UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM | |||||||||||
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
| 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. | |||||||||||||||||||||||||||||||||||
| Securities registered pursuant to Section 12(b) of the Act | |||||||||||||||||||||||
| Registrant | Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||||||||||
| United Airlines Holdings, Inc. | |||||||||||||||||||||||
| United Airlines Holdings, Inc. | |||||||||||||||||||||||
| United Airlines, Inc. | None | None | None | ||||||||||||||||||||
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 Airlines Holdings, Inc. | ☒ | No | ☐ | United Airlines, Inc. | ☒ | No | ☐ | |||||||||||||||||||||||||||||||
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 Airlines Holdings, Inc. | ☒ | No | ☐ | United Airlines, Inc. | ☒ | No | ☐ | |||||||||||||||||||||||||||||||
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 Airlines Holdings, Inc. | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||||
| United Airlines, Inc. | Large accelerated filer | ☐ | Accelerated filer | ☐ | ☒ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||||
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 Airlines Holdings, Inc. | ☐ | |||||||
| United Airlines, Inc. | ☐ | |||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| United Airlines Holdings, Inc. | Yes | No | ☒ | ||||||||||||||
| United Airlines, Inc. | Yes | No | ☒ | ||||||||||||||
The number of shares outstanding of each of the issuer's classes of common stock as of October 13, 2022 is shown below:
| United Airlines Holdings, Inc. | shares of common stock ($0.01 par value) | ||||||||||
| United Airlines, Inc. | shares of common stock ($0.01 par value) (100% owned by United Airlines Holdings, Inc.) | ||||||||||
OMISSION OF CERTAIN INFORMATION
This combined Quarterly Report on Form 10-Q is separately filed by United Airlines 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 Airlines Holdings, Inc.
United Airlines, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2022
Table of Contents
| Page | |||||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNITED AIRLINES HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating revenue: | |||||||||||||||||||||||
| Passenger revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cargo | |||||||||||||||||||||||
| Other operating revenue | |||||||||||||||||||||||
| Total operating revenue | |||||||||||||||||||||||
| Operating expense: | |||||||||||||||||||||||
| Aircraft fuel | |||||||||||||||||||||||
| Salaries and related costs | |||||||||||||||||||||||
| Landing fees and other rent | |||||||||||||||||||||||
| Aircraft maintenance materials and outside repairs | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Regional capacity purchase | |||||||||||||||||||||||
| Distribution expenses | |||||||||||||||||||||||
| Aircraft rent | |||||||||||||||||||||||
| Special charges (credits) | ( | ( | |||||||||||||||||||||
| Other operating expenses | |||||||||||||||||||||||
| Total operating expense | |||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||
| Nonoperating income (expense): | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest capitalized | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Unrealized gains (losses) on investments, net | ( | ( | |||||||||||||||||||||
| Miscellaneous, net | ( | ( | ( | ||||||||||||||||||||
| Total nonoperating expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income tax expense (benefit) | ( | ( | |||||||||||||||||||||
| Income tax expense (benefit) | ( | ( | |||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Earnings (loss) per share, basic | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Earnings (loss) per share, diluted | $ | $ | $ | ( | $ | ( | |||||||||||||||||
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
3
UNITED AIRLINES HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Employee benefit plans | ( | ||||||||||||||||||||||
| Investments and other | ( | ( | ( | ( | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive income (loss), net | $ | $ | $ | ( | $ | ( | |||||||||||||||||
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
4
UNITED AIRLINES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
| September 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Restricted cash | |||||||||||
Receivables, less allowance for credit losses (2022 — $ | |||||||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2022 — $ | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
| Operating property and equipment: | |||||||||||
| Flight equipment | |||||||||||
| Other property and equipment | |||||||||||
| Purchase deposits for flight equipment | |||||||||||
| Total operating property and equipment | |||||||||||
| Less — Accumulated depreciation and amortization | ( | ( | |||||||||
| Total operating property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets: | |||||||||||
| Goodwill | |||||||||||
Intangibles, less accumulated amortization (2022 — $ | |||||||||||
| Restricted cash | |||||||||||
| Deferred income taxes | |||||||||||
Investments in affiliates and other, less allowance for credit losses (2022 — $ | |||||||||||
| Total other assets | |||||||||||
| Total assets | $ | $ | |||||||||
(continued on next page)
5
UNITED AIRLINES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
| September 30, 2022 | December 31, 2021 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued salaries and benefits | |||||||||||
| Advance ticket sales | |||||||||||
| Frequent flyer deferred revenue | |||||||||||
| Current maturities of long-term debt | |||||||||||
| Current maturities of other financial liabilities | |||||||||||
| Current maturities of operating leases | |||||||||||
| Current maturities of finance leases | |||||||||||
| Other | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Long-term obligations under operating leases | |||||||||||
| Long-term obligations under finance leases | |||||||||||
| Other liabilities and deferred credits: | |||||||||||
| Frequent flyer deferred revenue | |||||||||||
| Pension liability | |||||||||||
| Postretirement benefit liability | |||||||||||
| Other financial liabilities | |||||||||||
| Other | |||||||||||
| Total other liabilities and deferred credits | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
| Preferred stock | |||||||||||
Common stock at par, $ | |||||||||||
| Additional capital invested | |||||||||||
| Stock held in treasury, at cost | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
6
UNITED AIRLINES HOLDINGS, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital expenditures, net of flight equipment purchase deposit returns | ( | ( | |||||||||
| Purchases of short-term and other investments | ( | ( | |||||||||
| Proceeds from sale of short-term and other investments | |||||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from issuance of debt, net of discounts and fees | |||||||||||
| Proceeds from equity issuance | |||||||||||
| Payments of long-term debt, finance leases and other financing liabilities | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | |||||||||||
| Cash, cash equivalents and restricted cash at end of the period (a) | $ | $ | |||||||||
| Investing and Financing Activities Not Affecting Cash: | |||||||||||
| Property and equipment acquired through the issuance of debt, finance leases and other | $ | $ | |||||||||
| Lease modifications and lease conversions | |||||||||||
| Right-of-use assets acquired through operating leases | |||||||||||
| Investment interests received in exchange for goods and services | |||||||||||
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash — Current | |||||||||||
| Restricted cash — Non-Current | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
7
UNITED AIRLINES HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (UNAUDITED)
(In millions)
| Common Stock | Additional Capital Invested | Treasury Stock | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued for share-based awards, net of shares withheld for tax | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued for share-based awards, net of shares withheld for tax | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued for share-based awards, net of shares withheld for tax | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Warrants issued | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued for share-based awards, net of shares withheld for tax | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating revenue: | |||||||||||||||||||||||
| Passenger revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cargo | |||||||||||||||||||||||
| Other operating revenue | |||||||||||||||||||||||
| Total operating revenue | |||||||||||||||||||||||
| Operating expense: | |||||||||||||||||||||||
| Aircraft fuel | |||||||||||||||||||||||
| Salaries and related costs | |||||||||||||||||||||||
| Landing fees and other rent | |||||||||||||||||||||||
| Aircraft maintenance materials and outside repairs | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Regional capacity purchase | |||||||||||||||||||||||
| Distribution expenses | |||||||||||||||||||||||
| Aircraft rent | |||||||||||||||||||||||
| Special charges (credits) | ( | ( | |||||||||||||||||||||
| Other operating expenses | |||||||||||||||||||||||
| Total operating expense | |||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||
| Nonoperating income (expense): | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest capitalized | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Unrealized gains (losses) on investments, net | ( | ( | |||||||||||||||||||||
| Miscellaneous, net | ( | ( | ( | ||||||||||||||||||||
| Total nonoperating expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income tax expense (benefit) | ( | ( | |||||||||||||||||||||
| Income tax expense (benefit) | ( | ( | |||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
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 (LOSS) (UNAUDITED)
(In millions)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Employee benefit plans | ( | ||||||||||||||||||||||
| Investments and other | ( | ( | ( | ( | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive income (loss), net | $ | $ | $ | ( | $ | ( | |||||||||||||||||
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)
| September 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Restricted cash | |||||||||||
Receivables, less allowance for credit losses (2022 — $ | |||||||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2022 — $ | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
| Operating property and equipment: | |||||||||||
| Flight equipment | |||||||||||
| Other property and equipment | |||||||||||
| Purchase deposits for flight equipment | |||||||||||
| Total operating property and equipment | |||||||||||
| Less — Accumulated depreciation and amortization | ( | ( | |||||||||
| Total operating property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets: | |||||||||||
| Goodwill | |||||||||||
Intangibles, less accumulated amortization (2022 — $ | |||||||||||
| Restricted cash | |||||||||||
| Deferred income taxes | |||||||||||
Investments in affiliates and other, less allowance for credit losses (2022 — $ | |||||||||||
| Total other assets | |||||||||||
| Total assets | $ | $ | |||||||||
(continued on next page)
11
UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
| September 30, 2022 | December 31, 2021 | ||||||||||
| LIABILITIES AND STOCKHOLDER'S EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued salaries and benefits | |||||||||||
| Advance ticket sales | |||||||||||
| Frequent flyer deferred revenue | |||||||||||
| Current maturities of long-term debt | |||||||||||
| Current maturities of other financial liabilities | |||||||||||
| Current maturities of operating leases | |||||||||||
| Current maturities of finance leases | |||||||||||
| Other | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Long-term obligations under operating leases | |||||||||||
| Long-term obligations under finance leases | |||||||||||
| Other liabilities and deferred credits: | |||||||||||
| Frequent flyer deferred revenue | |||||||||||
| Pension liability | |||||||||||
| Postretirement benefit liability | |||||||||||
| Other financial liabilities | |||||||||||
| Other | |||||||||||
| Total other liabilities and deferred credits | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholder's equity: | |||||||||||
Common stock at par, $ | |||||||||||
| Additional capital invested | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Payable to parent | |||||||||||
| Total stockholder's equity | |||||||||||
| Total liabilities and stockholder's equity | $ | $ | |||||||||
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)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital expenditures, net of flight equipment purchase deposit returns | ( | ( | |||||||||
| Purchases of short-term and other investments | ( | ( | |||||||||
| Proceeds from sale of short-term and other investments | |||||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from issuance of debt, net of discounts and fees | |||||||||||
| Proceeds from issuance of parent company stock | |||||||||||
| Payments of long-term debt, finance leases and other financing liabilities | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | |||||||||||
| Cash, cash equivalents and restricted cash at end of the period (a) | $ | $ | |||||||||
| Investing and Financing Activities Not Affecting Cash: | |||||||||||
| Property and equipment acquired through the issuance of debt, finance leases and other | $ | $ | |||||||||
| Lease modifications and lease conversions | |||||||||||
| Right-of-use assets acquired through operating leases | |||||||||||
| Investment interests received in exchange for goods and services | |||||||||||
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash — Current | |||||||||||
| Restricted cash — Non-Current | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
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 (UNAUDITED)
(In millions)
| Additional Capital Invested | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Payable to Parent | Total | |||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | — | ( | ||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | ||||||||||||||||||||||||||
| Other | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Net loss | — | ( | — | — | ( | ||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | — | ( | ||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | ||||||||||||||||||||||||||
| Other | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | — | ( | ||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | ||||||||||||||||||||||||||
| Other | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Net loss | — | ( | — | — | ( | ||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ||||||||||||||||||||||||||
| Stock-settled share-based compensation | — | — | — | ||||||||||||||||||||||||||
| Impact of UAL common stock issuance | — | — | — | ||||||||||||||||||||||||||
| Other | — | — | — | ||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
14
UNITED AIRLINES HOLDINGS, INC. AND UNITED AIRLINES, INC.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
United Airlines 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 for interim periods presented. 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 fiscal year ended December 31, 2021 (the "2021 Form 10-K"). The Company's quarterly financial data is subject to seasonal fluctuations. Historically its second and third quarter financial results have reflected higher travel demand, and were better than its first and fourth quarter financial results.
NOTE 1 — REVENUE
Revenue by Geography. The table below presents the Company's operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Domestic (U.S. and Canada) | $ | $ | $ | $ | |||||||||||||||||||
| Atlantic | |||||||||||||||||||||||
| Latin America | |||||||||||||||||||||||
| Pacific | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Advance Ticket Sales. All tickets sold at any given point in time have travel dates through the next 12 months. The Company defers amounts related to future travel in its Advance ticket sales liability account. The Company's Advance ticket sales liability also includes credits issued to customers on future flight credits ("FFCs") and electronic travel certificates ("ETCs"), primarily for ticket cancellations, which can be applied towards a purchase of a new ticket. FFCs and ETCs are valid up to one year from the date of issuance; however, all credits issued on or before December 31, 2022 have been extended to December 31, 2023. The Company is unable to estimate the amount of the FFCs and ETCs that will be used within the next 12 months and has classified the entire amount of the Advance ticket sales liability in current liabilities even though some of the FFCs and ETCs could be used after the next 12 months.
The Company estimates the value of Advance tickets sales that will expire unused ("breakage") and recognizes revenue at the scheduled flight date. To determine breakage, the Company uses its historical experience with expired tickets and other facts, such as recent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets. Given the uncertainty of travel demand caused by the novel coronavirus ("COVID-19") pandemic, changes in our estimates of FFCs and ETCs that may expire unused could have a significant impact on revenue. Changes in estimates of breakage are recognized prospectively in proportion to the remaining usage of the related tickets.
In the three and nine months ended September 30, 2022, the Company recognized approximately $5.1 billion and $3.0 billion, respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods. In the three and nine months ended September 30, 2021, the Company recognized approximately $2.8 billion and $1.6 billion, respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods.
15
Ancillary Fees. The Company charges fees, separately from ticket sales, for certain ancillary services that are directly related to passengers' travel, such as baggage fees, premium seats, inflight amenities 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 $0.9 billion and $2.4 billion of ancillary fees within passenger revenue in the three and nine months ended September 30, 2022, respectively. The Company recorded $0.7 billion and $1.5 billion of ancillary fees within passenger revenue in the three and nine months ended September 30, 2021, respectively.
Frequent Flyer Accounting. The table below presents a roll forward of Frequent flyer deferred revenue (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Total Frequent flyer deferred revenue - beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Total miles awarded | |||||||||||||||||||||||
| Travel miles redeemed | ( | ( | ( | ( | |||||||||||||||||||
| Non-travel miles redeemed | ( | ( | ( | ( | |||||||||||||||||||
| Total Frequent flyer deferred revenue - ending balance | $ | $ | $ | $ | |||||||||||||||||||
In the three and nine months ended September 30, 2022, the Company recognized, in Other operating revenue, $0.6 billion and $1.7 billion, respectively, related to the marketing, advertising, non-travel miles redeemed (net of related costs) and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our JPMorgan Chase Bank, N.A. MileagePlus co-brand agreement. The Company recognized $0.5 billion and $1.3 billion, respectively, in the three and nine months ended September 30, 2021, related to those agreements. The portion related to the MileagePlus miles awarded of the total amounts received from our various partner agreements is deferred and presented in the table above as an increase to the frequent flyer liability. We determine the current portion of our frequent flyer liability based on expected redemptions in the next 12 months.
NOTE 2 — EARNINGS (LOSS) PER SHARE
The computations of UAL's basic and diluted earnings (loss) per share are set forth below (in millions, except per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Earnings (loss) available to common stockholders | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Basic weighted-average shares outstanding | |||||||||||||||||||||||
| Dilutive effect of employee stock awards | |||||||||||||||||||||||
| Dilutive effect of stock warrants | |||||||||||||||||||||||
| Diluted weighted-average shares outstanding | |||||||||||||||||||||||
| Earnings (loss) per share, basic | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Earnings (loss) per share, diluted | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Potentially dilutive securities (a) | |||||||||||||||||||||||
| Stock warrants (b) | |||||||||||||||||||||||
| Employee stock awards | |||||||||||||||||||||||
| (a) Weighted-average potentially dilutive securities outstanding excluded from the computation of diluted earnings per share because the securities would have had an antidilutive effect. | |||||||||||||||||||||||
(b) Represent warrants issued to the U.S. Treasury Department ("Treasury") pursuant to the payroll support program, including extensions, and the loan program established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The Company issued, to Treasury, warrants to purchase up to approximately | |||||||||||||||||||||||
16
NOTE 3 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below presents the components of the Company's accumulated other comprehensive income (loss), net of tax ("AOCI") (in millions):
| Pension and Other Postretirement Liabilities | Investments and Other | Deferred Taxes (a) | Total | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Changes in value | ( | ( | ( | |||||||||||||||||||||||
| Amounts reclassified to earnings | (b) | |||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Balance at December 31, 2021 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Changes in value | ( | ( | ||||||||||||||||||||||||
| Amounts reclassified to earnings | ( | (b) | ( | |||||||||||||||||||||||
| Balance at September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Changes in value | ( | ( | ( | |||||||||||||||||||||||
| Amounts reclassified to earnings | (b) | ( | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Balance at December 31, 2020 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Changes in value | ( | ( | ||||||||||||||||||||||||
| Amounts reclassified to earnings | (b) | ( | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
(a) Includes approximately $285
(b) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 5 of this report for additional information).
NOTE 4 — INCOME TAXES
17
NOTE 5 — EMPLOYEE BENEFIT PLANS
Defined Benefit Pension and Other Postretirement Benefit Plans. The Company's net periodic benefit cost includes the following components for the three months ended September 30 (in millions):
| Pension Benefits | Other Postretirement Benefits | Affected Line Item in the Statements of Consolidated Operations | ||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | Salaries and related costs | |||||||||||||||||||||||||||
| Interest cost | Miscellaneous, net | |||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | Miscellaneous, net | |||||||||||||||||||||||||||||
| Amortization of unrecognized (gain) loss | ( | ( | Miscellaneous, net | |||||||||||||||||||||||||||||
| Amortization of prior service credit | ( | ( | Miscellaneous, net | |||||||||||||||||||||||||||||
| Other | Miscellaneous, net | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||
The Company's net periodic benefit cost includes the following components for the nine months ended September 30 (in millions):
| Pension Benefits | Other Postretirement Benefits | Affected Line Item in the Statements of Consolidated Operations | ||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | Salaries and related costs | |||||||||||||||||||||||||||
| Interest cost | Miscellaneous, net | |||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | Miscellaneous, net | |||||||||||||||||||||||||||
| Amortization of unrecognized (gain) loss | ( | ( | Miscellaneous, net | |||||||||||||||||||||||||||||
| Amortization of prior service credit | ( | ( | Miscellaneous, net | |||||||||||||||||||||||||||||
| Special termination benefits | Miscellaneous, net | |||||||||||||||||||||||||||||||
| Other | Miscellaneous, net | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||
During the first quarter of 2021, the Company offered special separation benefits in the form of additional subsidies for retiree medical costs for certain U.S.-based front-line employees. The subsidies are in the form of a one-time contribution to a notional Retiree Health Account of $125,000 for full-time employees and $75,000 for part-time employees. As a result, the Company recorded $46 million for those additional benefits.
18
NOTE 6 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The table below presents disclosures about the financial assets and liabilities measured at fair value on a recurring basis in UAL's financial statements (in millions):
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Restricted cash - current | |||||||||||||||||||||||||||||||||||||||||||||||
| Restricted cash - non-current | |||||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agency notes | |||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||||||||||||||||||||||
Investments presented in the table above have the same fair value as their carrying value.
Restricted cash - current — Primarily includes amounts to be used for the payment of fees, principal and interest on senior secured notes and a secured term loan facility (the "MileagePlus Financing") secured by substantially all of the assets of Mileage Plus Holdings, LLC, a direct wholly-owned subsidiary of United.
Restricted cash - non-current — Primarily includes collateral associated with the MileagePlus Financing, collateral for letters of credit and collateral associated with facility leases and other insurance-related obligations.
Short-term investments — The short-term investments shown in the table above are classified as available-for-sale and have remaining maturities of approximately one year or less.
Long-term investments: Equity securities — Represents equity and equity-linked securities (such as vested warrants) that make up United's investments in Azul Linhas Aéreas Brasileiras S.A., Clear Secure, Inc., Archer Aviation Inc. and Eve Holding, Inc.
Other fair value information. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above (in millions). Carrying amounts include any related discounts, premiums and issuance costs:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Description | Fair Value Methodology | ||||
| Cash and cash equivalents and Restricted cash (current and non-current) | The carrying amounts of these assets approximate fair value. | ||||
| Short-term investments and Equity securities | 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. | ||||
| 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. | ||||
Investments in Regional Carriers. As of September 30, 2022, United holds investments in two regional carriers that fly for the Company as United Express under its capacity purchase agreements ("CPAs"). The combined carrying value of the investments was approximately $183 million as of September 30, 2022. United accounts for each investment using the equity method.
19
NOTE 7 — COMMITMENTS AND CONTINGENCIES
Commitments. As of September 30, 2022, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing") and Airbus S.A.S. ("Airbus") as presented in the table below:
| Scheduled Aircraft Deliveries | ||||||||||||||||||||||||||
| Aircraft Type | Number of Firm Commitments (a) | Last Three Months of 2022 | 2023 | After 2023 | ||||||||||||||||||||||
| Airbus A321XLR | ||||||||||||||||||||||||||
| Airbus A321neo | ||||||||||||||||||||||||||
| Airbus A350 | ||||||||||||||||||||||||||
| Boeing 737 MAX | ||||||||||||||||||||||||||
| Boeing 787 | ||||||||||||||||||||||||||
| (a) United also has options and purchase rights for additional aircraft. | ||||||||||||||||||||||||||
The aircraft listed in the table above are scheduled for delivery through 2030. The amount and timing of the Company's future capital commitments could change to the extent that: (i) the Company and the aircraft manufacturers, with whom the Company has existing orders for new aircraft, agree to modify the contracts governing those orders; (ii) rights are exercised pursuant to the relevant agreements to modify the timing of deliveries; or (iii) the aircraft manufacturers are unable to deliver in accordance with the terms of those orders. Furthermore, Boeing notified United that three Boeing 787 aircraft scheduled for delivery in 2022 and 15 Boeing 737 MAX aircraft scheduled for delivery in 2023, all as shown in the table above, are now expected to deliver in 2023 and 2024, respectively. In addition to Boeing’s notification, United estimates that seven additional Boeing 737 MAX aircraft scheduled for delivery in 2022, as shown in the table above, will deliver in 2023.
United intends to exercise options to purchase, in 2023, eight Boeing 737 MAX aircraft that are currently leased under sale and leaseback arrangements.
United has an agreement to purchase eight used Bombardier CRJ550 aircraft in the last three months of 2022.
The table below summarizes United's commitments as of September 30, 2022, which include aircraft and related spare engines, aircraft improvements and non-aircraft capital commitments. Aircraft commitments are based on contractual scheduled aircraft deliveries without any adjustments for the delays communicated by Boeing or estimated by United.
| (in billions) | ||||||||
| Last three months of 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| After 2026 | ||||||||
| $ | ||||||||
Legal Contingencies. The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. As of September 30, 2022, management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of the contingencies to which the Company is subject and prior experience, that its defenses and assertions in pending legal proceedings have merit and the ultimate disposition of any pending matter will not materially affect the Company's financial position, results of operations or cash flows. The Company records liabilities for legal claims when it is probable that a loss will be incurred and the amount is reasonably estimable. These amounts are recorded based on the Company's assessments of the likelihood of their eventual disposition.
20
During the nine months ended September 30, 2022, the Company recorded charges of $94 million as a result of a number of recent decisions, including one involving another carrier, that appear to impact the Company's ability to successfully assert, in certain cases, that federal law preempts state and local laws that conflict with union contracts and/or federal requirements.
Guarantees. As of September 30, 2022, United is the guarantor of approximately $2.0 billion in aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with these obligations are accounted for as operating leases recognized on the Company's consolidated balance sheet with the associated expense recorded on a straight-line basis over the expected lease term. All of these bonds are due between 2023 and 2041.
As of September 30, 2022, United is the guarantor of $95 million of aircraft mortgage debt issued by one of United's regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described below for the Company's debt, and the Company would potentially be responsible for those costs under the guarantees.
Increased Cost Provisions. In United's financing transactions that include loans in which United is the borrower, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans with respect to which the interest rate is based on the London Interbank Offered Rate (LIBOR), for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At September 30, 2022, the Company had $12.8 billion of floating rate debt with remaining terms of up to approximately 10 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 approximately 10 years and an aggregate balance of $9.7 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.
Credit Card Processing Agreements. The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company's credit card processing agreements, the financial institutions in certain circumstances have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that has been processed by that financial institution, but for which the Company has not yet provided the air transportation. Such financial institutions may require additional cash or other collateral reserves to be established or additional withholding of payments related to receivables collected if the Company does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments (collectively, "Unrestricted Liquidity"). The Company's level of Unrestricted Liquidity as of September 30, 2022 is substantially in excess of these minimum levels.
Labor. As of September 30, 2022, the Company had approximately 90,800 employees, of whom approximately 85 % were represented by various U.S. labor organizations.
NOTE 8 — DEBT
As of September 30, 2022, we had $1.75 billion undrawn and available under our revolving credit facility.
Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or repurchase stock. As of September 30, 2022, UAL and United were in compliance with their respective debt covenants.
21
The table below presents the Company's contractual principal payments (not including $412 million of unamortized debt discount, premiums and debt issuance costs) at September 30, 2022 under then-outstanding long-term debt agreements (in millions):
| Last three months of 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| After 2026 | ||||||||
| $ | ||||||||
During the nine months ended September 30, 2022, United borrowed $220 million aggregate principal amount from a financial institution to finance the purchase of aircraft. The notes evidencing these borrowings, which are secured by the related aircraft, mature in 2034 and have interest rates of 4 %.
NOTE 9 — SPECIAL CHARGES (CREDITS)
For the three and nine months ended September 30, operating and nonoperating special charges (credits) and unrealized (gains) losses on investments in the statements of consolidated operations consisted of the following (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| CARES Act grant | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Severance and benefit costs | |||||||||||||||||||||||
| Impairment of assets | |||||||||||||||||||||||
| (Gains) losses on sale of assets and other special charges | ( | ||||||||||||||||||||||
| Total operating special charges (credits) | ( | ( | |||||||||||||||||||||
| Nonoperating unrealized (gains) losses on investments, net | ( | ( | |||||||||||||||||||||
| Nonoperating debt extinguishment and modification fees | ( | ||||||||||||||||||||||
| Nonoperating special termination benefits | |||||||||||||||||||||||
| Total nonoperating special charges and unrealized (gains) losses on investments, net | ( | ||||||||||||||||||||||
| Total operating and nonoperating special charges (credits) and unrealized (gains) losses on investments, net | ( | ( | ( | ||||||||||||||||||||
| Income tax (benefit) expense, net of valuation allowance | ( | ( | |||||||||||||||||||||
| Total operating and nonoperating special charges (credits) and unrealized (gains) losses on investments, net of income taxes | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
2022
(Gains) losses on sale of assets and other special charges. During the three and nine months ended September 30, 2022, the Company recorded $20 million and $124 million, respectively, of net charges primarily comprised of $94 million for various legal matters. See Note 7 of this report for a discussion of the legal matters.
Nonoperating unrealized (gains) losses on investments, net. During the three and nine months ended September 30, 2022, the Company recorded gains of $28 million and losses of $12 million, respectively.
Nonoperating debt extinguishment and modification fees. During the nine months ended September 30, 2022, the Company recorded $7 million of charges primarily related to the early redemption of $400 million of its outstanding principal amount of the 4.25% senior notes due 2022.
2021
CARES Act grant. During the nine months ended September 30, 2021, the Company received approximately $5.8 billion in funding pursuant to two Payroll Support Program Extension Agreements (collectively, the "PSP2 and PSP3 Agreements") under the CARES Act, which included approximately $1.7 billion aggregate principal amount of unsecured promissory notes.
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The Company recorded $1.1 billion and $4.0 billion as grant income in Special charges (credits) during the three and nine months ended September 30, 2021, respectively. The Company also recorded $99 million for warrants to purchase shares of UAL common stock issued to the U.S. Treasury Department as part of the PSP2 and PSP3 Agreements, within stockholders' equity, as an offset to the grant income in the nine months ended September 30, 2021.
Severance and benefit costs. During the three and nine months ended September 30, 2021, the Company recorded charges of $5 million and $433 million, respectively, related to pay continuation and benefits-related costs provided to employees who chose to voluntarily separate from the Company. The Company offered, based on employee group, age and completed years of service, pay continuation, health care coverage, and travel privileges. Approximately 4,500 employees elected to voluntarily separate from the Company.
Impairment of assets. During the three months ended September 30, 2021, the Company recorded $46 million of impairment charges for nine Airbus A319 aircraft and 13 Boeing 737-700 airframes as a result of market conditions for used aircraft. During the nine months ended September 30, 2021, in addition to the third quarter 2021 impairments, the Company recorded $59 million of impairments primarily related to 64 Embraer EMB 145LR aircraft and related engines that United retired from its regional aircraft fleet. The decision to retire these aircraft was triggered by the United Next aircraft order.
(Gains) losses on sale of assets and other special charges. During the three months ended September 30, 2021, the Company recorded net gains of $17 million primarily related to gains on aircraft sale-leaseback transactions and aircraft component manufacturer credits. During the nine months ended September 30, 2021, the Company recorded net charges of $60 million primarily related to incentives for certain of its front-line employees to receive a COVID-19 vaccination and the termination of the lease associated with three floors of its headquarters at the Willis Tower in Chicago in the first quarter of 2021, which were partially offset by the net gains in the third quarter of 2021 described above.
Nonoperating unrealized (gains) losses on investments, net. During the three and nine months ended September 30, 2021, the Company recorded losses of $34 million and gains of $91 million, respectively.
Nonoperating debt extinguishment and modification fees. During the nine months ended September 30, 2021, the Company recorded $50 million of charges for fees and discounts related to the issuance of a new term loan and revolving credit facility and the prepayment of a CARES Act loan and a 2017 term loan and revolving credit facility.
Nonoperating special termination benefits. During the nine months ended September 30, 2021, as part of the first quarter 2021 voluntary leave programs, the Company recorded $46 million of special termination benefits in the form of additional subsidies for retiree medical costs for certain U.S.-based front-line employees. The subsidies were in the form of a one-time contribution into a notional Retiree Health Account of $125,000 for full-time employees and $75,000 for part-time employees.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q to enhance the understanding of our results of operations, financial condition and cash flows.
EXECUTIVE SUMMARY
Overview
United Airlines 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"). The Company's shared purpose is "Connecting People. Uniting the World." The Company has the most comprehensive route network among North American carriers, including U.S. mainland hubs in Chicago, Denver, Houston, Los Angeles, New York/Newark, San Francisco and Washington, D.C.
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 Company transports people and cargo through its mainline operations, which utilize jet aircraft with at least 126 seats, and regional operations, which utilize smaller aircraft that are operated under contract by United Express carriers. The Company serves virtually every major market around the world, either directly or through participation in Star Alliance®, the world's largest airline alliance.
Given the more significant impact of the COVID-19 pandemic on our business and operating results in 2020 and 2021, we believe that a comparison of our third quarter 2022 results to third quarter of 2019 results for certain key metrics in this financial overview discussion is more reflective of the impact of the pandemic.
Our current expectations described below are forward-looking statements and our actual results and timing may vary materially based on various factors that include, but are not limited to, those discussed below under "Economic and Market Factors" and "Forward-Looking Information" and in Part I, Item 1A. Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"). The Company discusses certain non-GAAP forward-looking projections and is unable to predict certain items contained in the corresponding GAAP measures without unreasonable efforts; refer to "Supplemental Information" below for further details. The results presented in this report are not necessarily indicative of future operating results.
Economic and Market Factors
The airline industry is highly competitive, marked by significant competition with respect to routes, fares, schedules (both timing and frequency), services, products, customer service and frequent flyer programs. We, like other companies in our industry, have been subject to these and other industry-specific competitive dynamics. In addition, our operations, supply chain, partners and suppliers have been subject to various global macroeconomic factors. We expect to continue to remain vulnerable to a number of industry-specific and global macroeconomic factors that may cause our actual results of operations to differ from our historical results of operations or current expectations. The factors and trends that we currently believe are or will be most impactful to our results of operations and financial condition include the following: the adverse impacts of the ongoing COVID-19 global pandemic, including the gradual return of business travel demand to pre-COVID-19 levels; the execution risks associated with our United Next plan; the impact on the Company of significant operational challenges by third parties on which we rely; inflationary pressures; potential labor and supply chain shortages affecting us and our partners; volatile fuel prices; aircraft delivery delays; the closure of our flying airspace and termination of other operations due to regional conflicts, including the continuation of the suspension of our overflying in Russian airspace as well as third-party general sales agent services in Russia as a result of the Russia-Ukraine military conflict and an escalation of the broader economic consequences of the conflict beyond their current scope; and changes in general economic conditions in the markets in which the Company operates, including an economic downturn leading to a decrease in demand for air travel or fluctuations in foreign currency exchange rates that may impact international travel demand. We continue to monitor the potential favorable or unfavorable
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impacts of these and other factors on our business, operations, financial condition and future results of operations, which are dependent on future developments, including as a result of those factors discussed in Item 1A. Risk Factors in the 2021 Form 10-K. Our future results of operations may be subject to volatility and our growth plans may be delayed, particularly in the short term, due to the impact of the above factors and trends. For instance, we have delayed a portion of our previously planned capacity increases for full year 2022 and 2023 in response to several factors and trends noted above and may need to implement further modifications. However, we believe that the long-term outlook for the Company remains positive due to the expected continued return of travel demand. We believe that this expected long-term increase in demand will offset increased costs and that the expected operational challenges can be managed in a manner that will allow us to support increased demand.
Impact of the COVID-19 Pandemic. The COVID-19 pandemic, together with the measures implemented or recommended by governmental authorities and private organizations in response to the pandemic, has had an adverse impact that has been material to the Company's business, operating results, financial condition and liquidity. The Company has seen increasing demand for travel both domestically and in countries where entry is permitted; however, as the situation surrounding the COVID-19 pandemic remains fluid, with intermittent periods of decelerated demand that have coincided with surges in the number of COVID-19 cases, it remains difficult to reasonably assess or predict the full extent of the ongoing impact of the COVID-19 pandemic on the Company's longer-term operational and financial performance, which will depend on a number of future developments, many of which are outside the Company's control, such as the ultimate duration of and factors impacting the long-term recovery from the pandemic (including the efficacy and speed of vaccination programs in curbing the spread of the virus in different markets, the efficacy and availability of various treatment options, the introduction and spread of new variants of the virus that may be resistant to currently approved vaccines or treatment options, and the continuation of existing or implementation of new government travel restrictions and testing requirements), customer behavior changes and fluctuations in demand for air travel, among others. The COVID-19 pandemic and the measures taken in response may continue to impact many aspects of our business, operating results, financial condition and liquidity in a number of ways, including labor shortages (including reductions in available skilled labor and related impacts to the Company's flight schedules and reputation), facility closures and related costs, disruptions to the Company's and its business partners' operations, reduced travel demand and consumer spending, increased fuel and other operating costs, supply chain disruptions, logistics constraints, inflation, volatility in the price of our securities, our ability to access capital markets and volatility in the global economy and financial markets generally.
We operated at approximately 90% of our third quarter 2019 capacity during the third quarter of 2022. At the beginning of the COVID-19 pandemic, we suspended portions of our international operations, but we resumed service to several international destinations as travel restrictions were eased and demand for travel increased. The Company has been taking steps to be prepared for recovery as demand for travel continues to generally increase, which have included investing in innovative technology, focusing on process improvements and implementing the United Next transformative strategy.
We have also taken steps to strengthen our financial position during this period of market uncertainty, which has resulted in an increase in our overall debt levels. As of September 30, 2022, unrestricted cash, cash equivalents and short-term investments totaled $18.7 billion, an increase of approximately $13.6 billion from September 30, 2019. We had approximately $38.4 billion of debt, finance lease, operating lease and sale-leaseback obligations as of September 30, 2022 (including $4.5 billion that will become due in the next 12 months), up from approximately $18.2 billion as of September 30, 2019.
The Company's recovery from the COVID-19 pandemic has not followed a linear path, and due to the significant uncertainty that remains, its future operating performance, particularly in the short-term, may be subject to volatility. Risks and uncertainties related to the COVID-19 pandemic are further described in Part I, Item 1A. Risk Factors— "The COVID-19 pandemic has materially and adversely impacted our business, operating results, financial condition and liquidity. The full extent of the impact will depend on future developments and how quickly we can return to more normal operations, among other things. If the impacts from the COVID-19 pandemic extend beyond our assumed timelines, our actual results may vary significantly from our expectations" of the 2021 Form 10-K.
Strategic Operating Plan Execution. In the second quarter of 2021, United announced its United Next plan, which we believe will have a transformational effect on the customer experience and earnings power of the business. We continued executing our United Next plan during the third quarter of 2022. We believe United Next will allow us to differentiate our network and segment our products with a greater premium offering, while also maintaining fare competitiveness with low-cost carriers.
Third Quarter 2022 Overview
Capacity. Relative to the third quarter of 2019, the Company operated approximately 90% of its capacity for the third quarter of 2022 compared to approximately 72% of its capacity in the third quarter of 2021.
Operating revenue. For the third quarter of 2022, operating revenue increased by $1.5 billion, or 13.2%, versus the third quarter of 2019 and increased by $5.1 billion, or 66.2%, versus the third quarter of 2021 due to the ongoing recovery from the
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COVID-19 pandemic accompanied by an increase in the average yield. In fact, the Company's TRASM (as defined below) for the month of September was the third best of any month in the Company's history, excluding pandemic months.
Operating expense. For the third quarter of 2022, operating expense increased by $1.5 billion, or 15.3%, versus the third quarter of 2019, mostly due to a $1.5 billion increase in fuel costs, and by $4.7 billion, or 70.1%, versus the third quarter of 2021, mostly due to a $2.0 billion increase in fuel costs, a $1.1 billion Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") grant in the prior year period that did not repeat and other increased operating costs from flight activity. We expect fuel costs to remain elevated or increase further throughout 2022.
Fourth Quarter 2022 Outlook
Capacity. The Company expects its scheduled capacity to be down approximately 9% to 10% in the fourth quarter of 2022 as compared to the same period in 2019.
Total revenue per available seat mile ("TRASM"). The Company expects TRASM to increase approximately 24% to 25% in the fourth quarter of 2022 as compared to the same period in 2019.
Adjusted cost per available seat mile ("CASM-ex"). The Company expects CASM-ex (a non-GAAP financial measure defined as cost or operating expense per available seat mile ("CASM") excluding fuel, profit sharing, third-party business expense and special charges (credits)) to increase approximately 11% to 12% in the fourth quarter of 2022 as compared to the same period in 2019.
Adjusted operating margin. The Company expects adjusted operating margin (a non-GAAP financial measure defined as operating margin excluding special charges (credits)) of approximately 10% for the fourth quarter of 2022.
RESULTS OF OPERATIONS
The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three months ended September 30, 2022, as compared to the corresponding period in 2021.
Third Quarter 2022 Compared to Third Quarter 2021
The Company recorded net income of $942 million for the third quarter of 2022 as compared to net income of $473 million for the third quarter of 2021. The Company considers a key measure of its performance to be operating income, which was $1.5 billion for the third quarter of 2022 as compared to $1.0 billion for the third quarter of 2021, a $421 million increase year-over-year. Significant components of the Company's operating results for the three months ended September 30 are as follows (in millions, except percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | |||||||||||||||||||||||
| Operating revenue | $ | 12,877 | $ | 7,750 | $ | 5,127 | 66.2 | |||||||||||||||||||
| Operating expense | 11,419 | 6,713 | 4,706 | 70.1 | ||||||||||||||||||||||
| Operating income | 1,458 | 1,037 | 421 | 40.6 | ||||||||||||||||||||||
| Nonoperating expense, net | (305) | (434) | (129) | (29.7) | ||||||||||||||||||||||
| Income tax expense | 211 | 130 | 81 | 62.3 | ||||||||||||||||||||||
| Net income | $ | 942 | $ | 473 | $ | 469 | 99.2 | |||||||||||||||||||
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Certain consolidated statistical information for the Company's operations for the three months ended September 30 is as follows:
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Passengers (thousands) (a) | 38,802 | 32,145 | 6,657 | 20.7 | |||||||||||||||||||
| Revenue passenger miles ("RPMs" or "traffic") (millions) (b) | 59,087 | 41,031 | 18,056 | 44.0 | |||||||||||||||||||
| Available seat miles ("ASMs" or "capacity") (millions) (c) | 67,695 | 53,886 | 13,809 | 25.6 | |||||||||||||||||||
| Passenger load factor (d) | 87.3 | % | 76.1 | % | 11.2 pts. | N/A | |||||||||||||||||
| Passenger revenue per available seat mile ("PRASM") (cents) | 17.21 | 12.32 | 4.89 | 39.7 | |||||||||||||||||||
| TRASM (cents) | 19.02 | 14.38 | 4.64 | 32.3 | |||||||||||||||||||
| Average yield per revenue passenger mile ("Yield") (cents) (e) | 19.72 | 16.18 | 3.54 | 21.9 | |||||||||||||||||||
| Cargo revenue ton miles ("CTM") (millions) (f) | 733 | 758 | (25) | (3.3) | |||||||||||||||||||
| CASM (cents) | 16.87 | 12.46 | 4.41 | 35.4 | |||||||||||||||||||
| CASM-ex (Non-GAAP) (cents) (g) | 11.22 | 11.26 | (0.04) | (0.4) | |||||||||||||||||||
| Average price per gallon of fuel, including fuel taxes | $ | 3.81 | $ | 2.14 | $ | 1.67 | 78.0 | ||||||||||||||||
| Fuel gallons consumed (millions) | 985 | 800 | 185 | 23.1 | |||||||||||||||||||
Employee headcount, as of September 30 | 90,800 | 85,300 | 5,500 | 6.4 | |||||||||||||||||||
| (a) The number of revenue passengers measured by each flight segment flown. | |||||||||||||||||||||||
| (b) The number of scheduled miles flown by revenue passengers. | |||||||||||||||||||||||
| (c) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown. | |||||||||||||||||||||||
| (d) Revenue passenger miles divided by available seat miles. | |||||||||||||||||||||||
| (e) The average passenger revenue received for each revenue passenger mile flown. | |||||||||||||||||||||||
| (f) The number of cargo revenue tons transported multiplied by the number of miles flown. | |||||||||||||||||||||||
(g) Cost or operating expense per available seat mile ("CASM") excluding fuel, profit sharing, third-party business expense and special charges (credits). See "Supplemental Information" below for a reconciliation to CASM, the most directly comparable GAAP measure. | |||||||||||||||||||||||
Operating Revenue. The table below shows year-over-year comparisons by type of operating revenue for the three months ended September 30 (in millions, except for percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Passenger revenue | $ | 11,653 | $ | 6,637 | $ | 5,016 | 75.6 | ||||||||||||||||
| Cargo | 498 | 519 | (21) | (4.0) | |||||||||||||||||||
| Other operating revenue | 726 | 594 | 132 | 22.2 | |||||||||||||||||||
| Total operating revenue | $ | 12,877 | $ | 7,750 | $ | 5,127 | 66.2 | ||||||||||||||||
The table below presents selected third quarter passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes:
Increase (decrease) from 2021: | |||||||||||||||||||||||||||||
| Domestic | Atlantic | Pacific | Latin | Total | |||||||||||||||||||||||||
| Passenger revenue (in millions) | $ | 2,212 | $ | 2,057 | $ | 437 | $ | 310 | $ | 5,016 | |||||||||||||||||||
| Passenger revenue | 45.7 | % | 244.9 | % | 209.1 | % | 41.7 | % | 75.6 | % | |||||||||||||||||||
| Average fare per passenger | 27.4 | % | 30.2 | % | 0.4 | % | 41.3 | % | 45.5 | % | |||||||||||||||||||
| Yield | 24.0 | % | 38.2 | % | (21.7) | % | 28.3 | % | 21.9 | % | |||||||||||||||||||
| PRASM | 31.0 | % | 84.6 | % | 88.0 | % | 49.7 | % | 39.7 | % | |||||||||||||||||||
| Passengers | 14.3 | % | 164.8 | % | 207.8 | % | 0.3 | % | 20.7 | % | |||||||||||||||||||
| RPMs | 17.4 | % | 149.4 | % | 294.6 | % | 10.4 | % | 44.0 | % | |||||||||||||||||||
| ASMs | 11.2 | % | 86.9 | % | 64.4 | % | (5.3) | % | 25.6 | % | |||||||||||||||||||
| Passenger load factor (points) | 4.6 | 22.3 | 47.9 | 12.5 | 11.2 | ||||||||||||||||||||||||
Passenger revenue increased $5.0 billion, or 75.6%, in the third quarter of 2022 as compared to the year-ago period, primarily due to the ongoing recovery in air travel that was impacted by the COVID-19 pandemic and strength in the pricing environment as a result of inflationary pressures on fuel prices and other costs.
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Cargo revenue decreased $21 million, or 4.0%, in the third quarter of 2022 as compared to the year-ago period, primarily due to lower yields as a result of increased market capacity and lower domestic mail volumes.
Other operating revenue increased $132 million, or 22.2%, in the third quarter of 2022 as compared to the year-ago period, primarily due to an increase in mileage revenue from non-airline partners, including credit card spending recovery with the co-branded credit card partner, JPMorgan Chase Bank, N.A, as well as an increase in the purchases of United Club memberships and lounge passes in the current year.
Operating Expenses. The table below includes data related to the Company's operating expenses for the three months ended September 30 (in millions, except for percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Aircraft fuel | $ | 3,755 | $ | 1,710 | $ | 2,045 | 119.6 | ||||||||||||||||
| Salaries and related costs | 2,843 | 2,487 | 356 | 14.3 | |||||||||||||||||||
| Landing fees and other rent | 639 | 652 | (13) | (2.0) | |||||||||||||||||||
| Aircraft maintenance materials and outside repairs | 619 | 346 | 273 | 78.9 | |||||||||||||||||||
| Depreciation and amortization | 610 | 623 | (13) | (2.1) | |||||||||||||||||||
| Regional capacity purchase | 596 | 520 | 76 | 14.6 | |||||||||||||||||||
| Distribution expenses | 482 | 218 | 264 | 121.1 | |||||||||||||||||||
| Aircraft rent | 65 | 58 | 7 | 12.1 | |||||||||||||||||||
| Special charges (credits) | 20 | (1,098) | 1,118 | NM | |||||||||||||||||||
| Other operating expenses | 1,790 | 1,197 | 593 | 49.5 | |||||||||||||||||||
| Total operating expenses | $ | 11,419 | $ | 6,713 | $ | 4,706 | 70.1 | ||||||||||||||||
Aircraft fuel expense increased by $2 billion, or 119.6%, in the third quarter of 2022 as compared to the year-ago period, due to both a higher average price per gallon of fuel and increased consumption from higher flight activity. We expect elevated fuel prices to continue or increase further throughout 2022.
The table below presents the significant changes in aircraft fuel cost per gallon in the three months ended September 30, 2022 as compared to the year-ago period:
| (In millions) | Average price per gallon | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||||||||||||||||||||
| Fuel expense | $ | 3,755 | $ | 1,710 | 119.6 | % | $ | 3.81 | $ | 2.14 | 78.0 | % | |||||||||||||||||||||||
| Fuel consumption (gallons) | 985 | 800 | 23.1 | % | |||||||||||||||||||||||||||||||
Salaries and related costs increased $356 million, or 14.3%, in the third quarter of 2022 as compared to the year-ago period primarily due to an increase in headcount, volume-driven pay from increased flight activity in the third quarter of 2022 and $57 million of employee retention credits under the CARES Act in the third quarter of 2021 that did not occur in the current period, among other factors.
Aircraft maintenance materials and outside repairs increased $273 million, or 78.9%, in the third quarter of 2022 as compared to the year-ago period, primarily due to higher volumes of flying, increased engine overhauls, contractual rate escalations, increased materials purchases and heavy maintenance checks.
Regional capacity purchase increased $76 million, or 14.6%, in the third quarter of 2022 as compared to the year-ago period, primarily due to rate increases under various capacity purchase agreements with regional carriers as a result of the expiration of the CARES Act credits received in the prior year, partially offset by lower regional capacity.
Distribution expenses increased $264 million, or 121.1%, in the third quarter of 2022 as compared to the year-ago period, primarily due to higher credit card fees, higher travel agency commissions and higher volumes of global distribution fees as a result of the overall increase in passenger revenue and impacted by the mix of leisure travel and business travel, which requires the use of higher cost distribution channels and forms of payment.
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Details of the Company's special charges (credits) include the following for the three months ended September 30 (in millions):
| 2022 | 2021 | ||||||||||
| CARES Act grant | $ | — | $ | (1,132) | |||||||
| Severance and benefit costs | — | 5 | |||||||||
| Impairment of assets | — | 46 | |||||||||
| (Gains) losses on sale of assets and other special charges | 20 | (17) | |||||||||
| Special charges (credits) | $ | 20 | $ | (1,098) | |||||||
See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on the Company's special charges (credits).
Other operating expenses increased $593 million, or 49.5%, in the third quarter of 2022 as compared to the year ago period, primarily due to increases in ground handling, passenger services, food and beverage offerings, navigation fees and personnel-related costs as a direct result of the increase in flight activity and inflationary pressures and higher expenditures on information technology projects and services.
Nonoperating Income (Expense). The table below shows year-over-year comparisons of the Company's nonoperating income (expense) for the three months ended September 30 (in millions, except for percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Interest expense | $ | (455) | $ | (449) | $ | 6 | 1.3 | ||||||||||||||||
| Interest capitalized | 27 | 18 | 9 | 50.0 | |||||||||||||||||||
| Interest income | 104 | 11 | 93 | NM | |||||||||||||||||||
| Unrealized gains (losses) on investments, net | 28 | (34) | 62 | NM | |||||||||||||||||||
| Miscellaneous, net | (9) | 20 | (29) | (145.0) | |||||||||||||||||||
| Total | $ | (305) | $ | (434) | $ | (129) | (29.7) | ||||||||||||||||
Interest income increased $93 million in the third quarter of 2022 as compared to the year-ago period, primarily due to higher short-term investments in U.S. government and agency notes. See Note 6 to the financial statements included in Part I, Item 1 of this report for additional information.
Unrealized gains on investments, net, was $28 million in the third quarter of 2022 as compared to $34 million in unrealized losses in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities. See Note 6 to the financial statements included in Part I, Item 1 of this report for information related to these equity investments.
Miscellaneous, net decreased $29 million in the third quarter of 2022 as compared to the year-ago period, primarily due to higher foreign exchange losses recorded in 2022 and adjustments relating to debt extinguishment and modification fees recorded in 2021. See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information related to debt extinguishment and modification fees.
Income Taxes. See Note 4 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.
First Nine Months 2022 Compared to First Nine Months 2021
The Company recorded a net loss of $106 million in the first nine months of 2022 as compared to a net loss of $1.3 billion in the first nine months of 2021. The Company considers a key measure of its performance to be operating income, which was $960 million for the first nine months of 2022, as compared to an operating loss of $614 million for the first nine months of 2021, an approximately $1.6 billion increase year-over-year, primarily as a result of increased demand for air travel. Significant components of the Company's operating results for the nine months ended September 30 are as follows (in millions, except
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percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | |||||||||||||||||||||||
| Operating revenue | $ | 32,555 | $ | 16,442 | $ | 16,113 | 98.0 | |||||||||||||||||||
| Operating expense | 31,595 | 17,056 | 14,539 | 85.2 | ||||||||||||||||||||||
| Operating income (loss) | 960 | (614) | 1,574 | 256.4 | ||||||||||||||||||||||
| Nonoperating expense, net | (1,100) | (1,098) | 2 | 0.2 | ||||||||||||||||||||||
| Income tax benefit | (34) | (394) | (360) | (91.4) | ||||||||||||||||||||||
| Net loss | $ | (106) | $ | (1,318) | $ | (1,212) | (92.0) | |||||||||||||||||||
Certain consolidated statistical information for the Company's operations for the nine months ended September 30 is as follows:
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Passengers (thousands) | 106,058 | 70,728 | 35,330 | 50.0 | |||||||||||||||||||
| RPMs (millions) | 152,033 | 86,793 | 65,240 | 75.2 | |||||||||||||||||||
| ASMs (millions) | 183,564 | 123,869 | 59,695 | 48.2 | |||||||||||||||||||
| Passenger load factor | 82.8 | % | 70.1 | % | 12.7 pts. | N/A | |||||||||||||||||
| PRASM (cents) | 15.71 | 10.75 | 4.96 | 46.1 | |||||||||||||||||||
| TRASM (cents) | 17.73 | 13.27 | 4.46 | 33.6 | |||||||||||||||||||
| Yield (cents) | 18.96 | 15.35 | 3.61 | 23.5 | |||||||||||||||||||
| CTM (millions) | 2,276 | 2,415 | (139) | (5.8) | |||||||||||||||||||
| CASM (cents) | 17.21 | 13.77 | 3.44 | 25.0 | |||||||||||||||||||
| CASM-ex (Non-GAAP) (cents) (a) | 11.74 | 13.40 | (1.66) | (12.4) | |||||||||||||||||||
| Average price per gallon of fuel, including fuel taxes | $ | 3.67 | $ | 1.98 | $ | 1.69 | 85.4 | ||||||||||||||||
| Fuel gallons consumed (millions) | 2,672 | 1,915 | 757 | 39.5 | |||||||||||||||||||
Employee headcount, as of September 30 | 90,800 | 85,300 | 5,500 | 6.4 | |||||||||||||||||||
(a) See "Supplemental Information" below for a reconciliation to CASM, the most directly comparable GAAP measure. | |||||||||||||||||||||||
Operating Revenue. The table below shows year-over-year comparisons by type of operating revenue for the nine months ended September 30 (in millions, except for percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Passenger revenue | $ | 28,830 | $ | 13,319 | $ | 15,511 | 116.5 | ||||||||||||||||
| Cargo | 1,699 | 1,622 | 77 | 4.7 | |||||||||||||||||||
| Other operating revenue | 2,026 | 1,501 | 525 | 35.0 | |||||||||||||||||||
| Total operating revenue | $ | 32,555 | $ | 16,442 | $ | 16,113 | 98.0 | ||||||||||||||||
The table below presents selected passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:
Increase (decrease) from 2021: | |||||||||||||||||||||||||||||
| Domestic | Atlantic | Pacific | Latin | Consolidated | |||||||||||||||||||||||||
| Passenger revenue (in millions) | $ | 8,876 | $ | 4,511 | $ | 871 | $ | 1,253 | $ | 15,511 | |||||||||||||||||||
| Passenger revenue | 90.2 | % | 329.5 | % | 202.6 | % | 74.8 | % | 116.5 | % | |||||||||||||||||||
| Average fare per passenger | 32.2 | % | 26.3 | % | (3.6) | % | 33.0 | % | 44.4 | % | |||||||||||||||||||
| Yield | 26.9 | % | 39.5 | % | (21.0) | % | 20.2 | % | 23.5 | % | |||||||||||||||||||
| PRASM | 37.5 | % | 104.3 | % | 88.0 | % | 49.3 | % | 46.1 | % | |||||||||||||||||||
| Passengers | 43.9 | % | 240.1 | % | 213.8 | % | 31.4 | % | 50.0 | % | |||||||||||||||||||
| RPMs | 49.9 | % | 207.9 | % | 282.9 | % | 45.5 | % | 75.2 | % | |||||||||||||||||||
| ASMs | 38.3 | % | 110.1 | % | 60.8 | % | 17.1 | % | 48.2 | % | |||||||||||||||||||
| Passenger load factor (points) | 6.6 | 26.2 | 36.5 | 16.1 | 12.7 | ||||||||||||||||||||||||
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Passenger revenue increased $15.5 billion, or 116.5%, in the first nine months of 2022 as compared to the year-ago period, primarily due to the ongoing recovery in air travel which was impacted by the COVID-19 pandemic and strength in the pricing environment as a result of inflationary pressures on fuel prices and other costs.
Cargo revenue increased $77 million, or 4.7%, in the first nine months of 2022 as compared to the year-ago period, primarily due to higher yields on freight revenue from strong global demand, primarily in the first quarter of 2022. Cargo revenue was especially high in 2021 due to the limited market capacity, lower passenger load factors and the utilization of cargo-only flights in the first half of 2021.
Other operating revenue increased $525 million, or 35.0%, in the first nine months of 2022 as compared to the year-ago period, primarily due to an increase in mileage revenue from non-airline partners, including credit card spending recovery with our co-branded credit card partner, JPMorgan Chase Bank, N.A., as well as United Club re-openings and increased member volumes compared to the prior year.
Operating Expenses. The table below includes data related to the Company's operating expenses for the nine months ended September 30 (in millions, except for percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Aircraft fuel | $ | 9,796 | $ | 3,793 | $ | 6,003 | 158.3 | ||||||||||||||||
| Salaries and related costs | 8,466 | 6,987 | 1,479 | 21.2 | |||||||||||||||||||
| Landing fees and other rent | 1,919 | 1,735 | 184 | 10.6 | |||||||||||||||||||
| Depreciation and amortization | 1,832 | 1,866 | (34) | (1.8) | |||||||||||||||||||
| Regional capacity purchase | 1,728 | 1,546 | 182 | 11.8 | |||||||||||||||||||
| Aircraft maintenance materials and outside repairs | 1,553 | 917 | 636 | 69.4 | |||||||||||||||||||
| Distribution expenses | 1,101 | 442 | 659 | 149.1 | |||||||||||||||||||
| Aircraft rent | 193 | 165 | 28 | 17.0 | |||||||||||||||||||
| Special charges (credits) | 124 | (3,423) | 3,547 | NM | |||||||||||||||||||
| Other operating expenses | 4,883 | 3,028 | 1,855 | 61.3 | |||||||||||||||||||
| Total operating expenses | $ | 31,595 | $ | 17,056 | $ | 14,539 | 85.2 | ||||||||||||||||
Aircraft fuel expense increased $6.0 billion, or 158.3%, in the first nine months of 2022 as compared to the year-ago period, primarily due to both a higher average price per gallon of fuel and increased consumption from higher flight activity. We expect elevated fuel prices to continue throughout 2022.
The table below presents the significant changes in aircraft fuel cost per gallon in the nine months ended September 30, 2022, as compared to the year-ago period:
| (In millions) | Average price per gallon | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||||||||||||||||||||
| Fuel expense | $ | 9,796 | $ | 3,793 | 158.3 | % | $ | 3.67 | $ | 1.98 | 85.4 | % | |||||||||||||||||||||||
| Fuel consumption (gallons) | 2,672 | 1,915 | 39.5 | % | |||||||||||||||||||||||||||||||
Salaries and related costs increased $1.5 billion, or 21.2%, in the first nine months of 2022 as compared to the year-ago period, primarily due to increased headcount, volume-driven pay from increased flight activity and $405 million of employee retention credits under the CARES Act in the first nine months of 2021 that did not occur in the current period, among other factors.
Landing fees and other rent increased $184 million, or 10.6%, in the first nine months of 2022 as compared to the year-ago period, primarily due to an increase in landed weight volume as a result of increased flight activity.
Regional capacity purchase increased $182 million, or 11.8%, in the third quarter of 2022 as compared to the year-ago period, primarily due to rate increases under various capacity purchase agreements with regional carriers as a result of the expiration of the CARES Act credits received in the prior year.
Aircraft maintenance materials and outside repairs increased $636 million, or 69.4%, in the first nine months of 2022 as compared to the year-ago period, primarily due to higher volumes of flying, increased engine overhauls, higher repair volumes, heavy airframe checks and contractual rate escalations.
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Distribution expenses increased $659 million, or 149.1%, in the first nine months of 2022 as compared to the year-ago period, primarily due to higher credit card fees, higher travel agency commissions and higher volumes of global distribution fees as a result of the overall increase in passenger revenue. Distribution expenses were also impacted by the mix of leisure travel and business travel, which requires the use of different distribution channels and forms of payment.
Details of the Company's special charges (credits) include the following for the nine months ended September 30 (in millions):
| 2022 | 2021 | ||||||||||
| CARES Act grant | $ | — | $ | (4,021) | |||||||
| Severance and benefit costs | — | 433 | |||||||||
| Impairment of assets | — | 105 | |||||||||
| (Gains) losses on sale of assets and other special charges | 124 | 60 | |||||||||
| Special charges (credits) | $ | 124 | $ | (3,423) | |||||||
See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on the Company's special charges (credits).
Other operating expenses increased $1.9 billion, or 61.3%, in the first nine months of 2022 as compared to the year-ago period, primarily due to increases in ground handling, passenger services, food and beverage offerings, navigation fees and personnel-related costs as a direct result of the increase in flight activity and inflationary pressures and higher expenditures on information technology projects and services.
Nonoperating Income (Expense). The following table illustrates the year-over-year dollar and percentage changes in the Company's nonoperating income (expense) for the nine months ended September 30 (in millions, except for percentage changes):
| 2022 | 2021 | Increase (Decrease) | % Change | ||||||||||||||||||||
| Interest expense | $ | (1,299) | $ | (1,228) | $ | 71 | 5.8 | ||||||||||||||||
| Interest capitalized | 73 | 57 | 16 | 28.1 | |||||||||||||||||||
| Interest income | 142 | 30 | 112 | 373.3 | |||||||||||||||||||
| Unrealized gains (losses) on investments, net | (12) | 91 | (103) | NM | |||||||||||||||||||
| Miscellaneous, net | (4) | (48) | (44) | (91.7) | |||||||||||||||||||
| Total | $ | (1,100) | $ | (1,098) | $ | 2 | 0.2 | ||||||||||||||||
Interest expense increased $71 million, or 5.8%, in the first nine months of 2022 as compared to the year-ago period, primarily due to higher interest rates on variable rate debt.
Interest income increased $112 million, or 373.3%, in the first nine months of 2022 as compared to the year-ago period, primarily due to higher short-term investments in U.S. government and agency notes. See Note 6 to the financial statements included in Part I, Item 1 of this report for additional information.
Unrealized losses on investments, net, was $12 million in the first nine months of 2022 as compared to $91 million in unrealized gains in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities. See Note 6 to the financial statements included in Part I, Item 1 of this report for information related to these equity investments.
Miscellaneous, net decreased $44 million in the first nine months of 2022 as compared to the year-ago period, primarily due to special termination benefits related to voluntary separation programs and debt extinguishment and modification fees recorded in the first nine months of 2021 partially offset by higher foreign exchange losses recorded in 2022. See Notes 5 and 9 to the financial statements included in Part I, Item 1 of this report for additional information.
Income Taxes. See Note 4 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Current Liquidity
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As of September 30, 2022, the Company had $18.7 billion in unrestricted cash, cash equivalents and short-term investments, as compared to $18.4 billion at December 31, 2021. We believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations, will be sufficient to satisfy our anticipated liquidity needs for the next twelve months, and we expect to meet our long-term liquidity needs with our anticipated access to the capital markets and projected cash from operations. We regularly assess our anticipated working capital needs, debt and leverage levels, debt maturities, capital expenditure requirements (including in connection with our capital commitments for our firm order aircraft) and future investments or acquisitions in order to maximize shareholder return, efficiently finance our ongoing operations and maintain flexibility for future strategic transactions. We also regularly evaluate our liquidity and capital structure to ensure financial risks, liquidity access and cost of capital are each managed efficiently. While we have been able to access the capital markets to meet our significant long-term debt and finance lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines, we must return to sustained profitability in order to service our debt and maintain appropriate liquidity levels for our long-term operating needs.
The Company has a $1.75 billion revolving credit facility (the "Revolving Credit Facility") expiring April 21, 2025 (subject to customary extension rights). The Revolving Credit Facility is secured by certain route authorities and airport slots and gates. No borrowings were outstanding under the facility at September 30, 2022.
We have a significant amount of fixed obligations, including debt, leases of aircraft, airport and other facilities, and pension funding obligations. As of September 30, 2022, the Company had approximately $38.4 billion of debt, finance lease, operating lease and sale-leaseback obligations, including $4.5 billion that will become due in the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines. Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or repurchase stock. As of September 30, 2022, UAL and United were in compliance with their respective debt covenants. As of September 30, 2022, a substantial portion of the Company's assets, principally aircraft and certain related assets, its loyalty program, certain route authorities and airport slots and gates, was pledged under various loan and other agreements. See Note 8 to the financial statements included in Part I, Item 1 of this report for additional information on aircraft financing and other debt instruments.
For 2022, the Company expects approximately $4.7 billion of adjusted capital expenditures (a non-GAAP financial measure defined as GAAP capital expenditures including expenditures for assets acquired through the issuance of debt, finance leases and other financial liabilities). The Company has backstop financing commitments available from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions. See "Supplemental Information" for additional information on non-GAAP financial measures and Note 7 to the financial statements included in Part I, Item I of this report for additional information on commitments.
As of September 30, 2022, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing") and Airbus S.A.S. ("Airbus") as presented in the table below:
| Scheduled Aircraft Deliveries | |||||||||||||||||||||||||||||
| Aircraft Type | Number of Firm Commitments (a) | Last Three Months of 2022 | 2023 | After 2023 | |||||||||||||||||||||||||
| Airbus A321XLR | 50 | — | — | 50 | |||||||||||||||||||||||||
| Airbus A321neo | 70 | — | 12 | 58 | |||||||||||||||||||||||||
| Airbus A350 | 45 | — | — | 45 | |||||||||||||||||||||||||
| Boeing 737 MAX | 353 | 27 | 121 | 205 | |||||||||||||||||||||||||
| Boeing 787 | 7 | 7 | — | — | |||||||||||||||||||||||||
| (a) United also has options and purchase rights for additional aircraft. | |||||||||||||||||||||||||||||
The aircraft listed in the table above are scheduled for delivery through 2030. The amount and timing of the Company's future capital commitments could change to the extent that: (i) the Company and the aircraft manufacturers, with whom the Company has existing orders for new aircraft, agree to modify the contracts governing those orders; (ii) rights are exercised pursuant to the relevant agreements to modify the timing of deliveries; or (iii) the aircraft manufacturers are unable to deliver in accordance with the terms of those orders. Furthermore, Boeing notified United that three Boeing 787 aircraft scheduled for delivery in 2022 and 15 Boeing 737 MAX aircraft scheduled for delivery in 2023, all as shown in the table above, are now expected to deliver in 2023 and 2024, respectively. In addition to Boeing’s notification, United estimates that seven additional Boeing 737 MAX aircraft scheduled for delivery in 2022, as shown in the table above, will deliver in 2023.
United has an agreement to purchase eight used Bombardier CRJ550 aircraft in the last three months of 2022.
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The table below summarizes United's commitments as of September 30, 2022, which include aircraft and related spare engines, aircraft improvements and non-aircraft capital commitments. Aircraft commitments are based on contractual scheduled aircraft deliveries without any adjustments for the delays communicated by Boeing or estimated by United.
| (in billions) | ||||||||
| Last three months of 2022 | $ | 3.0 | ||||||
| 2023 | 8.4 | |||||||
| 2024 | 6.9 | |||||||
| 2025 | 4.4 | |||||||
| 2026 | 3.4 | |||||||
| After 2026 | 8.5 | |||||||
| $ | 34.6 | |||||||
Sources and Uses of Cash
The following table summarizes our cash flows for the nine months ended September 30 (in millions):
| 2022 | 2021 | Increase (Decrease) | ||||||||||||||||||
| Total cash provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 4,908 | $ | 2,336 | $ | 2,572 | ||||||||||||||
| Investing activities | (9,442) | (1,324) | 8,118 | |||||||||||||||||
| Financing activities | (2,472) | 6,971 | (9,443) | |||||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (7,006) | $ | 7,983 | $ | (14,989) | ||||||||||||||
Operating Activities. Cash flows provided by operations increased $2.6 billion in the first nine months of 2022 as compared to the year-ago period, primarily due to higher profitability as improvements in the demand for air travel continued and an approximately $0.9 billion increase in advance ticket sales associated with the overall travel demand recovery.
Investing Activities. Cash flows used in investing activities increased $8.1 billion in the first nine months of 2022 as compared to the year-ago period, primarily due to the purchase of short-term and other investments. Capital expenditures were approximately $2.3 billion and $1.6 billion for the nine months ended September 30, 2022 and 2021, respectively. Capital expenditures for the nine months ended September 30, 2022 were primarily attributable to the purchase of aircraft and aircraft improvements. Capital expenditures for the nine months ended September 30, 2021 were primarily attributable to advance deposits for future aircraft purchases.
Financing Activities. Significant financing events in the nine months ended September 30, 2022 and 2021 were as follows:
Debt, Finance Lease and Other Financing Liability Principal Payments. During the nine months ended September 30, 2022, the Company made payments for debt, finance leases, and other financing liabilities of $2.6 billion. During the nine months ended September 30, 2021, the Company made payments for debt, finance leases and other financing liabilities of $4.6 billion, primarily for repayments of $1.4 billion aggregate principal amount outstanding under a 2017 term loan facility, $1.0 billion aggregate principal amount outstanding under a 2017 revolving credit facility and $520 million aggregate principal amount outstanding under a CARES Act loan.
Debt Issuances. During the nine months ended September 30, 2022, United received and recorded $220 million from aircraft financings.
During the nine months ended September 30, 2021, United received and recorded:
•$1.7 billion from senior unsecured notes under the Payroll Support Program Extension Agreements of the CARES Act;
•$600 million of proceeds as debt from the enhanced equipment trust certificates pass-through trusts established in February 2021;
•$5.0 billion from a new term loan; and
•$4.0 billion from the issuance of 4.375% senior secured notes due 2026 and 4.625% senior secured notes due 2029.
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See Note 8 to the financial statements included in Part I, Item 1 of this report for additional information.
Commitments, Contingencies and Liquidity Matters. As described in the 2021 Form 10-K, the Company's liquidity may be adversely impacted by a variety of factors, including, but not limited to, pension funding obligations, reserve requirements associated with credit card processing agreements, guarantees, commitments, contingencies and the ongoing COVID-19 pandemic.
See the 2021 Form 10-K and Notes 5, 6, 7, 8 and 9 to the financial statements contained in Part I, Item 1 of this report for additional information.
CRITICAL ACCOUNTING POLICIES
See "Critical Accounting Policies" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2021 Form 10-K.
Supplemental Information
The Company evaluates its financial performance utilizing various GAAP and non-GAAP financial measures, including CASM-ex, adjusted operating margin and adjusted capital expenditures. The Company has provided CASM-ex, adjusted operating margin and adjusted capital expenditures, non-GAAP financial measures that are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. Management believes that adjusting CASM and operating margin for special charges (credits) is useful to investors because special charges (credits) are not indicative of UAL's ongoing performance. Management also believes that excluding third-party business expenses, such as expenses associated with maintenance and ground handling for third parties, from CASM provides more meaningful disclosure because these expenses are not directly related to the Company's core business. Management also believes that excluding fuel costs from CASM is useful to investors because it provides an additional measure of management's performance excluding the effects of a significant cost item over which management has limited influence. Management also believes that excluding profit sharing from CASM allows investors to better understand and analyze the Company's operating cost performance and provides a more meaningful comparison of our core operating costs to the airline industry. The Company believes that adjusting capital expenditures for assets acquired through the issuance of debt, finance leases and other financial liabilities is useful to investors in order to appropriately reflect the total amounts spent on capital expenditures.
Because these non-GAAP financial measures are not calculated in accordance with GAAP, they should not be considered superior to, and are not intended to be considered in isolation or as substitutes for, the related GAAP financial measures and may not be the same as or comparable to any similarly titled measures presented by other companies due to possible differences in methods and in the items being adjusted. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
The Company is not providing targets for CASM or operating margin, or reconciliations for CASM-ex projections to CASM or adjusted operating margin projections to operating margin, the most directly comparable respective GAAP measures, because the Company is unable to predict certain items contained in the GAAP measures without unreasonable efforts, and it does not provide a reconciliation of forward-looking measures where it believes such a reconciliation would imply a degree of precision and certainty that could be misleading. This is due to the inherent difficulty of forecasting the timing or amount of various items that have not yet occurred and are out of the Company's control or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures. See "Forward-Looking Information" below. Below are reconciliations of CASM-ex and adjusted operating margin to the most directly comparable GAAP financial measures (CASM and operating margin, respectively) for the three and nine months ended September 30, 2022, September 30, 2021, and September 30, 2019, and the three months and the year ended December 31, 2019 (in cents):
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| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2019 | 2022 | 2021 | 2019 | 2019 | 2019 | ||||||||||||||||||||||||||||||||||||||||
| (in cents) | |||||||||||||||||||||||||||||||||||||||||||||||
| CASM (GAAP) | 16.87 | 12.46 | 13.20 | 17.21 | 13.77 | 13.52 | 14.11 | 13.67 | |||||||||||||||||||||||||||||||||||||||
| Special charges (credits) | 0.03 | (2.04) | 0.04 | 0.07 | (2.76) | 0.05 | 0.18 | 0.09 | |||||||||||||||||||||||||||||||||||||||
| Third-party business expenses | 0.06 | 0.07 | 0.07 | 0.06 | 0.07 | 0.06 | 0.07 | 0.06 | |||||||||||||||||||||||||||||||||||||||
| Fuel expense | 5.55 | 3.17 | 3.05 | 5.34 | 3.06 | 3.13 | 3.16 | 3.14 | |||||||||||||||||||||||||||||||||||||||
| Profit sharing | 0.01 | — | 0.24 | — | — | 0.17 | 0.17 | 0.17 | |||||||||||||||||||||||||||||||||||||||
| CASM-ex (Non-GAAP) | 11.22 | 11.26 | 9.80 | 11.74 | 13.40 | 10.11 | 10.53 | 10.21 | |||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) (GAAP) | $ | 1,458 | $ | 1,037 | $ | 1,473 | $ | 960 | $ | (614) | $ | 3,440 | $ | 861 | $ | 4,301 | |||||||||||||||||||||||||||||||
| Special charges (credits) | 20 | (1,098) | 27 | 124 | (3,423) | 116 | 130 | 246 | |||||||||||||||||||||||||||||||||||||||
| Adjusted operating income (loss) (Non-GAAP) | $ | 1,478 | $ | (61) | $ | 1,500 | $ | 1,084 | $ | (4,037) | $ | 3,556 | $ | 991 | $ | 4,547 | |||||||||||||||||||||||||||||||
| Operating margin | 11.3 | % | 13.4 | % | 12.9 | % | 2.9 | % | (3.7) | % | 10.6 | % | 7.9 | % | 9.9 | % | |||||||||||||||||||||||||||||||
| Adjusted operating margin (Non-GAAP) | 11.5 | % | (0.8) | % | 13.2 | % | 3.3 | % | (24.6) | % | 11.0 | % | 9.1 | % | 10.5 | % | |||||||||||||||||||||||||||||||
Non-cash capital expenditures, which may be significant, are not determinable at this time. Accordingly, the Company does not provide capital expenditures guidance on a GAAP basis.
FORWARD-LOOKING INFORMATION
This report contains certain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report, relating to, among other things, the potential impacts of the COVID-19 pandemic and other macroeconomic factors and steps the Company plans to take in response thereto and goals, plans and projections regarding the Company's financial position, results of operations, market position, capacity, fleet, product development and business strategy. Such forward-looking statements are based on historical performance and current expectations, estimates, forecasts and projections about the Company's future financial results, goals, plans, commitments, strategies and objectives and involve inherent risks, assumptions and uncertainties, known or unknown, including internal or external factors that could delay, divert or change any of them, that are difficult to predict, may be beyond the Company's control and could cause the Company's future financial results, goals, plans, commitments, strategies and objectives to differ materially from those expressed in, or implied by, the statements. Words such as "should," "could," "would," "will," "may," "expects," "plans," "intends," "anticipates," "indicates," "remains," "believes," "estimates," "projects," "forecast," "guidance," "outlook," "goals," "targets," "confident," "optimistic," "dedicated" and other words and terms of similar meaning and expression are intended to identify forward-looking statements, although not all forward-looking statements contain such terms. All statements, other than those that relate solely to historical facts, are forward-looking statements.
Additionally, forward-looking statements include conditional statements and statements that identify uncertainties or trends, discuss the possible future effects of known trends or uncertainties, or that indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law or regulation.
Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: the adverse impacts of the ongoing COVID-19 global pandemic on our business, operating results, financial condition and liquidity; execution risks associated with our strategic operating plan; changes in our network strategy or other factors outside our control resulting in less economic aircraft orders, costs related to modification or termination of
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aircraft orders or entry into less favorable aircraft orders, as well as any inability to accept or integrate new aircraft into our fleet as planned; any failure to effectively manage, and receive anticipated benefits and returns from, acquisitions, divestitures, investments, joint ventures and other portfolio actions; adverse publicity, harm to our brand, reduced travel demand, potential tort liability and voluntary or mandatory operational restrictions as a result of an accident, catastrophe or incident involving us, our regional carriers, our codeshare partners or another airline; the highly competitive nature of the global airline industry and susceptibility of the industry to price discounting and changes in capacity, including as a result of alliances, joint business arrangements or other consolidations; our reliance on a limited number of suppliers to source a majority of our aircraft and certain parts, and the impact of any failure to obtain timely deliveries, additional equipment or support from any of these suppliers; disruptions to our regional network and United Express flights provided by third-party regional carriers; unfavorable economic and political conditions in the United States and globally (including inflationary pressures); reliance on third-party service providers and the impact of any significant failure of these parties to perform as expected, or interruptions in our relationships with these providers or their provision of services; extended interruptions or disruptions in service at major airports where we operate and space, facility and infrastructure constrains at our hubs or other airports; geopolitical conflict, terrorist attacks or security events; any damage to our reputation or brand image; our reliance on technology and automated systems to operate our business and the impact of any significant failure or disruption of, or failure to effectively integrate and implement, the technology or systems; increasing privacy and data security obligations or a significant data breach; increased use of social media platforms by us, our employees and others; the impacts of union disputes, employee strikes or slowdowns, and other labor-related disruptions on our operations; any failure to attract, train or retain skilled personnel, including our senior management team or other key employees; the monetary and operational costs of compliance with extensive government regulation of the airline industry; current or future litigation and regulatory actions, or failure to comply with the terms of any settlement, order or arrangement relating to these actions; costs, liabilities and risks associated with environmental regulation and climate change, including our climate goals; high and/or volatile fuel prices or significant disruptions in the supply of aircraft fuel (including as a result of the Russia-Ukraine military conflict); the impacts of our significant amount of financial leverage from fixed obligations, the possibility we may seek material amounts of additional financial liquidity in the short-term, and the impacts of insufficient liquidity on our financial condition and business; failure to comply with financial and other covenants governing our debt, including our MileagePlus® financing agreements; the impacts of the proposed phaseout of the London interbank offer rate; limitations on our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income for U.S. federal income tax purposes; our failure to realize the full value of our intangible assets or our long-lived assets, causing us to record impairments; fluctuations in the price of our common stock; the impacts of seasonality and other factors associated with the airline industry; increases in insurance costs or inadequate insurance coverage; and other risks and uncertainties set forth in Part I, Item 1A. Risk Factors, of our 2021 Form 10-K, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.
The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties. In addition, certain forward-looking outlook provided in this report relies on assumptions about the duration and severity of the COVID-19 pandemic, the timing of the return to a more stable business environment, the volatility of aircraft fuel prices, customer behavior changes and return in demand for air travel, among other things (together, the "Recovery Process"). If the actual Recovery Process differs materially from our assumptions, the impact of the COVID-19 pandemic on our business could be worse than expected, and our actual results may be negatively impacted and may vary materially from our expectations and projections. It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections, beliefs and assumptions upon which we base our expectations may change. For instance, we regularly monitor future demand and booking trends and adjust capacity, as needed. As such, our actual flown capacity may differ materially from currently published flight schedules or current estimations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in market risk from the information provided in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2021 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Control and Procedures
UAL and United each maintains controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted by UAL and United to the SEC is recorded, processed, summarized and reported, within the time periods specified by the SEC's rules and forms, and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that UAL's and United's disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports it files with the SEC on a timely basis. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of September 30, 2022, disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting during the Quarter Ended September 30, 2022
During the three months ended September 30, 2022, there were no changes in UAL's or United's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, their internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 3, Legal Proceedings, of the 2021 Form 10-K for a description of legal proceedings.
ITEM 1A. RISK FACTORS
See Part I, Item 1A, Risk Factors, of the 2021 Form 10-K for a detailed discussion of the risk factors affecting UAL and United.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) None
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ITEM 6. EXHIBITS.
EXHIBIT INDEX
| Exhibit No. | Registrant | Exhibit | |||||||||
| 3.1 | UAL | ||||||||||
| †10.1 | UAL | ||||||||||
| 31.1 | UAL | ||||||||||
| 31.2 | UAL | ||||||||||
| 31.3 | United | ||||||||||
| 31.4 | United | ||||||||||
| 32.1 | UAL | ||||||||||
| 32.2 | United | ||||||||||
| 101 | UAL United | The following financial statements from the combined Quarterly Report of UAL and United on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Statements of Consolidated Operations, (ii) Statements of Consolidated Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Condensed Statements of Consolidated Cash Flows, (v) Statements of Consolidated Stockholders' Equity and (vi) Combined Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |||||||||
| 104 | UAL United | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | |||||||||
| † Indicates management contract or compensatory plan or arrangement. Pursuant to Item 601(b)(10), United is permitted to omit certain compensation-related exhibits from this report and therefore only UAL is identified as the registrant for purposes of those items. | |||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| United Airlines Holdings, Inc. | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: | October 19, 2022 | By: | /s/ Gerald Laderman | |||||||||||
| Gerald Laderman Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||||||||
| Date: | October 19, 2022 | By: | /s/ Chris Kenny | |||||||||||
| Chris Kenny Vice President and Controller (Principal Accounting Officer) | ||||||||||||||
| United Airlines, Inc. | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: | October 19, 2022 | By: | /s/ Gerald Laderman | |||||||||||
| Gerald Laderman Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||||||||
| Date: | October 19, 2022 | By: | /s/ Chris Kenny | |||||||||||
| Chris Kenny Vice President and Controller (Principal Accounting Officer) | ||||||||||||||
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Exhibit 10.1
CASH TRANSFORMATION INCENTIVE AWARD NOTICE
This Cash Transformation Incentive Award Notice (this “Award Notice”) sets forth the terms and conditions of your Cash Transformation Incentive Award (the “Award”) that is subject to the terms and conditions specified herein and that is granted to you by United Airlines Holdings, Inc., a Delaware corporation (the “Company”), under the United Airlines Holdings, Inc. 2021 Incentive Compensation Plan (as amended from time to time, the “Plan”) with respect to the Vesting and Performance Periods specified on Exhibit A.
SECTION 1. The Plan; Target Opportunity; Performance Criteria and Performance Goals; CARES Act.
(a) The Plan. This Award is made pursuant to the Plan, all the terms of which are hereby incorporated into this Award Notice. In the event of any conflict between the terms of the Plan and the terms of this Award Notice, the terms of the Plan shall govern except to the extent that (i) any term herein is required to comply with the CARES Act (as defined below) or (ii) any term in the Plan is required to be modified to comply with the CARES Act.
(b) Target Award Opportunity; Performance Criteria and Performance Goals. Your target (“Target Award”) opportunity is set forth in your Fidelity account. The Award shall vest in accordance with the Performance Criteria and Performance Goals established by the Committee, which are as set forth in Exhibit A.
(c) CARES Act. The Company, United Airlines, Inc. (“United”), and United employees have benefited from U.S. government support provided by the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) and subsequent payroll support and loan programs. Under the CARES Act, United and certain employees are subject to restrictions, including compensation limits applicable to employees whose 2019 total compensation exceeded $425,000. Additional compensation limits apply to employees with 2019 total compensation in excess of $3 million, and compensation limits also apply to employees with compensation over the specified limits during subsequent reference time periods. The Company and United have designed employee compensation programs to comply with the requirements of the CARES Act and the related payroll support and loan programs. Notwithstanding the foregoing, if this Award is deemed to violate requirements of the CARES Act and the related payroll support and loan programs, this Award shall be void to the extent necessary to comply with such requirements.
SECTION 2. Vesting and Settlement.
(a) Vesting. Subject to the terms and conditions of this Award Notice and the provisions of the Plan, your Award shall vest and be settled as set forth on Exhibit A, provided that you must be actively employed by the Company or an Affiliate on each applicable Vesting Date specified on Exhibit A, except as set forth on Exhibit A or as otherwise determined by the Committee in its sole discretion.
(b) Settlement of Award. Any amount payable pursuant to this Award shall be paid in cash no later than sixty (60) days following each applicable Vesting Date set forth on Exhibit A, except as otherwise set forth on Exhibit A.
SECTION 3. Forfeiture. Unless the Committee determines otherwise, and except as otherwise provided in Exhibit A, if the vesting of the Award has not occurred prior to the date of your Termination of Employment, your rights with respect to the Award shall immediately terminate upon your Termination of Employment, and you will be entitled to no further payments or benefits with respect to the Award.
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SECTION 4. Non-Transferability of Award. Unless otherwise provided by the Committee in its discretion, the Award may not be sold, assigned, alienated, transferred, pledged, attached or otherwise encumbered by you, otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company, provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
SECTION 5. Data Privacy. You hereby explicitly consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Award Notice by and among, as applicable, the Company, its Affiliates and its Subsidiaries for the exclusive purpose of implementing, administering and managing your participation in the Plan. You
understand that the Company (and/or your local employer, if applicable) holds certain personal information about you, which information may include, but is not limited to, your name, home address and telephone number, date of birth, email address, family size, marital status, sex, beneficiary information, emergency contacts, passport/visa information, age, language skills, driver’s license information, nationality, resume, wage history, employment references, social insurance number or other identification number, salary, job title, employment or severance contract details, current wage and benefit information, personal bank account number, tax related information, plan or benefit enrollment forms and elections, option or benefit statements, any shares of stock or directorships in the Company, details of all awards (if any) granted, canceled, purchased, vested, unvested or outstanding for purpose of managing and administering the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you may elect to deposit any proceeds acquired. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Human Resources. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact Human Resources.
SECTION 6. Tax Withholding. The Company shall have the right to withhold from any payment hereunder all applicable federal, state, local and other taxes as required by law.
SECTION 7. Successors and Assigns of the Company. The terms and conditions of this Award Notice shall be binding upon and shall inure to the benefit of the Company and its successors and assigns.
SECTION 8. Committee Discretion. Pursuant to Section 3(e) of the Plan, the Committee may delegate to one or more senior officers of the Company the authority to make grants of Awards and all necessary and appropriate decisions and determinations with respect thereto. The Committee, and any officer to whom the Committee has delegated authority pursuant to the Plan, shall have full and plenary discretion with respect to any actions to be taken or determinations to be made pursuant to the Plan and this Award Notice, and any such determinations shall be final, binding and conclusive. Any references in this Award Notice to the Committee shall be deemed to include any officer to whom the Committee has delegated authority pursuant to the Plan.
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SECTION 9. Amendment of this Award Notice. The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate this Award Notice prospectively or retroactively; provided, however, that, except as set forth in Section 10(e) of the Plan relating to Section 409A of the Code, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely impair your rights under this Award Notice shall not to that extent be effective without your consent (it being understood, notwithstanding the foregoing proviso, that this Award Notice shall be subject to the provisions of Section 7(c) of the Plan relating to the adjustment of Awards upon the occurrence of certain unusual, infrequently occurring or nonrecurring events).
SECTION 10. Priority of Interpretation. To the extent permitted by the Plan, in the event of any conflict between the terms of this Award Notice and the terms of any plan, program, agreement or arrangement of the Company or any of its Subsidiaries applicable to you, the terms of such plan, program, agreement or arrangement shall govern.
SECTION 11. Miscellaneous.
(a) Continuation of Employment; Not a Contract of Employment; No Acquired Rights. This Award Notice shall not confer upon you any right to continuation of employment by the Company, its Affiliates, and/or its Subsidiaries, nor shall this Award Notice interfere in any way with the Company’s, its Affiliates’, and/or its Subsidiaries’ right to terminate your employment at any time, except to the extent expressly provided otherwise in a written agreement between you and the Company, an Affiliate or Subsidiary or as prohibited by law.
(b) Not a Part of Salary. In accepting the grant of an Award under the Plan, you acknowledge that: (i) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, suspended or terminated by the Company at any time, as provided in the Plan and this Award Notice; (ii) the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future grants of cash incentive awards, or benefits in lieu of cash incentive awards, even if cash incentive awards have been granted repeatedly in the past; (iii) all decisions with respect to future grants, if any, will be at the sole discretion of the Company; (iv) your participation in the Plan is voluntary; (v) any payment with respect to the Award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (vi) the grant of the Award is provided for future services to the Company and its Affiliates and is not under any circumstances to be considered compensation for past services; (vii) in the event that you are an employee of the Company, Affiliate or Subsidiary, the grant will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the grant will not be interpreted to form an employment contract with the Affiliate or Subsidiary that is your employer; (viii) no claim or entitlement to compensation or damages arises from forfeiture or termination of the Award and you irrevocably release the Company, its Affiliates and its Subsidiaries from any such claim that may arise; and (ix) in the event of the termination of your employment, your right to receive the Award and receive a payment in settlement of the Award, if any, will terminate in accordance with the terms of the Plan and this Award Notice and will not be extended by any notice period mandated under local law; furthermore, your right to vest in the Award after such termination of employment, if any, will be measured by the date of termination of your active employment and will not be extended by any notice period mandated under local law.
(c) Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the Award or other awards granted to you under the Plan by electronic
3
means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party-designated by the Company.
(d) Foreign Indemnity. You agree to indemnify the Company for your portion of any social insurance obligations or taxes arising under any foreign law with respect to the grant or settlement of this Award.
(e) English Language. If you are resident and/or employed outside of the United States, you acknowledge and agree that it is your express intent that the Award Notice, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Award, be drawn up in English. If you have received the Award Notice, the Plan or any other documents related to the Award translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.
(g) Section 409A. This Award is intended to comply with the requirements of Section 409A of the Code, and shall be interpreted and construed consistently with such intent. The payments to you pursuant to this Award Notice are also intended to be exempt from Section 409A of the Code to the maximum extent possible as short-term deferrals pursuant to Treasury regulation §1.409A-1(b)(4) and each payment hereunder shall be considered a separate payment. In the event the terms of this Award Notice would subject you to taxes or penalties under Section 409A of the Code (“409A Penalties”), the Company and you shall cooperate diligently to amend the terms of this Award Notice to avoid such 409A Penalties, to the extent possible; provided that in no event shall the Company be responsible for any 409A Penalties that arise in connection with any amounts payable under this Award Notice. To the extent any amounts under this Award Notice are payable by reference to your termination of employment, such term shall be deemed to refer to your “separation from service,” within the meaning of Section 409A of the Code. Notwithstanding any other provision in this Award Notice, to the extent any payments hereunder constitutes nonqualified deferred compensation, within the meaning of Section 409A of the Code, then (A) each such payment which is conditioned upon your execution of a release and which is to be paid or provided during a designated period that begins in one taxable year and ends in a second taxable year, shall be paid or provided in the later of the two taxable years and (B) if you are a specified employee (within the meaning of Section 409A of the Code) as of the date of your separation from service, each such payment that is payable upon your separation from service and would have been paid prior to the six-month anniversary of your separation from service, shall be delayed until the earlier to occur of (i) the first business day following the six-month anniversary of the separation from service and (ii) the date of your death.
(h) Compliance with Local Law. If you are resident or employed outside of the United States, as a condition to the grant of the Award, you agree to repatriate all payments attributable to the cash acquired under the Plan, if any, in accordance with local foreign exchange rules and regulations in your country of residence (and country of employment, if different). In addition, you agree to take any and all actions, and consent to any and all actions taken by the Company and the Company’s Affiliates and Subsidiaries, as may be required to allow the Company and the Company’s Affiliates and Subsidiaries to comply with local laws, rules and regulations in your country of residence (and country of employment, if different). Finally, you agree to take any and all actions as may be required to comply with your personal legal and tax obligations under local laws, rules and regulations in your country of residence (and country of employment, if different).
(i) Governing Law. All questions concerning the construction, validity and interpretation of this Award Notice and the Plan shall be governed and construed according to
4
the laws of the State of Delaware, without regard to the application of the conflicts of laws provisions thereof. Any disputes regarding this Award or the Plan shall be brought only in the state or federal courts of the State of Delaware.
(k) Additional Requirements. The Company reserves the right to impose other requirements on the Award, and your participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with local laws, rules and regulations, or to facilitate the administration of the Award and the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
(l) Additional Information. If you have any questions regarding this Award Notice, please contact ____________________________, or your HR Partner. If you wish to obtain a copy of the Plan or a list of names and addresses of any potential recipients of the Data please contact _______________________________.
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EXHIBIT A
Performance and Vesting Criteria and Performance Goals
1.Performance Criterion and Performance Goals. Achievement of a Performance Goal means that the performance achieved by the Company with respect to the applicable measurement period equals or exceeds the Entry Level, Target Level or Stretch Level goal established by the Committee for the related Performance Criterion (metric) established by the Committee, which is as follows:
•[PERFORMANCE GOAL DESCRIPTION TO BE INSERTED OR TO BE COMMUNICATED TO RECIPIENT]
•[INSERT PERFORMANCE LEVELS ]*
* Vesting of awards for performance achieved between performance goal levels shall be interpolated between incentive percentage levels.
Performance Period: The “Performance Period” for this Award shall mean the period ____________________.
2.Vesting. The Award shall vest as follows:
Vested Amount (% of Target)(1) | Vesting Date | ||||
(2) | |||||
(2) | |||||
(1) Calculation of Payment Amount. The Award shall vest at ____% of the total Target Award on each of the first ___ Vesting Dates. This represents the Entry Level of performance and is a guaranteed payment amount subject to the continued employment requirement referenced in footnote 2 below. Following the end of the Performance Period, the Committee shall review and certify the total level of performance achieved and the vested amount on the final Vesting Date shall be calculated based on the level of performance achieved reduced by the amounts paid on the first two Vesting Dates, provided that such reductions shall not reduce the total payment amounts under the Award below ___% of the total Target Award level.
(2) Continued Employment. Vesting is subject to continued and active employment through the Vesting Date (other than termination of employment upon death, Disability, Retirement or due to Change of Control, each as provided for herein).
3.Termination due to Death or Disability. In the event your employment terminates by reason of death or termination by the Company due to Disability prior to the last Vesting Date, then you or your estate (as the case may be) shall vest in the Target Award on a pro-rated basis, calculated based on (A) the number of days in the period beginning [insert the first day of the performance period], and ending on the termination date divided by (B) the total number of days in the _____-year vesting period ([insert vesting period dates]), subject to a minimum payout of ___% of the Target Award. In the event you vest in the Award pursuant to this Section 3, the pro-rated Target Award shall be paid to you within 60 days following your termination of employment due to death or
6
Disability, reduced by the amounts, if any, paid on the first and second Vesting Dates (___% of the Target Award).
4.Termination due to Retirement. In the event of your termination of employment due to Retirement prior to the last Vesting Date, then you will be eligible for pro-rata vesting of the portion of the Award that would be payable on the third Vesting Date, subject to certification of achievement of the performance criterion and reduced by the amounts, if any, paid on the first and second Vesting Dates. Such pro-rata payment shall be paid to you within 60 days following the third Vesting Date. The pro-rata portion of the Award shall be calculated based on (A) the number of days in the period beginning [insert first day of vesting period], and ending on the termination date divided by (B) the total number of days in the _____-year vesting period ([insert vesting period dates]) and reducing the pro-rated Award by the portion of the Award, if any, paid on the first and second Vesting Dates. For the avoidance of doubt, if you terminate due to Retirement prior to either of the first or second Vesting Dates, you will not be eligible to receive a payment on the applicable first or second Vesting Date that follows your Retirement but you shall remain eligible to receive the pro-rated Award on the last Vesting Date, determined based on actual performance in accordance with this Section 4. For purposes of this Award, “Retirement” means your termination of employment from the Company and its Subsidiaries upon having achieved age 50 with 20 years of service with the Company and its Subsidiaries, age 55 with ten years of service with the Company and its Subsidiaries, or age 65.
5.Vesting upon a Change of Control. If a Change of Control occurs and you are employed by the Company or a subsidiary on the day immediately preceding the Change of Control, then (i) the Performance Goal specified in Section 1 shall be deemed to be achieved at a level equal to the Target Level and (ii) you shall vest in the Target Award. The Award shall be distributed to you or your estate (as the case may be) within 60 days following the last Vesting Date, subject to your continued employment through the last Vesting Date unless (i) you are terminated under circumstances entitling you to severance under the terms of the severance policy applicable to you as of the [insert first day of vesting period] or (ii) if no such severance policy is applicable to you, you are involuntarily terminated by the Company without cause as determined by the Committee, then you shall receive the target Award within 60 days of such termination of employment. Notwithstanding the foregoing, following a Change of Control, if you are eligible for Retirement on or prior to ________________, then you shall receive, within 60 days following the conclusion of each calendar year during the Performance Period, the pro-rated portion of the Target Award earned during each such calendar year based on your continued service through the earlier to occur of your Retirement or the last Vesting Date, with any pro-rata vesting ceasing upon your termination of employment and, for amounts earned between the end of the Performance Period and the last Vesting Date, such amounts shall be paid to you within 60 days following the last Vesting Date; provided, further, if you are eligible for Retirement upon the occurrence of a Change of Control or if you terminated employment due to Retirement prior to a Change of Control, then the pro-rated Target Award earned through the date of the Change of Control shall be paid to you within 60 days following the Change of Control and, to the extent you remain employed with the Company following a Change of Control, you shall continue to vest, on a pro-rata basis, in the Target Award under this Section 5, with the pro-rated Target Award payable within 60 days following the conclusion of each year in the Performance Period in which such pro-rata portion of the Target Award was earned and, for amounts earned between the end of the Performance Period and the last Vesting Date, such amounts shall be paid to you within 60 days following the last Vesting Date.
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Exhibit 31.1
Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, J. Scott Kirby, certify that:
(1) I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2022 of United Airlines Holdings, Inc. (the "Company");
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4) The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
(5) The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
| /s/ J. Scott Kirby | ||
| J. Scott Kirby | ||
| Chief Executive Officer | ||
Date: October 19, 2022
Exhibit 31.2
Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Gerald Laderman, certify that:
(1) I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2022 of United Airlines Holdings, Inc. (the "Company");
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4) The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
(5) The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
| /s/ Gerald Laderman | ||
| Gerald Laderman | ||
| Executive Vice President and Chief Financial Officer | ||
Date: October 19, 2022
Exhibit 31.3
Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, J. Scott Kirby, certify that:
(1) I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2022 of United Airlines, Inc. (the "Company");
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4) The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
(5) The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
| /s/ J. Scott Kirby | ||
| J. Scott Kirby | ||
| Chief Executive Officer | ||
Date: October 19, 2022
Exhibit 31.4
Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Gerald Laderman, certify that:
(1) I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2022 of United Airlines, Inc. (the "Company");
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4) The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
(5) The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
| /s/ Gerald Laderman | ||
| Gerald Laderman | ||
| Executive Vice President and Chief Financial Officer | ||
Date: October 19, 2022
Exhibit 32.1
Certification of United Airlines Holdings, Inc.
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
Each undersigned officer certifies that to the best of his knowledge based on a review of the quarterly report on Form 10-Q for the quarterly period ended September 30, 2022 of United Airlines Holdings, Inc. (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of United Airlines Holdings, Inc.
Date: October 19, 2022
| /s/ J. Scott Kirby | ||
| J. Scott Kirby | ||
| Chief Executive Officer | ||
| /s/ Gerald Laderman | ||
| Gerald Laderman | ||
| Executive Vice President and Chief Financial Officer | ||
Exhibit 32.2
Certification of United Airlines, Inc.
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
Each undersigned officer certifies that to the best of his knowledge based on a review of the quarterly report on Form 10-Q for the quarterly period ended September 30, 2022 of United Airlines, Inc. (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of United Airlines, Inc.
Date: October 19, 2022
| /s/ J. Scott Kirby | ||
| J. Scott Kirby | ||
| Chief Executive Officer | ||
| /s/ Gerald Laderman | ||
| Gerald Laderman | ||
| Executive Vice President and Chief Financial Officer | ||