Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
 
 
 
 
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12842301&doc=14
 
Commission
File Number
 
Exact Name of Registrant as Specified in its Charter, 
Principal Executive Office Address and Telephone Number
 
State of
Incorporation
 
I.R.S. Employer
Identification No.
 
 
001-06033
 
United Continental Holdings, Inc.
 
Delaware
 
36-2675207
 
 
 
 
233 South Wacker Drive, Chicago, Illinois 60606
 
 
 
 
 
 
 
 
(872) 825-4000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
001-10323
 
United Airlines, Inc.
 
Delaware
 
74-2099724
 
 
 
 
233 South Wacker Drive, Chicago, Illinois 60606
 
 
 
 
 
 
 
 
(872) 825-4000
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
United Continental Holdings, Inc.
 
Yes  x    No  o
 
United Airlines, Inc.
Yes  x     No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
United Continental Holdings, Inc.
 
Yes  x    No  o
 
United Airlines, Inc.
Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
United Continental Holdings, Inc.
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
Emerging growth company  o
United Airlines, Inc.
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  x
Smaller reporting company  o
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
United Continental Holdings, Inc.
 
o
United Airlines, Inc.
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
United Continental Holdings, Inc.
  
Yes  o    No  x
United Airlines, Inc.
  
Yes  o    No  x
The number of shares outstanding of each of the issuer's classes of common stock as of April 12, 2019 is shown below:
United Continental Holdings, Inc.
  
263,129,397 shares of common stock ($0.01 par value)
United Airlines, Inc.
  
1,000 shares of common stock ($0.01 par value) (100% owned by United Continental Holdings, Inc.)
OMISSION OF CERTAIN INFORMATION
This combined Quarterly Report on Form 10-Q is separately filed by United Continental Holdings, Inc. and United Airlines, Inc. United Airlines, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.



United Continental Holdings, Inc.
United Airlines, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2019
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions, except per share amounts)
 
Three Months Ended March 31,
 
2019
 
2018 (a)
Operating revenue:
 
 
 
Passenger revenue
$
8,725

 
$
8,149

Cargo
286

 
293

Other operating revenue
578

 
590

Total operating revenue
9,589

 
9,032

 
 
 
 
Operating expense:
 
 
 
Salaries and related costs
2,873

 
2,726

Aircraft fuel
2,023

 
1,965

Regional capacity purchase
688

 
630

Landing fees and other rent
588

 
579

Depreciation and amortization
547

 
524

Aircraft maintenance materials and outside repairs
408

 
440

Distribution expenses
360

 
342

Aircraft rent
81

 
127

Special charges
18

 
40

Other operating expenses
1,508

 
1,397

Total operating expenses
9,094

 
8,770

Operating income
495

 
262

 
 
 
 
Nonoperating income (expense):
 
 
 
Interest expense
(188
)
 
(162
)
Interest capitalized
22

 
18

Interest income
29

 
17

Miscellaneous, net
9

 
47

Total nonoperating expense, net
(128
)
 
(80
)
Income before income taxes
367

 
182

Income tax expense
75

 
37

Net income
$
292

 
$
145

Earnings per share, basic and diluted
$
1.09

 
$
0.51


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

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



3

 
 

UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
(In millions)

 
Three Months Ended March 31,
 
2019
 
2018 (a)
Net income
$
292

 
$
145

 
 
 
 
Other comprehensive income, net change related to:
 
 
 
Employee benefit plans, net of taxes
7

 
30

Investments and other, net of taxes
3

 
3

Total other comprehensive income, net
10

 
33

 
 
 
 
Total comprehensive income, net
$
302

 
$
178


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

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




4

 
 

UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
 
March 31, 2019
 
December 31, 2018 (a)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,848

 
$
1,694

Short-term investments
2,219

 
2,256

Receivables, less allowance for doubtful accounts (2019 — $8; 2018 — $8)
1,789

 
1,426

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2019 — $421; 2018 — $412)
972

 
985

Prepaid expenses and other
780

 
733

Total current assets
7,608

 
7,094

Operating property and equipment:
 
 
 
Flight equipment
33,705

 
32,599

Other property and equipment
7,165

 
6,889

Purchase deposits for flight equipment
1,455

 
1,177

Total operating property and equipment, at cost
42,325

 
40,665

Less — Accumulated depreciation and amortization
(13,739
)
 
(13,266
)
Total operating property and equipment, net
28,586

 
27,399

 
 
 
 
Operating lease right-of-use assets
5,065

 
5,262

 
 
 
 
Other assets:
 
 
 
Goodwill
4,523

 
4,523

Intangibles, less accumulated amortization (2019 — $1,395; 2018 — $1,380)
3,144

 
3,159

Restricted cash
103

 
105

Notes receivable, net
512

 
516

Investments in affiliates and other, net
1,098

 
966

Total other assets
9,380

 
9,269

Total assets
$
50,639

 
$
49,024

(continued on next page)


















5

 
 




UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
March 31, 2019
 
December 31, 2018 (a)
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Advance ticket sales
$
6,006

 
$
4,381

Accounts payable
2,707

 
2,363

Frequent flyer deferred revenue
2,388

 
2,286

Accrued salaries and benefits
1,660

 
2,184

Current maturities of long-term debt
1,201

 
1,230

Current maturities of finance leases
133

 
123

Current maturities of operating leases
639

 
719

Other
601

 
553

Total current liabilities
15,335

 
13,839

 
 
 
 
Long-term debt
12,734

 
12,215

Long-term obligations under finance leases
236

 
224

Long-term obligations under operating leases
5,145

 
5,276

 
 
 
 
Other liabilities and deferred credits:
 
 
 
Frequent flyer deferred revenue
2,750

 
2,719

Postretirement benefit liability
1,287

 
1,295

Pension liability
1,454

 
1,576

Deferred income taxes
898

 
828

Other
998

 
1,010

Total other liabilities and deferred credits
7,387

 
7,428

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock

 

Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 264,271,125 and 269,914,769 shares at March 31, 2019 and December 31, 2018, respectively
3

 
3

Additional capital invested
6,080

 
6,120

Retained earnings
6,999

 
6,715

Stock held in treasury, at cost
(2,487
)
 
(1,993
)
Accumulated other comprehensive loss
(793
)
 
(803
)
Total stockholders' equity
9,802

 
10,042

Total liabilities and stockholders' equity
$
50,639

 
$
49,024


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

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





6

 
 

UNITED CONTINENTAL HOLDINGS, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
 
Three Months Ended March 31,
 
2019
 
2018 (a)
Cash Flows from Operating Activities:
 
 
 
Net cash provided by operating activities
$
1,915

 
$
1,709

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(1,609
)
 
(944
)
Purchases of short-term and other investments
(724
)
 
(596
)
Proceeds from sale of short-term and other investments
768

 
840

Loans made to others

 
(10
)
Investment in affiliates
(27
)
 

Other, net
12

 
15

Net cash used in investing activities
(1,580
)
 
(695
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of long-term debt
646

 
673

Payments of long-term debt
(250
)
 
(189
)
Repurchases of common stock
(513
)
 
(529
)
Principal payments under finance leases
(20
)
 
(18
)
Capitalized financing costs
(17
)
 
(16
)
Other, net
(29
)
 
(16
)
Net cash used in financing activities
(183
)
 
(95
)
Net increase in cash, cash equivalents and restricted cash
152

 
919

Cash, cash equivalents and restricted cash at beginning of the period
1,799

 
1,591

Cash, cash equivalents and restricted cash at end of the period (b)
$
1,951

 
$
2,510

 
 
 
 
Investing and Financing Activities Not Affecting Cash:
 
 
 
Property and equipment acquired through the issuance of debt
$
92

 
$
60

Operating lease conversions to finance lease
36

 

Right-of-use assets acquired through operating leases
51

 
103

Property and equipment acquired through finance leases
8

 


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

(b) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
Cash and cash equivalents
$
1,848

 
$
2,404

Restricted cash (included in Prepaid expenses and other)

 
11

Restricted cash
103

 
95

Total cash, cash equivalents and restricted cash
$
1,951

 
$
2,510


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

7

 
 

UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(In millions)
 
Common
Stock
 
Additional
Capital Invested
 
Treasury Stock
 
Retained Earnings
 
Accumulated
Other Comprehensive Income (Loss)
 
Total
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2018 (a)
269.9

 
$
3

 
$
6,120

 
$
(1,993
)
 
$
6,715

 
$
(803
)
 
$
10,042

Net income

 

 

 

 
292

 

 
292

Other comprehensive income

 

 

 

 

 
10

 
10

Stock settled share-based compensation

 

 
14

 

 

 

 
14

Repurchases of common stock
(6.1
)
 

 

 
(527
)
 

 

 
(527
)
Net treasury stock issued for share-based awards
0.5

 

 
(54
)
 
33

 
(8
)
 

 
(29
)
Balance at March 31, 2019
264.3

 
$
3

 
$
6,080

 
$
(2,487
)
 
$
6,999


$
(793
)
 
$
9,802

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017 (a)
287.0

 
$
3

 
$
6,098

 
$
(769
)
 
$
4,603

 
$
(1,147
)
 
$
8,788

Net income (a)

 

 

 

 
145

 

 
145

Other comprehensive income

 

 

 

 

 
26

 
26

Stock settled share-based compensation

 

 
15

 

 

 

 
15

Repurchases of common stock
(7.8
)
 

 

 
(569
)
 

 

 
(569
)
Net treasury stock issued for share-based awards
0.2

 

 
(36
)
 
24

 
(5
)
 

 
(17
)
Adoption of accounting standard related to equity investments

 

 

 

 
(7
)
 
7

 

Balance at March 31, 2018 (a)
279.4

 
$
3

 
$
6,077

 
$
(1,314
)
 
$
4,736

 
$
(1,114
)
 
$
8,388


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.


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

8

 
 


UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions)
 
Three Months Ended March 31,
 
2019
 
2018 (a)
Operating revenue:
 
 
 
Passenger revenue
$
8,725

 
$
8,149

Cargo
286

 
293

Other operating revenue
578

 
590

Total operating revenue
9,589

 
9,032

 
 
 
 
Operating expense:
 
 
 
Salaries and related costs
2,873

 
2,726

Aircraft fuel
2,023

 
1,965

Regional capacity purchase
688

 
630

Landing fees and other rent
588

 
579

Depreciation and amortization
547

 
524

Aircraft maintenance materials and outside repairs
408

 
440

Distribution expenses
360

 
342

Aircraft rent
81

 
127

Special charges
18

 
40

Other operating expenses
1,507

 
1,397

Total operating expense
9,093

 
8,770

Operating income
496

 
262

 
 
 
 
Nonoperating income (expense):
 
 
 
Interest expense
(188
)
 
(162
)
Interest capitalized
22

 
18

Interest income
29

 
17

Miscellaneous, net
9

 
47

Total nonoperating expense, net
(128
)
 
(80
)
Income before income taxes
368

 
182

Income tax expense
75

 
37

Net income
$
293

 
$
145


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

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




9

 
 

UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
(In millions)

 
Three Months Ended March 31,
 
2019
 
2018 (a)
Net income
$
293

 
$
145

 
 
 
 
Other comprehensive income, net change related to:
 
 
 
Employee benefit plans, net of taxes
7

 
30

Investments and other, net of taxes
3

 
3

Total other comprehensive income, net
10

 
33

 
 
 
 
Total comprehensive income, net
$
303

 
$
178


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

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


10

 
 

UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
 
March 31, 2019
 
December 31, 2018 (a)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,842

 
$
1,688

Short-term investments
2,219

 
2,256

Receivables, less allowance for doubtful accounts (2019 — $8; 2018 — $8)
1,789

 
1,426

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2019 — $421; 2018 — $412)
972

 
985

Prepaid expenses and other
780

 
733

Total current assets
7,602

 
7,088

Operating property and equipment:
 
 
 
Flight equipment
33,705

 
32,599

Other property and equipment
7,165

 
6,889

Purchase deposits for flight equipment
1,455

 
1,177

Total operating property and equipment, at cost
42,325

 
40,665

Less — Accumulated depreciation and amortization
(13,739
)
 
(13,266
)
Total operating property and equipment, net
28,586

 
27,399

 
 
 
 
Operating lease right-of-use assets
5,065

 
5,262

 
 
 
 
Other assets:
 
 
 
Goodwill
4,523

 
4,523

Intangibles, less accumulated amortization (2019 — $1,395; 2018 — $1,380)
3,144

 
3,159

Restricted cash
103

 
105

Notes receivable, net
512

 
516

Investments in affiliates and other, net
1,098

 
966

Total other assets
9,380

 
9,269

Total assets
$
50,633

 
$
49,018


(continued on next page)


11

 
 

UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
 
March 31, 2019
 
December 31, 2018 (a)
LIABILITIES AND STOCKHOLDER'S EQUITY
 
 
 
Current liabilities:
 
 
 
Advance ticket sales
$
6,006

 
$
4,381

Accounts payable
2,707

 
2,363

Frequent flyer deferred revenue
2,388

 
2,286

Accrued salaries and benefits
1,660

 
2,184

Current maturities of long-term debt
1,201

 
1,230

Current maturities of finance leases
133

 
123

Current maturities of operating leases
639

 
719

Other
606

 
558

Total current liabilities
15,340

 
13,844

 
 
 
 
Long-term debt
12,734

 
12,215

Long-term obligations under finance leases
236

 
224

Long-term obligations under operating leases
5,145

 
5,276

 
 
 
 
Other liabilities and deferred credits:
 
 
 
Frequent flyer deferred revenue
2,750

 
2,719

Postretirement benefit liability
1,287

 
1,295

Pension liability
1,454

 
1,576

Deferred income taxes
925

 
855

Other
999

 
1,010

Total other liabilities and deferred credits
7,415

 
7,455

Commitments and contingencies

 

Stockholder's equity:
 
 
 
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at both March 31, 2019 and December 31, 2018

 

Additional capital invested
84

 
598

Retained earnings
10,612

 
10,319

Accumulated other comprehensive loss
(793
)
 
(803
)
Receivable from related parties
(140
)
 
(110
)
Total stockholder's equity
9,763

 
10,004

Total liabilities and stockholder's equity
$
50,633

 
$
49,018


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.






12

 
 

UNITED AIRLINES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
 
Three Months Ended March 31,
 
2019
 
2018 (a)
 
 
 
 
Cash Flows from Operating Activities:
 
 
 
Net cash provided by operating activities
$
1,886

 
$
1,692

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(1,609
)
 
(944
)
Purchases of short-term investments and other investments
(724
)
 
(596
)
Proceeds from sale of short-term and other investments
768

 
840

Loans made to others

 
(10
)
Investment in affiliates
(27
)
 

Other, net
12

 
15

Net cash used in investing activities
(1,580
)
 
(695
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of long-term debt
646

 
673

Dividend to UAL
(513
)
 
(529
)
Payments of long-term debt
(250
)
 
(189
)
Principal payments under finance leases
(20
)
 
(18
)
Capitalized financing costs
(17
)
 
(16
)
Other, net

 
1

Net cash used in financing activities
(154
)
 
(78
)
Net increase in cash, cash equivalents and restricted cash
152

 
919

Cash, cash equivalents and restricted cash at beginning of the period
1,793

 
1,585

Cash, cash equivalents and restricted cash at end of the period (b)
$
1,945

 
$
2,504

 
 
 
 
Investing and Financing Activities Not Affecting Cash:
 
 
 
Property and equipment acquired through the issuance of debt
$
92

 
$
60

Operating lease conversions to finance lease
36

 

Right-of-use assets acquired through operating leases
51

 
103

Property and equipment acquired through finance leases
8

 


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

(b) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
Cash and cash equivalents
$
1,842

 
$
2,398

Restricted cash (included in Prepaid expenses and other)

 
11

Restricted cash
103

 
95

Total cash, cash equivalents and restricted cash
$
1,945

 
$
2,504


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

13

 
 

UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY
(In millions)

 
Additional
Capital Invested
 
Retained Earnings
 
Accumulated
Other Comprehensive Income (Loss)
 
Receivable from Related Parties, Net
 
Total
 
 
 
 
 
Balance at December 31, 2018 (a)
$
598

 
$
10,319

 
$
(803
)
 
$
(110
)
 
$
10,004

Net income

 
293

 

 

 
293

Other comprehensive income

 

 
10

 

 
10

Dividend to UAL
(528
)
 

 

 

 
(528
)
Stock settled share-based compensation
14

 

 

 

 
14

Other

 

 

 
(30
)
 
(30
)
Balance at March 31, 2019
$
84

 
$
10,612

 
$
(793
)
 
$
(140
)
 
$
9,763

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017 (a)
$
1,787

 
$
8,201

 
$
(1,147
)
 
$
(90
)
 
$
8,751

Net income (a)

 
145

 

 

 
145

Other comprehensive income

 

 
26

 

 
26

Dividend to UAL
(569
)
 

 

 

 
(569
)
Stock settled share-based compensation
15

 

 

 

 
15

Other

 
(7
)
 
7

 
(18
)
 
(18
)
Balance at March 31, 2018 (a)
$
1,233

 
$
8,339

 
$
(1,114
)
 
$
(108
)
 
$
8,350


(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.


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

14

 
 

UNITED CONTINENTAL HOLDINGS, INC. AND UNITED AIRLINES, INC.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

United Continental Holdings, Inc. (together with its consolidated subsidiaries, "UAL" or the "Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, "United"). This Quarterly Report on Form 10-Q is a combined report of UAL and United, including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United's operating revenues and operating expenses comprise nearly 100% of UAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words "we," "our," "us," and the "Company" in this report for disclosures that relate to all of UAL and United.
The UAL and United unaudited condensed consolidated financial statements shown here have been prepared as required by the U.S. Securities and Exchange Commission (the "SEC"). Some information and footnote disclosures normally included in financial statements that comply with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted as permitted by the SEC. The financial statements include all adjustments, including normal recurring adjustments and other adjustments, which are considered necessary for a fair presentation of the Company's financial position and results of operations. The UAL and United financial statements should be read together with the information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The Company's quarterly financial data is subject to seasonal fluctuations and historically its second and third quarter financial results, which reflect higher travel demand, are better than its first and fourth quarter financial results.
NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 842, Leases (the "New Lease Standard"), effective January 1, 2019. The Company used the modified retrospective approach for all leases existing at or commencing after January 1, 2017 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of our contracts are or contain leases, (2) lease classification and (3) initial direct costs. The New Lease Standard prescribes that an entity should recognize a right-of-use asset and a lease liability for all leases at the commencement date of each lease and recognize expenses on their income statements similar to the prior FASB Accounting Standards Codification Topic 840, Leases ("Topic 840").
The adoption of the New Lease Standard had the same impact on the financial statements of United as it had on the financial statements of UAL. The table below presents the impact of the adoption of the New Lease Standard on select accounts and captions of UAL's statement of consolidated operations for the first quarter of 2018 (in millions, except per share amounts):
 
As Reported
 
New Lease Standard Adjustments
 
As Adjusted
Regional capacity purchase
$
619

 
$
11

 
$
630

Landing fees and other rent
558

 
21

 
579

Depreciation and amortization
541

 
(17
)
 
524

Interest expense
(176
)
 
14

 
(162
)
Interest capitalized
19

 
(1
)
 
18

Net income
147

 
(2
)
 
145

Earnings per share, basic and diluted
0.52

 
(0.01
)
 
0.51

The expense for leases under the New Lease Standard will continue to be classified in their historical income statement captions (primarily in Aircraft rent, Landing fees and other rent and Regional capacity purchase in our statements of consolidated operations). The adoption of the New Lease Standard resulted in the recharacterization of certain leases from capital leases under Topic 840 to operating leases under the New Lease Standard. This change resulted in less depreciation and amortization and interest expense associated with capital leases offset by higher lease expense associated with operating leases. The recharacterization is associated with leases of certain airport facilities that were derecognized as part of the build-to-suit transition guidance under the New Lease Standard. The reduction in capitalized interest is also associated with the same airport facilities leases.

15

 
 

The table below presents the impact of the adoption of the New Lease Standard on UAL's balance sheet accounts and captions as of December 31, 2018 (in millions):
 
As Reported
 
New Lease Standard Adjustments
 
As Adjusted
Receivables, less allowance for doubtful accounts
$
1,346

 
$
80

 
$
1,426

Prepaid expenses and other
913

 
(180
)
 
733

Flight equipment, owned and finance leases (a)
32,636

 
(37
)
 
32,599

Other property and equipment, owned and finance leases (a)
7,930

 
(1,041
)
 
6,889

Less-Accumulated depreciation and amortization, owned and finance leases (a)
(13,414
)
 
148

 
(13,266
)
Operating lease right-of-use assets

 
5,262

 
5,262

Current maturities of finance leases (a)
149

 
(26
)
 
123

Current maturities of operating leases

 
719

 
719

Other current liabilities
619

 
(66
)
 
553

Long-term obligations under finance leases (a)
1,134

 
(910
)
 
224

Long-term obligations under operating leases

 
5,276

 
5,276

Deferred income taxes
814

 
14

 
828

Other long-term liabilities
1,832

 
(822
)
 
1,010

Retained earnings
6,668

 
47

 
6,715

(a) Finance leases, under the New Lease Standard, are the equivalent of capital leases under Topic 840.

The table below presents the impact of the adoption of the New Lease Standard on select line items of UAL's statement of consolidated cash flows for the first quarter of 2018 (in millions):
 
As Reported
 
New Lease Standard Adjustments
 
As Adjusted
Cash Flows from Operating Activities:
 
 
 
 
 
Net cash provided by operating activities
$
1,733

 
$
(24
)
 
$
1,709

 
 
 


 
 
Cash Flows from Investing Activities:
 
 

 
 
Capital expenditures
(979
)
 
35

 
(944
)
 
 
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
 
 
Proceeds from issuance of long-term debt
696

 
(23
)
 
673

Principal payments under finance leases
(30
)
 
12

 
(18
)
The adoption of the New Lease Standard primarily resulted in the recording of assets and obligations of our operating leases on our consolidated balance sheets. Certain amounts recorded for prepaid and accrued rent associated with historical operating leases were reclassified to the newly captioned Operating lease right-of-use assets in the consolidated balance sheets. Also, certain leases designated under Topic 840 as owned assets and capital leases are not considered to be assets under the New Lease Standard and have been removed from the consolidated balance sheets, along with the related capital lease liability, due to the leases having variable lease payments.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13"). The main objective is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. The amendments are effective for public business entities for fiscal years and interim periods

16

 
 

beginning after December 15, 2019. The Company is evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.
NOTE 2 - REVENUE
Revenue by Geography. The following table presents operating revenue by geographic region (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Domestic (U.S. and Canada)
$
5,875

 
$
5,476

Atlantic
1,458

 
1,389

Pacific
1,281

 
1,231

Latin America
975

 
936

Total
$
9,589

 
$
9,032


Ancillary Fees. The Company charges fees, separately from ticket sales, for certain ancillary services that are directly related to passengers' travel, such as ticket change fees, baggage fees, inflight amenities fees, and other ticket-related fees. These ancillary fees are part of the travel performance obligation and, as such, are recognized as passenger revenue when the travel occurs. The Company recorded $571 million and $497 million of ancillary fees within passenger revenue in the three months ended March 31, 2019 and 2018, respectively.

Advance Ticket Sales. All tickets sold at any given point of time have travel dates extending up to twelve months. The Company defers amounts related to future travel in its Advance ticket sales liability account. As a result, the balance of the Company's Advance ticket sales liability represents activity that will be recognized in the next twelve months. In the three months ended March 31, 2019 and 2018, the Company recognized approximately $2.7 billion and $2.5 billion, respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods.

Frequent Flyer Accounting. The table below presents a roll forward of Frequent flyer deferred revenue (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Total Frequent flyer deferred revenue - beginning balance
$
5,005

 
$
4,783

Miles awarded
607

 
603

Travel miles redeemed (Passenger revenue)
(438
)
 
(409
)
Non-travel miles redeemed (Other operating revenue)
(36
)
 
(40
)
Total Frequent flyer deferred revenue - ending balance
$
5,138

 
$
4,937


In the three months ended March 31, 2019 and 2018, the Company recognized, in Other operating revenue, $473 million and $494 million, respectively, related to the marketing, advertising, non-travel miles redeemed (net of related costs) and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our Chase co-brand agreement. The portion related to the MileagePlus miles awarded of the total amounts received from our various partner agreements is deferred and presented in the table above as an increase to the frequent flyer liability.

17

 
 

NOTE 3 - EARNINGS PER SHARE
The computations of UAL's basic and diluted earnings per share are set forth below (in millions, except per share amounts):
 
Three Months Ended March 31,
 
2019
 
2018
Earnings available to common stockholders
$
292

 
$
145

 
 
 
 
Basic weighted-average shares outstanding
267.0

 
283.9

Effect of employee stock awards
1.3

 
1.0

Diluted weighted-average shares outstanding
268.3

 
284.9

 
 
 
 
Earnings per share, basic and diluted
$
1.09

 
$
0.51

In the three months ended March 31, 2019, UAL repurchased approximately 6.3 million shares of UAL common stock in open market transactions for $527 million. As of March 31, 2019, the Company had approximately $1.2 billion remaining to purchase shares under its share repurchase program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this report for additional information.
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the components of the Company's accumulated other comprehensive income (loss), net of tax ("AOCI") (in millions):
 
UAL
 
Pension and Other Postretirement Liabilities

Investments and Other

Deferred Taxes

Total
 
 
Balance at December 31, 2018
 
$
(663
)

$
(4
)

$
(136
)

$
(803
)
 
Changes in value
 
5

 
5

 
(3
)
 
7

 
Amounts reclassified to earnings
 
4

(a)

 
(1
)
 
3

 
Balance at March 31, 2019
 
$
(654
)

$
1


$
(140
)

$
(793
)
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
$
(1,102
)
 
$
(6
)
 
$
(39
)
 
$
(1,147
)
 
Changes in value
 
23

 
(4
)
 
(6
)
 
13

 
Amounts reclassified to earnings
 
16

(a)

 
(3
)
 
13

 
Amounts reclassified to retained earnings
 

 
7

 

 
7

 
Balance at March 31, 2018
 
$
(1,063
)
 
$
(3
)
 
$
(48
)
 
$
(1,114
)
(a) This AOCI component is included in the computation of net periodic pension and other postretirement costs (See Note 6 to the financial statements included in Part I, Item 1 for additional information).
NOTE 5 - INCOME TAXES
The Company's effective tax rate for the three months ended March 31, 2019 and 2018 was 20.4% and 20.3%, respectively. The effective tax rate represents a blend of federal, state and foreign taxes and includes the impact of certain nondeductible items and the impact of a change in the Company's mix of domestic and foreign earnings.

18

 
 

NOTE 6 - EMPLOYEE BENEFIT PLANS
Defined Benefit Pension and Other Postretirement Benefit Plans. The Company's net periodic benefit cost includes the following components for the three months ended March 31 (in millions):
 
 
Pension Benefits
 
Other Postretirement Benefits
 
Affected Line Item
in the Statements of
Consolidated Operations
 
 
2019
 
2018
 
2019
 
2018
 
 
Service cost
 
$
46

 
$
57

 
$
2

 
$
3

 
Salaries and related costs
Interest cost
 
57

 
54

 
15

 
15

 
Miscellaneous, net
Expected return on plan assets
 
(72
)
 
(73
)
 

 

 
Miscellaneous, net
Amortization of unrecognized (gain) loss
 
29

 
33

 
(15
)
 
(8
)
 
Miscellaneous, net
Amortization of prior service credit
 

 

 
(10
)
 
(9
)
 
Miscellaneous, net
Total
 
$
60

 
$
71

 
$
(8
)
 
$
1

 
 
During the three months ended March 31, 2019, the Company contributed $150 million to its U.S. domestic tax-qualified defined benefit pension plans.
Share-Based Compensation. In the three months ended March 31, 2019, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2017 Incentive Compensation Plan. These share-based compensation awards include 0.5 million restricted stock units ("RSUs"), half of which are time-vested RSUs and half of which are performance-based RSUs. The time-vested RSUs vest pro-rata, on February 28th of each year, over a three-year period from the date of grant. The amount of performance-based RSUs vest based on the Company's relative improvement in pre-tax margin, as compared to a group of industry peers, for the three years ending December 31, 2021. All RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees. The cash payments are based on the 20-day average closing price of UAL common stock immediately prior to the vesting date.
The table below presents information related to share-based compensation (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Share-based compensation expense
$
16

 
$
17

 
 
 
 
 
March 31, 2019
 
December 31, 2018
Unrecognized share-based compensation
$
84

 
$
68


19

 
 

NOTE 7 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The table below presents disclosures about the financial assets and liabilities measured at fair value on a recurring basis in UAL's financial statements (in millions):
 
March 31, 2019
 
December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents
$
1,848

 
$
1,848

 
$

 
$

 
$
1,694

 
$
1,694

 
$

 
$

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
1,014

 

 
1,014

 

 
1,023

 

 
1,023

 

Asset-backed securities
745

 

 
745

 

 
746

 

 
746

 

U.S. government and agency notes
108

 

 
108

 

 
108

 

 
108

 

Certificates of deposit placed through an account registry service ("CDARS")
45

 

 
45

 

 
75

 

 
75

 

Other fixed-income securities
118

 

 
118

 

 
116

 

 
116

 

Other investments measured at net asset value ("NAV")
189

 

 

 

 
188

 

 

 

Restricted cash
103

 
103

 

 

 
105

 
105

 

 

Long-term investments:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
263

 
263

 

 

 
249

 
249

 

 

Enhanced equipment trust certificates ("EETC")
16

 

 

 
16

 
18

 

 

 
18

Avianca Holdings S.A. ("AVH") Derivative Assets
14

 

 

 
14

 
11

 

 

 
11

Available-for-sale investment maturities - The short-term investments shown in the table above are classified as available-for-sale, with the exception of investments measured at NAV. As of March 31, 2019, asset-backed securities have remaining maturities of less than one year to approximately 16 years, corporate debt securities have remaining maturities of less than one year to approximately three years and CDARS have maturities of less than one year. U.S. government and agency notes have maturities of approximately one year or less and other fixed-income securities have maturities of two years or less. The EETC securities mature in July 2019.
Restricted cash - Restricted cash primarily includes collateral for letters of credit and collateral associated with facility leases and other insurance related obligations.
Equity securities - Equity securities represent United's investment in Azul Linhas Aéreas Brasileiras S.A. ("Azul"), consisting of a preferred equity stake of approximately 8% (approximately 2% of the total capital stock of Azul). The Company recognizes changes to the fair market value of its equity investment in Azul in Miscellaneous, net in its statements of consolidated operations.
Synergy Term Loan - In November 2018, United, as lender, entered into a Term Loan Agreement (the "Synergy Loan Agreement") with affiliates of Synergy Aerospace Corporation ("Synergy"), as borrower and guarantor, respectively. Pursuant to the Synergy Loan Agreement, United provided a $456 million term loan to Synergy (the "Synergy Term Loan"), secured by a pledge of borrower's equity, as well as Synergy's 516 million shares of common stock of AVH, the parent company of Aerovías del Continente Americano S.A.
AVH Derivative Assets - As part of the Synergy Loan Agreement and related agreements with AVH's significant minority shareholder, Kingsland Holdings Limited ("Kingsland"), United obtained AVH share call options, AVH share appreciation rights, and an AVH share-based upside sharing agreement (collectively, the "AVH Derivative Assets"). The AVH Derivative Assets are recorded at fair value as Other assets on the Company's balance sheet and are included in the table above. Changes in the fair value of the AVH Derivative Assets are recorded as part of Nonoperating income (expense): Miscellaneous, net on the Company's statements of consolidated operations.

20

 
 

Investments presented in the table above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above (in millions):
 
March 31, 2019
 
December 31, 2018
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Long-term debt
$
13,935

 
$
14,136

 
$

 
$
10,307

 
$
3,829

 
$
13,445

 
$
13,450

 
$

 
$
9,525

 
$
3,925

Synergy Term Loan
480

 
422

 

 

 
422

 
478

 
422

 

 

 
422

Fair value of the financial instruments included in the tables above was determined as follows:
Description
Fair Value Methodology
Cash and cash equivalents
The carrying amounts approximate fair value because of the short-term maturity of these assets.
Short-term investments,
Equity securities, EETC and
Restricted cash
Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services.
Other investments measured at NAV
In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are shares of mutual funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV subject to a three-day settlement period.
Long-term debt
Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities or assets.
Synergy Term Loan and AVH Derivative Assets
Fair values are calculated using a Monte Carlo simulation approach. Unobservable inputs include expected volatility, expected dividend yield and control and acquisition premiums.
NOTE 8 - LEASES
United leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other commercial real estate, office and computer equipment and vehicles, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, available seat miles, enplaned passengers, passenger facility charges, terminal equipment usage fees, departures, and airports’ annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on our balance sheet as a right-of-use asset and lease liability.

For leases with terms greater than 12 months, we record the related asset and lease liability at the present value of lease payments over the lease term. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the term of the lease. We combine lease and non-lease components, such as common area maintenance costs, in calculating the right-of-use assets and lease liabilities for all asset groups except for our capacity purchase agreements ("CPAs"), which contain embedded leases for regional aircraft. In addition to the lease component cost for regional aircraft, our CPAs also include non-lease components primarily related to the regional carriers’ operating costs incurred in providing regional aircraft services. We allocate consideration separately for the lease components and non-lease components of each CPA based on their relative standalone values.


21

 
 

Lease Cost. The Company's lease cost for the three months ended March 31 included the following components (in millions):
 
 
2019
 
2018
Operating lease cost
 
$
272

 
$
326

Variable and short-term lease cost
 
606

 
611

Amortization of finance lease assets
 
18

 
23

Interest on finance lease liabilities
 
27

 
5

Sublease income
 
(8
)
 
(10
)
Total lease cost
 
$
915

 
$
955

Lease terms and commitments. United's leases include aircraft and non-aircraft leases. Aircraft operating leases relate to leases of 122 mainline and 341 regional aircraft while finance leases relate to leases of 30 mainline and 76 regional aircraft. United's aircraft leases have remaining lease terms of 2 months to 10 years with expiration dates ranging from 2019 through 2029. Under the terms of most aircraft leases, United has the right to purchase the aircraft at the end of the lease term, in some cases at fair market value, and in others, at a percentage of cost.
Non-aircraft leases have remaining lease terms of 1 month to 34 years, with expiration dates ranging from 2019 through 2053.
The table below summarizes the Company's scheduled future minimum lease payments under operating and finance leases, recorded on the balance sheet, as of March 31, 2019 (in millions):
 
 
Operating Leases
 
Finance Leases
Last nine months of 2019
 
$
662

 
$
195

2020
 
985

 
96

2021
 
763

 
74

2022
 
630

 
47

2023
 
617

 
33

After 2023
 
4,252

 
69

Minimum lease payments
 
7,909

 
514

Imputed interest
 
2,125

 
145

Present value of minimum lease payments
 
5,784

 
369

Less: current maturities of lease obligations
 
(639
)
 
(133
)
Long-term lease obligations
 
$
5,145

 
$
236

As of March 31, 2019, we have additional leases that have not yet commenced with an aggregate value of approximately $140 million. These leases will commence between 2019 and 2020 with lease terms of up to 34 years.

To the extent a lease agreement includes an extension option that is reasonably certain to be exercised, we have recognized those amounts as part of our right-of-use assets and lease liabilities.

Our lease agreements do not provide a readily determinable implicit rate nor is it available to us from our lessors. Instead, we estimate United's incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value. The table below presents additional information related to our leases as of March 31:
 
 
2019
 
2018
Weighted-average remaining lease term - finance leases
 
5 years

 
5 years

Weighted-average remaining lease term - operating leases
 
10 years

 
10 years

Weighted-average discount rate - finance leases
 
50.5
%
(a)
6.7
%
Weighted-average discount rate - operating leases
 
5.2
%
 
5.0
%
(a) During the third quarter of 2018, United entered into an agreement with the lessor of 54 Embraer ERJ 145 aircraft to purchase those aircraft in 2019. The provisions of these lease agreements resulted in a change in accounting classification of these leases from operating leases to finance leases up until the purchase date. The discount rates used for these leases were adjusted so that the present value of lease payments did not exceed the fair value of the asset being recognized.


22

 
 

The table below presents supplemental cash flow information related to leases during the three months ended March 31:
 
2019
 
2018
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
285

 
$
279

Operating cash flows for finance leases
24

 
5

Financing cash flows for finance leases
20

 
18

NOTE 9 - COMMITMENTS AND CONTINGENCIES
Commitments. As of March 31, 2019, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing"), Airbus S.A.S. ("Airbus") and Embraer S.A. ("Embraer") presented in the table below:
Aircraft Type
 
Number of Firm
Commitments (a)
Airbus A350
 
45

Boeing 737 MAX
 
171

Boeing 777-300ER
 
4

Boeing 787
 
20

Embraer E175
 
25

(a) United also has options and purchase rights for additional aircraft.
 
 
The aircraft listed in the table above are scheduled for delivery through 2027. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company's future capital commitments could change. For the remainder of 2019, the Company is scheduled to take delivery of 25 Embraer E175 aircraft, 16 Boeing 737 MAX aircraft, 4 Boeing 787 aircraft and 2 Boeing 777-300ER aircraft. In 2020, the Company is scheduled to take delivery of 28 Boeing 737 MAX aircraft, 15 Boeing 787 aircraft and 2 Boeing 777-300ER aircraft. United also has agreements to purchase 20 used Airbus A319 aircraft with expected delivery dates through 2022.
During the third quarter of 2018, United entered into an agreement with the lessor of 54 Embraer ERJ 145 aircraft to purchase those aircraft in 2019.
On March 13, 2019 the Federal Aviation Administration issued an emergency order prohibiting the operation of Boeing 737 MAX series airplanes by U.S. certified operators. As a result, the Company grounded all 14 Boeing 737 MAX 9 aircraft in its fleet. Prior to the grounding, the Company operated approximately 50 flights a day on these aircraft, and expected, given the delivery schedule, to operate approximately 110 flights a day by the end of the year. The Company has proactively managed the ongoing effects of this grounding. Through a combination of spare aircraft and rebooking customers, the Company has experienced a modest operational and financial impact as of March 31, 2019 as a result of this grounding. However, the operational and financial impact could increase based on a number of factors, including, among others, the period of time the aircraft are unavailable, the availability of replacement aircraft, to the extent needed, and the circumstances of any reintroduction of the grounded aircraft to service.
The table below summarizes United's commitments as of March 31, 2019, which include aircraft and related spare engines, aircraft improvements and all non-aircraft capital commitments:
 
 
(in billions)
Last nine months of 2019
 
$
2.5

2020
 
5.4

2021
 
3.7

2022
 
3.1

2023
 
2.0

After 2023
 
7.0

 
 
$
23.7

Guarantees. As of March 31, 2019, United is the guarantor of approximately $1.9 billion in aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable

23

 
 

solely from rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with these obligations are accounted for as operating leases recognized on the Company's balance sheet with the associated expense recorded on a straight-line basis resulting in ratable accrual of the lease obligation over the expected lease term. The obligations associated with these tax-exempt special facilities revenue bonds are included in our lease commitments disclosed in Note 8 of this report. All of these bonds are due between 2019 and 2038.
In connection with funding the Synergy Loan Agreement, the Company entered into an agreement with AVH's significant minority shareholder, Kingsland, pursuant to which, in return for Kingsland's pledge of its 144.8 million shares of AVH common stock (equivalent to 18.1 million American Depositary Receipts ("ADRs")) and its consent to Synergy's pledge of its AVH common stock to United under the Synergy Loan Agreement, United (1) granted to Kingsland the right to put its shares of AVH common stock to United at market price on the fifth anniversary of the Synergy Loan Agreement, and (2) guaranteed Synergy's obligation to pay Kingsland (which amount, if paid by United, will increase United's secured loan to Synergy by such amount) if the market price of AVH common stock on the fifth anniversary is less than $12 per ADR on the New York Stock Exchange, for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary of $217 million. Accordingly, the Company recorded a liability of $31 million for the fair value of its guarantee to loan additional funds to Synergy if required. Any additional loans to Synergy would be collateralized by Synergy's shares of AVH stock and other collateral.
Increased Cost Provisions. In United's financing transactions that include loans, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on the London Interbank Offered Rate, for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At March 31, 2019, the Company had $3.4 billion of floating rate debt and $18 million of fixed rate debt with remaining terms of up to 12 years that are subject to these increased cost provisions. In several financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to 12 years and an aggregate balance of $3.2 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to customary exclusions.
As of March 31, 2019, United is the guarantor of $142 million of aircraft mortgage debt issued by one of United's regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the Company's debt, and the Company would potentially be responsible for those costs under the guarantees.
Labor Negotiations. As of March 31, 2019, the Company had approximately 93,000 employees, of whom approximately 84% were represented by various U.S. labor organizations. On February 1, 2019, the collective bargaining agreement with the Air Line Pilots Association ("ALPA"), the union representing United’s pilots, became amendable. The Company and ALPA are in negotiations for an amended agreement. The Company and UNITE HERE, the labor union representing United's Catering Operations employees, started negotiations for a first collective bargaining agreement in March 2019.
NOTE 10 - DEBT
As of March 31, 2019, UAL and United were in compliance with their respective debt covenants. As of March 31, 2019, United had its entire capacity of $2.0 billion available under the revolving credit facility of the Amended and Restated Credit and Guaranty Agreement.
EETCs. In February 2019, United created two new EETC pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. The pass-through certificates represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on our consolidated balance sheet because the proceeds held by the depositary are not United's assets. Certain details of the pass-through trusts with proceeds received from issuance of debt in 2019 are as follows (in millions, except stated interest rate):

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EETC Date
 
Class
 
Principal
 
Final expected distribution date
 
Stated interest rate
 
Total debt recorded
as of March 31, 2019
 
Proceeds received from issuance of debt during 2019
 
Remaining proceeds from issuance of debt to be received in future periods
February 2019
 
AA
 
$
717

 
August 2031
 
4.15%
 
$
522

 
$
522

 
$
195

February 2019
 
A
 
296