---- ---- ----
(IN MILLIONS)

Service cost -- benefits attributed to service during the
period.................................................... $ 44 $ 44 $ 37
Amortization of unrecognized net gain....................... (6) (5) (5)
Actual return on assets..................................... (7) (7) (7)
Interest cost on benefit obligation......................... 107 98 100
---- ---- ----
Net postretirement benefit costs............................ $138 $130 $125
==== ==== ====

The assumed health care cost trend rates for net paid claims were 6.9% and
7.4% for 1997 and 1996, respectively, declining annually to a rate of 4.0% by
the year 2001 and remaining level thereafter. These rates were driven by assumed
health care cost trend rates for gross covered charges of 5.5% and 6.0% for 1997
and 1996, respectively, declining annually to a rate of 4.0% by the year 1999
and remaining level thereafter. The effect of a 1% increase in the assumed
health care cost trend rate would increase the accumulated postretirement
benefit obligation at December 31, 1997 by $234 million and the aggregate of the
service and interest cost components of net postretirement benefit cost for 1997
by $25 million.

Changes in interest rates or rates of inflation may impact the assumptions
used in the valuation of postretirement and postemployment obligations,
including discount rates, resulting in increases or decreases in United's
liability and net periodic cost.

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61
UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

See Other Information "Foreign Operations" in Management's Discussion and
Analysis of Financial Condition and Results of Operations and Quantitative and
Qualitative Disclosures About Market Risk ("Market Risk Disclosures") for a
discussion of the Company's foreign currency and fuel price risk management
activities, and the fair value of all significant financial instruments.

CREDIT EXPOSURES OF DERIVATIVES

The Company's theoretical risk in the derivative financial instruments
described in Market Risk Disclosures is the cost of replacing the contracts at
current market rates in the event of default by any of the counterparties.
However, the Company does not anticipate such default as counterparties are
selected based on credit ratings and the relative market positions with each
counterparty are monitored. Furthermore, the risk of such default is mitigated
by provisions in the contracts which require either party to post increasing
amounts of collateral as the value of the contract moves against them, subject
to certain thresholds, or through the use of mutual put options where contracts
are terminated at certain predefined intervals. Counterparty credit risk is
further minimized by settlements throughout the duration of the contract.

FINANCIAL GUARANTEES

Special facility revenue bonds have been issued by certain municipalities
to build or improve airport and maintenance facilities leased by United. Under
the lease agreements, United is required to make rental payments in amounts
sufficient to pay the maturing principal and interest payments on the bonds. At
December 31, 1997, $1.239 billion principal amount of such bonds was
outstanding. As of December 31, 1997, UAL and United had jointly guaranteed $35
million of such bonds and United had guaranteed $1.221 billion of such
bonds,including accrued interest. The payments required to satisfy these
obligations are included in the future minimum lease payments disclosed in Note
9 "Lease Obligations".

Transfers of the tax benefits of accelerated depreciation and investment
tax credits associated with the acquisition of certain equipment have been made
previously by United to various tax lessors through tax lease transactions.
Proceeds from tax benefit transfers were recognized as income in the year the
lease transactions were consummated. The subject equipment is being depreciated
for book purposes. United has agreed to indemnify (guaranteed in some cases by
UAL) the tax lessors against loss of such benefits in certain circumstances and
has agreed to indemnify others for loss of tax benefits in limited circumstances
for certain used aircraft purchased by United subject to previous tax lease
transactions. Certain tax lessors have required that letters of credit be issued
in their favor by financial institutions as security for United's indemnity
obligations under the leases. The outstanding balance of such letters of credit
totaled $35 million at December 31, 1997. At that date, United had granted
mortgages on aircraft and engines having a total book value of $165 million as
security for indemnity obligations under tax leases and letters of credit.

CONCENTRATIONS OF CREDIT RISK

The Company does not believe it is subject to any significant concentration
of credit risk. Most of the Company's receivables result from sales of tickets
to individuals through geographically dispersed travel agents, company outlets
or other airlines, often through the use of major credit cards. These
receivables are short term, generally being settled shortly after the sale.

(18) COMMITMENTS, CONTINGENT LIABILITIES AND UNCERTAINTIES

The Company has certain contingencies resulting from litigation and claims
(including environmental issues) incident to the ordinary course of business.
Management believes, after considering a number of factors, including (but not
limited to) the views of legal counsel, the nature of contingencies to which the

A-36
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UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company is subject and its prior experience, that the ultimate disposition of
these contingencies is not expected to materially affect UAL's consolidated
financial position or results of operations. UAL records liabilities for legal
and environmental claims against it in accordance with generally accepted
accounting principles. These amounts are recorded based on the Company's
assessments of the likelihood of their eventual settlements. The amounts of
these liabilities could increase in the near term, based on revisions to
estimates relating to the various claims.

At December 31, 1997, commitments for the purchase of property and
equipment, principally aircraft, approximated $5.6 billion, after deducting
advance payments. An estimated $2.6 billion will be spent in 1998, $1.6 billion
in 1999, $0.6 billion in 2000 and $0.8 billion in 2001 and thereafter. The major
commitments are for the purchase of B777, B747, B767, B757, A320 and A319
aircraft, which are scheduled to be delivered through 2002. The above amounts do
not include a recent order with Airbus Industrie for an additional 10 A319 and
20 A320 aircraft to be delivered through 2001. The aircraft included in this
latest order are expected to be used to satisfy growth opportunities, and thus,
the Company now expects its passenger fleet to grow by at least 30 aircraft by
the year 2002.

During the fourth quarter, The Boeing Company ("Boeing") notified United
that production problems would delay aircraft scheduled to be delivered between
fourth quarter 1997 and mid-1999. Specifically, deliveries on nine B747s, three
B757s and four B767s scheduled for delivery from the fourth quarter of 1997
through mid-1999 will be delayed from one to two months. United expects to
receive compensation from Boeing and also expects to make schedule adjustments
and take other possible actions to offset the effects of the delays. As a
result, the Company expects the impact of the announced delivery delays to be
minimal.

In connection with the construction of the Indianapolis Maintenance Center,
United agreed to spend an aggregate $800 million on capital investments by the
year 2001 and employ at least 7,500 individuals by the year 2004. In the event
such targets are not reached, United may be required to make certain payments to
the city of Indianapolis and state of Indiana.

Approximately 61% of United's employees are represented by various labor
organizations. In connection with the 1994 employee investment transaction,
members of the Air Line Pilots' Association and the International Association of
Machinists and Aerospace Workers entered into labor contracts with United which
become amendable in 2000. In October 1997, the Association of Flight Attendants
("AFA") ratified a new contract, which will remain in effect through 2006. See
Other Information, "Labor Agreements and Wage Adjustments" in Management's
Discussion and Analysis of Financial Condition and Results of Operations for
details.

(19) FOREIGN OPERATIONS

Operating authorities in international markets are governed by bilateral
aviation agreements between the U.S. and foreign countries. Under generally
accepted accounting principles, ("GAAP"), foreign operations are defined as
operations that exist outside the U.S. United derives an insignificant amount of
its operating revenues and operating income from such operations. However, the
Company's results are significantly impacted by revenue produced from
international flights between the U.S. and foreign destinations. Based on
allocation guidelines provided by the U.S. Department of Transportation ("DOT"),
which classifies flights between the U.S. and foreign destinations as part of
each respective foreign entity, and thus, differs from the

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UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

definition of foreign operations under GAAP, United reported the following
results by geographic entity to the DOT for each of the last three years:

1997 1996 1995
--------------------- --------------------- ---------------------
OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING
ENTITY REVENUE INCOME REVENUE INCOME REVENUE INCOME
------ --------- --------- --------- --------- --------- ---------
(IN MILLIONS)

Domestic......................... $11,214 $ 652 $10,717 $ 738 $ 9,586 $460
Pacific.......................... 3,552 267 3,438 288 3,336 348
Atlantic......................... 1,745 238 1,412 86 1,287 10
Latin America.................... 824 69 750 18 686 14
------- ------ ------- ------ ------- ----
Total $ 7,335 $1,226 $16,317 $1,130 $14,895 $832
======= ====== ======= ====== ======= ====

Additionally, United has sizable intangible assets related to acquisitions
of foreign route authorities. Changes in U.S. or foreign government aviation
policies can lead to the alteration or termination of existing air service
agreements that could diminish the value of United's international route
authority.

(20) STATEMENT OF CONSOLIDATED CASH FLOWS -- SUPPLEMENTAL DISCLOSURES

Supplemental disclosures of cash flow information and non-cash investing
and financing activities were as follows:

1997 1996 1995
---- ----- ----
(IN MILLIONS)

Cash paid during the year for:
Interest (net of amounts capitalized)..................... $152 $ 244 $346
Income taxes.............................................. 362 242 65
Non-cash transactions:
Capital lease obligations incurred........................ 643 503 376
Long-term debt incurred in connection with additions to
equipment.............................................. 185 82 26
Note receivables recorded in connection with the sale of
equipment and leasehold improvements................... 61 -- --
Long-term debt issued in connection with the exchange of
Series A convertible preferred stock................... -- -- 546
Increase (decrease) in pension intangible................. 200 (191) 2
Increase in additional capital invested in connection with
the conversion of subordinated debentures to common
stock.................................................. -- 217 1
Decrease in additional capital invested in connection with
the conversion of subordinated debentures to
mandatorily redeemable preferred securities............ -- (102) --

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UAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(21) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
(IN MILLIONS)

1997:
Operating revenues.............................. $4,121 $4,382 $4,640 $4,235 $17,378
Earnings from operations........................ 194 412 563 91 1,259
Earnings before extraordinary item.............. 105 242 579 32 958
Extraordinary loss on early extinguishment of
debt.......................................... -- -- -- (9) (9)
Net earnings.................................... $ 105 $ 242 $ 579 $ 23 $ 949
Per share amounts, basic:
Earnings before extraordinary item............ $ 1.45 $ 3.77 $ 9.39 $ 0.21 $ 14.98
Extraordinary loss on early extinguishment of
debt....................................... -- -- -- (0.15) (0.15)
Net earnings.................................. $ 1.45 $ 3.77 $ 9.39 $ 0.06 $ 14.83
Net earnings per share, diluted................. $ 0.92 $ 2.31 $ 5.61 $ 0.04 $ 8.95
1996:
Operating revenues.............................. $3,735 $4,164 $4,488 $3,976 $16,362
Earnings from operations........................ 62 398 610 53 1,123
Earnings before extraordinary item.............. 6 226 347 20 600
Extraordinary loss on early extinguishment of
debt.......................................... (29) (30) (7) (1) (67)
Net earnings (loss)............................. $ (23) $ 196 $ 340 $ 19 $ 533
Per share amounts, basic:
Earnings (loss) before extraordinary item..... $(0.32) $ 3.41 $ 5.71 $(0.35) $ 8.76
Extraordinary loss on early extinguishment of
debt....................................... (0.58) (0.52) (0.11) (0.01) (1.19)
Net earnings (loss)........................... $(0.90) $ 2.89 $ 5.60 $(0.36) $ 7.57
Net earnings (loss) per share, diluted.......... $(0.90) $ 1.99 $ 3.77 $(0.36) $ 5.06

The sum of quarterly earnings per share amounts is not the same as annual
earnings per share amounts because of changing numbers of shares outstanding.

During the third quarter of 1997, UAL recognized a pre-tax gain of $275
million of the sale of its interest in the Apollo Travel Services Partnership
(see Other Information, "Sale of Affiliate" in Management's Discussion and
Analysis of Financial Condition and Results of Operations).

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65
UAL CORPORATION

THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF UAL CORPORATION

P The undersigned, having received the Notice of Meeting and Proxy Statement,
hereby appoints Gerald Greenwald, John F. McGillicuddy and James J. O'Connor,
and each of them, as proxies with full power of substitution, for and in the
R name of the undersigned, to vote all shares of Common Stock of UAL
Corporation owned of record by the undersigned on the matters listed on the
reverse side hereof and, in their discretion, on such other matters as may
O properly come before the Meeting of Stockholders to be held at the Museum of
Science and Industry, 57th Street and Lake Shore Drive, Chicago, IL 60637 on
May 7, 1998 at 10:00 a.m., local time, and any adjournments or postponements
X thereof, unless otherwise specified herein.

Y This card or the telephonic voting procedures, when properly completed, also
constitutes voting instructions to the respective Trustees of the Employees'
Stock Purchase Plan, 401(k) Plans and International Employee Stock Ownership
Plans of UAL Corporation or United Air Lines, Inc. to vote, in person or by
proxy, all shares of Common Stock of UAL Corporation allocated to the
accounts of the undersigned held by the Trustees.

You are encouraged to specify your choices by marking the appropriate oval SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY OVALS IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR
SHARES UNLESS YOU VOTE BY PHONE OR SIGN AND RETURN THIS CARD.

[SEE REVERSE SIDE]

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE

Today's business traveler experiences an unnecessary amount of frustration and
stress. United sees the huge business opportunity in recognizing and catering
to these unsatisfied customers.

So we are elevating our service to the level travelers want--but don't
currently receive --from airlines.

We think you'll see from the following list that we're already making progress:

o UPDATED FLEET. We now have more of the planes our customers prefer
to fly. In fact, United now has more widebody aircraft than any other
airline.

o ENHANCED PASSENGER COMFORT. Custom-designed seats, true HEPA air
filters, laptop power outlets and individual video monitors in United
First(SM) and United Business(SM).

o IMPROVED FOOD AND BEVERAGE SERVICE. Renowned chef and author Sheila
Lukins has redefined our meal service in United Economy(SM). Beverage
service now includes Starbucks(R) coffee and estate-bottled wines.

o ADVANCED SYSTEM TECHNOLOGY. New ticketing technologies for faster,
error-free boarding. Upgraded aircraft routing systems for improved
on-time arrival and turnaround. Global E-Ticket(SM) capabilities.
Online reservations and ticket purchases.

o CUSTOMER SERVICE TRAINING. We've embarked on a new system-wide
training program to educate United employees on how then can help
minimize travel-related problems.

o GLOBAL ACCESS. With Star Alliance linking United Airlines to Air
Canada, Lufthansa, SAS, Varig and THAI Airlines worldwide, you have
greater flexibility in earning and redeeming frequent flyer miles.

o MILEAGE PLUS(R). Even though our frequent flyer program has been
named the best in the industry for the past four years, we're not
resting on our laurels. You can count on continuing and meaningful
improvements to Mileage Plus(R) in the coming year.

We are preparing many more improvements, which we will share with our customers
soon, so you can see how we are leading the industry in meeting the needs of
the business traveler.

Thank you for your participation and your support.

[UNITED RISING LOGO]

66
\

UAL CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.

[ ]

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE BOARD OF
DIRECTORS' NOMINEES FOR PUBLIC DIRECTOR AND "FOR" PROPOSAL 2. IF THIS CARD
CONSTITUTES VOTING INSTRUCTIONS TO A PLAN TRUSTEE, SUCH TRUSTEE WILL VOTE AS
DESCRIBED IN THE PLAN DOCUMENTS AND ANY ACCOMPANYING MATERIALS. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.

FOR WITHHOLD FOR ALL
ALL ALL EXCEPT

1. ELECTION OF FIVE PUBLIC DIRECTOR NOMINEES:
John A. Edwardson, Gerald Greenwald,
John F. McGillicuddy, James J. O'Connor,
Paul E. Tierney, Jr.

FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
_____________________

2. RATIFICATION OF THE SELECTION OF FOR AGAINST ABSTAIN
ARTHUR ANDERSEN LLP AS THE
INDEPENDENT ACCOUNTANTS.

DATED: _____________________________, 1998
SIGNATURE(S)__________________________________
_______________________________________________

Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. The signer here-
by revokes all proxies heretofore given by the
signer to vote at said Meeting or any adjournments
or postponements thereof.

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE

TELEPHONE VOTING INSTRUCTIONS
Dear Stockholders:

Your vote is important to us. We have provided an automated telephone
option for granting your proxy which you may access 24 hours a day by dialing
this TOLL FREE NUMBER: 1-888-457-2964 (if located within the U.S.) on a touch
tone telephone.

After dialing 1-888-457-2964, you will hear the following instructions:

Please enter your six digit control number which appears directly above
the words "Dear Stockholders".
Please press 1 if you wish to vote for the recommendations of the Board of
Directors.
Please press 9 if you do not wish to vote for the recommendations of the
Board of Directors.

Once this is completed, the telephone option will automatically hang up
and your proxy will be voted as you directed. THERE IS NO NEED FOR YOU TO MAIL
BACK YOUR PROXY CARD.

HOWEVER, if you wish to withhold authority to vote or vote against some,
but not all of the recommendations of the Board of Directors, you must do so by
signing the proxy card above and returning it in the envelope provided.

ESOP participants located within the U.S. should follow the vote by phone
instructions on the ESOP Voting Direction Card.

- --------------------------------------------------------------------------------

FOLD AND DETACH HERE

ADMISSION TICKET MEETING OF STOCKHOLDERS
OF UAL CORPORATION
MAY 7, 1998
10:00 A.M.
[UNITED AIRLINES LOGO] AUDITORIUM - USE SPACE CENTER ENTRANCE
MUSEUM OF SCIENCE AND INDUSTRY
57TH STREET AND LAKE SHORE DRIVE
CHICAGO, IL
_________________________________

You must present this ticket to the UAL Corporation
representative at the entrance to the Auditorium to be
admitted to the Meeting of Stockholders.