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 Form 10-K and the description of our business and reportable segments in Item 1 above to enhance the understanding of our results of operations, financial condition and cash flows. This section generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 filed with theU.S. Securities and Exchange Commission (the "SEC") onMarch 1, 2021 (the "2020 Annual Report"). Executive Summary OverviewUnited Airlines Holdings, Inc. (together with its consolidated subsidiaries, "UAL" or the "Company") is a holding company and its principal, wholly-owned subsidiary isUnited 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, includingU.S. mainland hubs inChicago ,Denver ,Houston ,Los Angeles ,New York /Newark ,San Francisco andWashington, D.C. 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. 35
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Our business and operating results for 2021 continued to be significantly impacted by the COVID-19 pandemic. Given the more significant impact of the pandemic on our business and operating results in 2020, we believe that a comparison of our 2021 results to 2019 for certain key metrics in this financial overview discussion is more reflective of the impact of the COVID-19 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 "Cautionary Statement Regarding Forward-Looking Statements" and in Part I, Item 1A. Risk Factors, of this Form 10-K. The Company is unable to reconcile forward-looking projections to accounting principles generally accepted inthe United States of America ("GAAP"); refer to "Supplemental Information" below for further details.
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, the pandemic has continued to negatively impact travel demand. 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 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), 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 have reduced our capacity as we managed through the effects of the COVID-19 pandemic, which in 2021 remained significantly lower than capacity prior to the pandemic and resulted in a significant reduction to our revenue through the date of this report. We operated at approximately 63% of our full year 2019 capacity during the full year of 2021. We have delayed a portion of our previously planned capacity increases for full year 2022 and may need to implement further modifications. The Company is taking steps to be prepared for recovery as demand for travel continues to generally increase, which include investing in innovative technology, focusing on process improvements and implementing the United Next transformative strategy. We have taken steps to strengthen our financial position during this period of market uncertainty, which has resulted in an increase of our overall debt levels. As ofDecember 31, 2021 , unrestricted cash, cash equivalents and short-term investments totaled$18.4 billion , an increase of approximately$13.5 billion fromDecember 31, 2019 . We had approximately$41.1 billion of debt, finance lease, operating lease and sale-leaseback obligations as ofDecember 31, 2021 (including$4.5 billion that will become due in the next 12 months), up from approximately$20.5 billion as ofDecember 31, 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 this report.
Outlook for Full Year 2022
Capacity. The Company expects its scheduled capacity for full year 2022 to be down versus 2019.
Adjusted cost per available seat mile ("CASM-ex"). The Company expects full year 2022 CASM-ex (a non-GAAP financial measure defined as CASM excluding fuel, profit sharing, third-party business expense and special charges; see "Supplemental Information" below) to be higher than 2019.
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Strategic Objectives
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. It is expected to increase United's average gauge inNorth America , the total number of available seats per departure, by almost 30% by 2026 versus 2019, as well as significantly lower carbon emissions per seat. New aircraft will come with a new signature interior that includes seat-back entertainment in every seat, larger overhead bins for every passenger's carry-on bag and the industry's fastest available in-flight WiFi, as well as a bright look-and-feel with LED lighting. New aircraft are expected to increaseNorth America premium seat counts by 75% per short-haul departure by 2026 versus 2019. The Company plans to replace older, smaller mainline jets and at least 200 single-class regional jets with larger aircraft, which we expect will lead to significant sustainability benefits compared to older planes: an expected 11% overall improvement in fuel efficiency and an expected 17-20% lower carbon emission per seat compared to older planes. 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.
Results of Operations
Select financial data and operating statistics are provided in the tables below: (in millions) 2021 2020 2019 Operating revenue$ 24,634 $ 15,355 $ 43,259 Operating expense 25,656 21,714 38,958 Operating income (loss) (1,022) (6,359) 4,301 Nonoperating expense, net (1,535) (2,463) (387) Income tax expense (benefit) (593) (1,753) 905 Net income (loss)$ (1,964) $ (7,069) $ 3,009 2021 2020 2019 Passengers (thousands) (a) 104,082 57,761 162,443 Revenue passenger miles ("RPMs") (millions) (b) 128,979 73,883 239,360 ASMs (millions) 178,684 122,804 284,999 Cargo revenue ton miles (millions) (c) 3,285 2,711 3,329 Passenger load factor (d) 72.2 % 60.2 % 84.0 % Passenger revenue per available seat mile ("PRASM") 11.30 9.61 13.90 Total revenue per available seat mile ("TRASM") 13.79 12.50 15.18
Average yield per revenue passenger mile ("Yield") (e)
15.66 15.98 16.55 CASM 14.36 17.68 13.67 Average stage length (miles) (f) 1,315 1,307 1,460 Employee headcount, as of December 31 84,100 74,400 95,900 (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 cargo revenue tons transported multiplied by the number of miles flown. (d)RPMs divided by ASMs. (e)The average passenger revenue received for each revenue passenger mile flown. (f)Average stage length equals the average distance a flight travels weighted for size of aircraft. Operating Revenue. The table below illustrates the year-over-year percentage change in the Company's operating revenues for the years endedDecember 31 (in millions, except percentage changes): 37
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Table of Contents 2021 2020 Increase (Decrease) % Change Passenger revenue$ 20,197 $ 11,805 $ 8,392 71.1 Cargo 2,349 1,648 701 42.5 Other operating revenue 2,088 1,902 186 9.8 Total operating revenue$ 24,634 $ 15,355 $ 9,279 60.4 The table below presents passenger revenue and select operating data of the Company, broken out by geographic region, expressed as year-over-year changes: Increase (decrease) from 2020: Domestic Atlantic Pacific Latin Total Passenger revenue (in millions)$ 6,727 $ 795 $ (307) $ 1,177 $ 8,392 Passenger revenue 83.2 % 52.6 % (33.4) % 91.5 % 71.1 % Average fare per passenger 1.8 % (9.5) % 21.9 % (12.9) % (5.1) % Yield (2.0) % (10.9) % 49.0 % (7.7) % (2.0) % PRASM 23.8 % 7.4 % (18.3) % (2.3) % 17.6 % Passengers 79.9 % 68.5 % (45.4) % 119.9 % 80.2 % RPMs 86.9 % 71.3 % (55.3) % 107.6 % 74.6 % ASMs 48.0 % 42.2 % (18.3) % 96.2 % 45.5 % Passenger load factor (points) 16.7 10.2 (23.9)
3.8 12.0
Passenger revenue increased$8.4 billion , or 71.1%, in 2021 as compared to 2020, primarily due to an increase in the demand for air travel as a result of the increased availability of COVID-19 vaccines and the easing of travel and quarantine restrictions inthe United States and various other jurisdictions. Cargo revenue increased$701 million , or 42.5%, in 2021 as compared to 2020, primarily due to stronger yields on freight revenue and higher cargo tonnage from increased wide-body departures of passenger flights as well as cargo-only flights. Other operating revenue increased$186 million , or 9.8%, in 2021 as compared to 2020, primarily due to an increase in mileage revenue from non-airline partners, including the Company's co-branded credit card partner,JPMorgan Chase Bank, N.A . Operating Expense. The table below includes data related to the Company's operating expense for the years endedDecember 31 (in millions, except percentage changes): Increase 2021 2020 (Decrease) % Change Salaries and related costs$ 9,566 $ 9,522 $ 44 0.5 Aircraft fuel 5,755 3,153 2,602 82.5 Depreciation and amortization 2,485 2,488 (3) (0.1) Landing fees and other rent 2,416 2,127 289 13.6 Regional capacity purchase 2,147 2,039 108 5.3 Aircraft maintenance materials and outside repairs 1,316 858 458 53.4 Distribution expenses 677 459 218 47.5 Aircraft rent 228 198 30 15.2 Special charges (credits) (3,367) (2,616) 751 NM Other operating expenses 4,433 3,486 947 27.2 Total operating expenses$ 25,656 $ 21,714 $ 3,942 18.2 Salaries and related costs increased$44 million , or 0.5%, in 2021 as compared to 2020, primarily due to an increase in front-line employees' wages as a result of higher flight activity, partially offset by a$225 million increase in tax credits provided by the Employee Retention Credit under the CARES Act. Aircraft fuel expense increased$2.6 billion , or 82.5%, in 2021 as compared to 2020. The table below presents the significant changes in aircraft fuel cost per gallon for the years endedDecember 31 (in millions, except percentage changes and per gallon data): 38
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Table of Contents % 2021 2020 Change Fuel expense$ 5,755 $ 3,153 82.5
Total fuel consumption (gallons) 2,729 2,004 36.2 Average price per gallon
$ 2.11 $ 1.57 34.4
Landing fees and other rent increased
Regional capacity purchase costs increased
Aircraft maintenance materials and outside repairs increased$458 million , or 53.4%, in 2021 as compared to 2020, primarily due to higher volumes of flying and increased heavy check maintenance events.
Distribution expenses increased
The table below presents special charges (credits) recorded by the Company
during the years ended
2021 2020 CARES Act grant$ (4,021) $ (3,536) Severance and benefit costs 438 575 Impairment of assets 97 318 (Gains) losses on sale of assets and other special charges 119 27 Total special charges (credits)$ (3,367) $ (2,616)
See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased$947 million , or 27.2%, in 2021 as compared to 2020, primarily due to increases in ground handling, passenger services and personnel-related costs as a direct result of increased flying and higher expenditures on information technology projects. Nonoperating Income (Expense). The following table illustrates the year-over-year dollar and percentage changes in the Company's nonoperating income (expense) for the years endedDecember 31 (in millions, except percentage changes): Increase 2021 2020 (Decrease) % Change Interest expense$ (1,657) $ (1,063) $ 594 55.9 Interest capitalized 80 71 9 12.7 Interest income 36 50 (14) (28.0) Unrealized gains (losses) on investments, net (34) (194) (160) (82.5) Miscellaneous, net 40 (1,327) (1,367) NM Total nonoperating expense, net$ (1,535) $ (2,463) $ (928) (37.7) Interest expense increased$594 million , or 55.9%, in 2021 as compared to 2020, primarily due to the issuance of additional debt, mainly in the second half of 2020 and first half of 2021, to provide additional liquidity to the Company during the COVID-19 pandemic. Unrealized losses on investments, net decreased$160 million in 2021 as compared to 2020, primarily due to the change in the market value of the Company's investments in equity securities. See Notes 9 and 14 to the financial statements included in Part II, Item 8 of this report for additional information. Miscellaneous, net expense decreased$1.4 billion in 2021 as compared to 2020, primarily due to the$697 million of credit loss allowances associated with the Company's Term Loan Agreement with, among others,BRW Aviation Holding LLC andBRW Aviation LLC and the related guarantee and$687 million in settlement losses and special termination benefits related to 39
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voluntary separation programs under the Company's defined benefit pension plan covering certain non-pilotU.S. employees and postretirement medical programs recorded in 2020. See Notes 7, 8, 13 and 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Income Taxes. See Note 6 to the financial statements included in Part II, Item 8 of this report for information related to income taxes.
Liquidity and Capital Resources
As ofDecember 31, 2021 , the Company had$18.4 billion in unrestricted cash, cash equivalents and short-term investments, an increase of approximately$6.7 billion fromDecember 31, 2020 . 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, adequate liquidity access and lower cost of capital are efficiently managed. We expect to maintain an elevated level of liquidity in the near term as we navigate through 2022, which may lead to the issuance of additional debt securities, the repurchase or redemption of debt securities prior to maturity or the issuance of common stock, as well as to the pursuit of financing options for our firm aircraft orders and other related capital expenditures consistent with our historical practice prior to the onset of the COVID-19 pandemic. 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 profitability in order to service our debt and maintain appropriate liquidity levels for our long-term operating needs. For 2022, the Company expects approximately$5.9 billion of gross capital expenditures (including expenditures for assets acquired through the issuance of debt, finance leases and other financial liabilities). See Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments. The Revolving Credit and Guaranty Agreement, under the Term Loan Credit and Guaranty Agreement (the "2021 Term Loan Facility"), provides revolving loan commitments of up to$1.75 billion untilApril 21, 2025 , subject to certain customary conditions. No borrowings were outstanding under this facility atDecember 31, 2021 . In addition, 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. We have a significant amount of fixed obligations, including debt, leases of aircraft, airport and other facilities, and pension funding obligations. As ofDecember 31, 2021 , the Company had approximately$41.1 billion of debt, finance lease, operating lease and sale-leaseback obligations, including$4.5 billion that will become due in the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines. Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or repurchase stock. As ofDecember 31, 2021 , UAL and United were in compliance with their respective debt covenants.
As of
See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on aircraft financing and other debt instruments.
The following table summarizes our cash flow for the years ended
40 -------------------------------------------------------------------------------- 2021 2020 2019 Total cash provided by (used in): Operating activities$ 2,067 $ (4,133) $ 6,909 Investing activities (1,672) 50 (4,560) Financing activities 6,396 12,957 (1,280)
Net increase in cash, cash equivalents and restricted cash
$ 6,791
See the Statements of Consolidated Cash Flows include in Part II, Item 8 of this report for additional information.
Operating Activities. Cash flows provided by operating activities for 2021 were higher than 2020 primarily due to improvements in the demand for passenger travel as well as total government grant funding provided under the PSP2 and PSP3 Agreements, discussed below, partially offset by operating losses as a result of the COVID-19 pandemic. In 2021, United entered into two Payroll Support Program Extension Agreements (collectively, the "PSP2 and PSP3 Agreements") with theU.S. Treasury Department ("Treasury") providing the Company with total funding of approximately$5.8 billion , pursuant to the Payroll Support Program. These funds were used to pay for the wages, salaries and benefits of United employees, including the payment of lost wages, salaries and benefits to returning employees who were previously impacted by involuntary furloughs. Approximately$4.1 billion was provided as a direct grant and$1.7 billion as indebtedness evidenced by two 10-year senior unsecured promissory notes (collectively, the "PSP2 and PSP3 Notes"). See Note 2 to the financial statements included in Part II, Item 8 of this report for additional information on the warrants issued in connection with the PSP2 and PSP3 Notes and Note 10 to such financial statements for a discussion of the PSP2 and PSP3 Notes.
Investing Activities. Capital expenditures were
Financing Activities. Significant financing events in 2021 were as follows:
Debt, Finance Lease and Other Financing Liability Principal Payments. During 2021, the Company made payments for debt, finance leases, and other financing liabilities of$5.2 billion . The Company: •repaid in full the$1.4 billion aggregate principal amount outstanding under the term loan facility included in the Amended and Restated Credit and Guaranty Agreement, dated as ofMarch 29, 2017 (the "2017 Credit Agreement");
•repaid in full the
•repaid in full the$520 million aggregate principal amount outstanding under the Loan and Guarantee Agreement, dated as ofSeptember 28, 2020 , among United, UAL,Treasury and the Bank of New York Mellon, as administrative agent, as amended, which was entered into pursuant to the loan program established pursuant to the CARES Act; and
•made
Debt Issuances. During 2021, United received and recorded:
•$5.0 billion from the 2021 Term Loan Facility;
•$4.0 billion from two series of notes, consisting of$2.0 billion in aggregate principal amount of 4.375% senior secured notes due 2026 and$2.0 billion in aggregate principal amount of 4.625% senior secured notes due 2029;
•$1.7 billion from the PSP2 and PSP3 Notes; and
•$600 million from the enhanced equipment trust certificates ("EETC")
pass-through trusts established in
See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information.
Share Issuances. During 2021, the Company raised approximately$532 million in net cash proceeds from the issuance and sale of UAL common stock through "at the market offerings" under equity distribution agreements entered into inJune 2020 andMarch 2021 .
Significant financing events in 2020 were as follows:
41 -------------------------------------------------------------------------------- Debt Issuances. During 2020, United received and recorded$16.8 billion from various credit agreements, including the MileagePlus Financing (as defined in Part I, Item 1A. Risk Factors, of this report), loans provided under the CARES Act and EETC pass-through trusts established inSeptember 2019 andOctober 2020 . In 2020, United had recorded approximately$159 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex atLos Angeles International Airport .
Debt and Finance Lease Principal Payments. During 2020, the Company made debt
and finance lease principal payments of
Share Issuances. During 2020, the Company raised approximately$2.1 billion in cash proceeds from the issuance and sale of UAL common stock through "at the market offerings" under an equity distribution agreement entered into inJune 2020 .
Share Repurchases. In 2020, UAL's Board of Directors terminated the share
repurchase program. In 2020, prior to the termination of the program, UAL
repurchased approximately 4 million shares of UAL common stock in open market
transactions for
For additional information regarding these Liquidity and Capital Resource matters, see Notes 2, 10, 11 and 13 to the financial statements included in Part II, Item 8 of this report. For information regarding non-cash investing and financing activities, see the Company's statements of consolidated cash flows. For a discussion of the Company's sources and uses of cash in 2020 as compared to 2019, see "Liquidity and Capital Resources" in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2020 Annual Report.
Credit Ratings. As of the filing date of this report, UAL and United had the following corporate credit ratings:
S&P Moody's Fitch UAL B+ Ba2 B+ United B+ * B+
*The credit agency does not issue corporate credit ratings for subsidiary entities.
These credit ratings are below investment grade levels; however, the Company has been able to secure financing with investment grade credit ratings for certain EETCs, term loans and secured bond financings. Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company as well as affect the fair market value of existing debt. A rating reflects only the view of a rating agency and is not a recommendation to buy, sell or hold securities. Ratings can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change.
Other Liquidity Matters
Below is a summary of additional liquidity matters. See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments. Pension and other postretirement plans Note 7 Long-term debt and debt covenants Note 10 Leases and capacity purchase agreements Note 11 Commitments and contingencies Note 13 The Company's business is capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft. In the past, the Company has funded the acquisition of aircraft with cash, by using EETC financing, by entering into finance or operating leases, or through other financings. The Company also often enters into long-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities.
The table below provides a summary of the Company's current and long-term
material cash requirements as of
42 --------------------------------------------------------------------------------
2022 2023 2024 2025 2026 After 2026 Total Long-term debt (a)$ 3.0 $ 2.9
0.1 0.1 - - - 0.1
0.3
Interest on debt and finance leases (b) 1.4 1.3 1.1 0.9 0.7 1.2 6.6 Operating leases (c) 0.9 0.8 0.8 0.6 0.6 4.0 7.7 Leases not yet commenced (d) - - - - 0.1 0.3 0.4 Sale-leasebacks 0.9 0.1 0.1 0.1 0.1 0.5 1.8 Regional CPAs (e) 2.1 2.1 2.0 1.7 1.5 4.2 13.6 Postretirement benefit payments (f) 0.1 0.1 0.1 0.1 0.1 0.4 0.9 Pension funding (g) - - - - - 1.1 1.1 Capital and other purchases (h) 5.7 6.9 5.0 4.3 3.3 8.9 34.1 Total$ 14.2 $ 14.3 $ 13.0 $ 11.1 $ 11.5 $ 36.3 $ 100.4
(a)Long-term debt presented in the Company's financial statements is net of
(b)Future interest payments on variable rate debt were determined using the
rates as of
(c)Represents future payments under fixed rate lease obligations. See Note 11 to the financial statements included in Part II, Item 8 of this report for information on variable rate and short-term operating leases.
(d)Represents future payments under leases that have not yet commenced and are not included in the consolidated balance sheet. See Note 11 to the financial statements included in Part II, Item 8 of this report for information on these leases.
(e)Represents our estimates of future minimum noncancelable commitments under our CPAs and does not include the portion of the underlying obligations for aircraft and facility rent that is disclosed as part of operating lease obligations. Amounts also exclude a portion of United's finance lease obligations recorded for certain of its CPAs. See Note 11 to the financial statements included in Part II, Item 8 of this report for the significant assumptions used to estimate the payments.
(f)Amounts represent postretirement benefit payments through 2031. Benefit payments approximate plan contributions as plans are substantially unfunded.
(g)Represents an estimate of the minimum funding requirements as determined by government regulations for United'sU.S. pension plans. Amounts are subject to change based on numerous assumptions, including the performance of assets in the plans and bond rates.
(h)Represents contractual commitments for firm order aircraft, spare engines and other capital purchase commitments. See Note 13 to the financial statements included in Part II, Item 8 of this report for a discussion of our purchase commitments.
In addition to the material cash requirements discussed above, the Company has made certain guarantees that could have a material future effect on the Company's cash requirements:
Letters of Credit and Surety Bonds. As ofDecember 31, 2021 , United had approximately$438 million of letters of credit and surety bonds securing various obligations with expiration dates through 2031. Certain of these amounts are cash collateralized and reported within Restricted cash on our statement of financial position. See Note 13 to the financial statements included in Part II, Item 8 of this report for more information related to these letters of credit and surety bonds. Guarantee of Debt of Others. As ofDecember 31, 2021 , United is the guarantor of$106 million of aircraft mortgage debt issued by one of United's regional carriers. The aircraft mortgage debt is subject to increased cost provisions and the Company would potentially be responsible for those costs under the guarantees. The increased cost provisions in the$106 million of aircraft mortgage debt are similar to those in certain of the Company's debt agreements. See discussion under Increased Cost Provisions, below, for additional information on increased cost provisions related to the Company's debt. Fuel Consortia. United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds, either special facilities lease revenue bonds or general airport revenue bonds, issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As ofDecember 31, 2021 , approximately$1.8 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As ofDecember 31, 2021 , the Company's contingent exposure was approximately$343 million principal amount of such bonds based on its recent consortia participation. The Company's contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2022 to 2056. The Company concluded it was not necessary to record a liability for these indirect guarantees. 43 -------------------------------------------------------------------------------- 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 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. AtDecember 31, 2021 , the Company had$13.2 billion of floating rate debt with remaining terms of up to 11 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 11 years and an aggregate balance of$10.1 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. Critical Accounting Policies Critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions. The Company has prepared the financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates under different assumptions or conditions. The Company has identified the following critical accounting policies that impact the preparation of the financial statements. Revenue Recognition. Passenger revenue is recognized when transportation is provided. Passenger tickets and related ancillary services sold by the Company for flights are purchased primarily via credit card transactions, with payments collected by the Company in advance of the performance of related services. The Company initially records ticket sales in its Advance ticket sales liability, deferring revenue recognition until the travel occurs. For travel that has more than one flight segment, the Company deems each segment as a separate performance obligation and recognizes revenue for each segment as travel occurs. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its billings and payables with other airlines based on historical experience. The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners. For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are responsible for their portion of the contract (i.e. transportation of the passenger). The Company, as the agent, recognizes revenue within Other operating revenue at the time of the travel for the net amount representing commission to be retained by the Company for any segments flown by other airlines. Advance ticket sales represent the Company's liability to provide air transportation in the future. All tickets sold at any given point of time have travel dates extending up to 12 months. The Company defers amounts related to future travel in its Advance ticket sales liability account. The Company's Advance ticket sales liability also includes credits issued to customers on electronic travel certificates ("ETCs") and future flight credits ("FFCs"), primarily for ticket cancellations, which can be applied towards a purchase of a new ticket. ETCs are valid up to two years from the date of issuance; however, all ETCs due to expire prior toDecember 31, 2022 have been extended untilDecember 31, 2022 . FFCs are valid for 12 months from the original ticket date; however, all FFCs issued on or beforeDecember 31, 2021 have been extended to be valid untilDecember 31, 2022 . As ofDecember 31, 2021 , the Company's Advance ticket sales liability included$3.2 billion related to ETCs and FFCs. The Company estimates the value of Advance ticket 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 COVID-19, a significant portion of the ETCs and FFCs may expire unused in future periods and get recognized as revenue from breakage. The Company will update its breakage estimates as future information is received. Changes in estimates of breakage are recognized prospectively in proportion to the remaining usage of the related tickets. Frequent Flyer Accounting. United's MileagePlus loyalty program builds customer loyalty by offering awards, benefits and services to program participants. Members in this program earn miles for travel on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can also earn miles by purchasing goods and services from our network of non-airline partners. We have contracts to sell miles to these partners with the terms extending from one to eight years. These partners include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government-imposed fees), discounted or upgraded air travel and non-travel awards. 44
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Co-Brand Agreement. United has a contract (the "Co-Brand Agreement") to sell MileagePlus miles to its co-branded credit card partnerJPMorgan Chase Bank USA, N.A. ("Chase"). Chase awards miles to MileagePlus members based on their credit card activity. United identified the following significant separately identifiable performance obligations in the Co-Brand Agreement: •MileagePlus miles awarded - United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel and non-travel award redemptions. The Company records Passenger revenue related to the travel awards when the transportation is provided and records Other revenue related to the non-travel awards when the goods or services are delivered. The Company records the cost associated with non-travel awards in Other operating revenue, as an agent.
•Marketing - United has a performance obligation to provide Chase access to United's customer list and the use of United's brand. Marketing revenue is recorded to Other operating revenue as miles are delivered to Chase.
•Advertising - United has a performance obligation to provide advertising in support of the MileagePlus card in various customer contact points such as United's website, email promotions, direct mail campaigns, airport advertising and in-flight advertising. Advertising revenue is recorded to Other operating revenue as miles are delivered to Chase. •Other travel-related benefits - United's performance obligations are comprised of various items such as waived bag fees, seat upgrades and lounge passes. Lounge passes are recorded to Other operating revenue as customers use the lounge passes. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the associated travel. We account for all the payments received under the Co-Brand Agreement by allocating them to the separately identifiable performance obligations. The fair value of the separately identifiable performance obligations is determined using management's estimated selling price of each component. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of the Co-Brand Agreement in order to determine the allocation of proceeds to each of the components to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated consideration from the Co-Brand Agreement on a prospective basis. Indefinite-lived intangible assets. The Company has indefinite-lived intangible assets, including goodwill.Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis as ofOctober 1 , or on an interim basis whenever a triggering event occurs. An impairment occurs when the fair value of an intangible asset is less than its carrying value. The Company determines the fair value using a variation of the income approach known as the excess earnings method, which discounts an asset's projected future net cash flows to determine the current fair value. Assumptions used in the discounted cash flow methodology include a discount rate, which is based upon the Company's current weighted average cost of capital plus an asset-specific risk factor, and a projection of sales, expenses, gross margin, tax rates and contributory asset charges for several future years and a terminal growth rate. The assumptions used for future projections are determined based upon the Company's asset-specific forecasts along with the Company's strategic plan. These assumptions are inherently uncertain as they relate to future events and circumstances. Actual results will be influenced by the competitive environment, fuel costs and other expenses, and potentially other unforeseen events or circumstances that could have a material impact on future results. In light of the ongoing impact of the COVID-19 pandemic on both theU.S. and global economies, the significant, sustained impact on the demand for travel and government policies that restrict air travel, the exact timing of a complete recovery from the COVID-19 pandemic, and the speed at which such recovery could occur, continues to remain uncertain. We recorded impairment charges of$130 million related to ourChina route indefinite-lived intangible assets during 2020 as a result of the impact of COVID-19. Adverse changes to our forecasted results caused by COVID-19 or the other factors discussed above could result in additional impairment charges in the future.
See Notes 1 and 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Tax valuation allowance. A tax valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company's management assesses available positive and negative evidence regarding the Company's ability to realize its deferred tax assets and records a valuation allowance when it is more likely than not that deferred tax assets will not be realized. In order to form a conclusion, management considers positive evidence in the form of taxable income in prior carryback years, reversing temporary differences, tax planning strategies and projections of future taxable income during the periods in which those temporary differences become deductible, as well as negative evidence such as historical losses. Although the Company incurred losses in 2021 and 2020, management determined that these results were not indicative of future results due to the impact of the COVID-19 pandemic on its operations. The Company concluded that the positive evidence outweighs the negative evidence, primarily driven by approval and distribution of COVID-19 vaccines as well as increased confidence with the timing of the recovery. The Company has$7.5 billion of deferred tax assets, 45
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of which$2.1 billion (tax effected) are attributable to federal net operating losses ("NOLs") atDecember 31, 2021 . The majority of the NOLs do not expire and the Company expects to realize the benefits of the NOLs through the reversal of certain existing deferred tax liabilities of$6.2 billion and the remaining$1.3 billion (the income tax equivalent to approximately two years of average pre-COVID-19 pre-tax income) through projected future taxable income. Assumptions about our future taxable income are consistent with the plans and estimates used to manage our business. Therefore, we have not recorded a valuation allowance on our deferred tax assets other than the capital loss carryforwards and certain state attributes that have short expiration periods. While the Company expects to generate sufficient future income to fully utilize its deferred tax assets (including NOLs), the Company may have to record a valuation allowance, which could be material, against deferred tax assets if negative evidence such as prolonged losses or reduced forecasted income outweigh positive evidence. Recording a valuation allowance against our NOLs would not impact our ability to use them to offset cash taxes payable. However, our ability to use NOLs may be significantly limited due to various circumstances, as discussed in more detail in Part I, Item 1A. Risk Factors-"The Company's ability to use its net operating loss carryforwards and certain other tax attributes to offset future taxable income forU.S. federal income tax purposes may be significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of UAL common stock, or if taxable income does not reach sufficient levels." As ofDecember 31, 2021 , the Company has recorded$183 million of valuation allowance against its capital loss deferred tax assets. Capital losses have a limited carryforward period of five years, and they can be utilized only to the extent of capital gains. The Company does not anticipate generating sufficient capital gains to utilize the losses before they expire, therefore, a valuation allowance is necessary as ofDecember 31, 2021 . Additionally, the Company recorded a valuation allowance of$27 million on certain state deferred tax assets primarily due to state NOLs that have short expiration periods.
Supplemental Information
The Company evaluates its financial performance utilizing various GAAP and non-GAAP financial measures, including CASM-ex. The Company has provided CASM-ex, a non-GAAP financial measure, which is 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 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 maintenance and ground handling for third parties, provides more meaningful disclosure because these expenses are not directly related to UAL's core business. Management also believes that excluding fuel costs 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 allows investors to better understand and analyze UAL's operating cost performance and provides a more meaningful comparison of our core operating costs to the airline industry. Because this non-GAAP financial measure is not calculated in accordance with GAAP, it should not be considered superior to, and is not intended to be considered in isolation or as a substitute for, the related GAAP financial measure and may not be the same as or comparable to any similarly titled measure presented by other companies due to possible differences in method 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 a target for CASM or a reconciliation for CASM-ex projections to CASM, the most directly comparable GAAP measure, because the Company is unable to predict certain items contained in the GAAP measure 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 confusing to investors and is unable to reasonably predict certain items contained in the GAAP measure without unreasonable efforts. 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 "Cautionary Statement Regarding Forward-Looking Statements" below. Below is a reconciliation of the non-GAAP financial measure (CASM-ex) to the most directly comparable GAAP financial measure (CASM) for the year endedDecember 31, 2019 (in cents): 46
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Table of Contents 2019 CASM (GAAP) 13.67 Special charges (credits) 0.09 Third-party business expenses 0.06 Fuel expense 3.14 Profit sharing 0.17 CASM-ex (Non-GAAP) 10.21
Cautionary Statement Regarding Forward-Looking Statements
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 II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, relating to, among other things, the potential impacts of the COVID-19 pandemic 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, ESG targets 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 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 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" 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 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 inthe United States and globally; 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 47
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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; 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 phase out of theLondon interbank offer rate; limitations on our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income forU.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 under Part I, Item 1A. Risk Factors, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with theSEC . 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. 48
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