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. 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, 2020 (the "2020 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; however, see Part I, Item 2 of this report for additional discussion regarding trends associated with the matters discussed in the "Impact of the COVID-19 Pandemic" section below.
Impact of the COVID-19 Pandemic
The novel coronavirus (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 began experiencing a significant decline in international and domestic demand related to COVID-19 during the first quarter of 2020, and this reduction in demand has continued through the date of this report. The Company cut, relative to first quarter 2019 capacity, approximately 54% of its scheduled capacity for the first quarter of 2021. However, since March 2021, the Company has seen increasing demand for travel both domestically and in countries where entry is permitted. The Company expects its second quarter scheduled capacity to be down approximately 45% versus the second quarter of 2019. The full extent of the ongoing impact of COVID-19 on the Company's longer-term operational and financial performance will depend on future developments, including those outside our control related to the efficacy and speed of vaccination programs in curbing the spread of the virus, the introduction and spread of new variants of the virus which may be resistant to currently approved vaccines and the continuation of existing or implementing of new government travel restrictions.
The Company entered into a number of transactions to improve its liquidity. In the first quarter of 2021, the Company has:
•issued or entered into approximately $1.4 billion in new enhanced equipment trust certificate ("EETC") and government loans; and
•raised approximately $0.5 billion in net cash proceeds from the issuance and sale of UAL common stock.
Furthermore, on January 15, 2021, United entered into a Payroll Support Program Extension Agreement (the "PSP2 Agreement") with the U.S. Treasury Department ("Treasury") providing the Company with total funding of approximately $2.6 billion, pursuant to the Payroll Support Program established under Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (the "PSP Extension Law"). 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. Approximately $1.9 billion was provided as a direct grant and $753 million as indebtedness evidenced by a 10-year senior unsecured promissory note (the "PSP2 Note"). The Company expects to receive an additional amount of approximately $391 million under the PSP2 Agreement, of which $117 million is expected to be in the form of an unsecured loan. See Note 2 of this report for additional information on the warrants issued in connection with the PSP2 Note and Note 8 of this report for a discussion of the PSP2 Note. As a result of the PSP2 Agreement, the Company offered an opportunity to return to active employment to employees who were impacted by involuntary furloughs.
The American Rescue Plan Act of 2021 ("PSP3") was enacted on March 11, 2021, authorizing Treasury to provide additional assistance to a passenger air carrier or contractor that (1) received financial assistance under the PSP Extension Law; (2) provided air transportation as of March 31, 2021 and (3) has not conducted involuntary terminations or furloughs or reduced pay rates or benefits between March 31, 2021 and the date on which the air carrier makes certain certifications that will be included in its PSP3 agreement with Treasury. The Company expects to enter into a PSP3 agreement with Treasury and expects to receive assistance of approximately $2.8 billion, of which approximately $0.8 billion is expected to be in the form of an unsecured loan. The Company also expects to issue, to Treasury, warrants to purchase up to approximately 1.5 million shares of UAL common stock at a strike price of $53.92.
During the first quarter of 2021, the Company offered Voluntary Separation Leave ("VSL") programs to certain U.S. based front-line employees. The Company offered, based on employee group, age and completed years of service, pay continuation, health care coverage and travel benefits. Approximately 4,500 employees elected to voluntarily separate from the Company. See Note 5 and Note 9 of this report for additional information on charges related to these programs.
On April 21, 2021, United issued, through a private offering to eligible purchasers, $4.0 billion in aggregate principal amount of two series of notes, consisting of $2.0 billion in aggregate principal amount of 4.375% senior secured notes due 2026 (the "2026 Notes") and $2.0 billion in aggregate principal amount of 4.625% senior secured notes due 2029 (the "2029 Notes" and, together with the 2026 Notes, the "Notes," and each a "series" of Notes). Concurrently with the closing of the offering of the Notes, United also entered into a new Term Loan Credit and Guaranty Agreement (the "New Term Loan Facility") initially providing term loans (the "New Term Loans") up to an aggregate amount of $5.0 billion and a new Revolving Credit and Guaranty Agreement (the "New Revolving Credit Facility" and, together with the New Term Loan Facility, the "New Loan Facilities") initially providing revolving loan commitments of up to $1.75 billion. United borrowed the full amount of the New Term Loans on April 21, 2021. United used the net proceeds from the offering of the Notes and borrowings under the New Term Loan Facility (i) to repay in full the $1.4 billion aggregate principal amount outstanding under the term loan facility (the "2017 Term Loan Facility") included in the Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (the "Existing Credit Agreement"), the $1.0 billion aggregate principal amount outstanding under the revolving credit facility (the "2017 Revolving Credit Facility") included in the Existing Credit Agreement and the $520 million aggregate principal amount outstanding under the Loan and Guarantee Agreement, dated as of September 28, 2020, among United, UAL, Treasury and the Bank of New York Mellon, as administrative agent, as amended (the "CARES Act Loan” and, together with the 2017 Term Loan Facility and the 2017 Revolving Credit Facility, the "Facilities") entered into pursuant to the loan program established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), (ii) to pay fees and expenses relating to the offering of the Notes and (iii) for United's general corporate purposes. As a result of such repayments, the Facilities were terminated on April 21, 2021 and no further borrowings may be made thereunder. See Note 8 of this report for additional information on the Notes and the New Loan Facilities.
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 March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Domestic (U.S. and Canada)
|
$
|
2,111
|
|
|
$
|
5,078
|
|
|
|
|
|
Atlantic
|
410
|
|
|
1,215
|
|
|
|
|
|
Pacific
|
308
|
|
|
806
|
|
|
|
|
|
Latin America
|
392
|
|
|
880
|
|
|
|
|
|
Total
|
$
|
3,221
|
|
|
$
|
7,979
|
|
|
|
|
|
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 electronic travel certificates ("ETCs") and future flight credits ("FFCs"), primarily for ticket cancellations, which can be applied towards a purchase of a new ticket. In February 2021, the Company extended the expiration dates for all tickets issued between May 1, 2019 and March 31, 2021 to March 31, 2022. As of March 31, 2021, the Company's Advance ticket sales liability included $2.8 billion related to these ETCs and FFCs. The Company records breakage revenue on the travel date for its estimate of tickets that will expire unused. To determine breakage, the Company uses its historical experience with refundable and nonrefundable expired tickets and other facts, such as recent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets. 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 breakage. The Company will update its breakage estimates as future information is received.
The Company is unable to estimate the amount of the ETCs and FFCs 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 ETCs and FFCs could be used after the next 12 months. Also, the Company is unable to estimate the amount of the March 31, 2021 Advance ticket sales that will be recognized in revenue in 2021 compared to amounts refunded to customers or exchanged into ETCs.
In the three months ended March 31, 2021 and 2020, the Company recognized approximately $0.7 billion and $2.6 billion, respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods.
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 seat fees, inflight amenities fees and other ticket-related fees. These ancillary fees are part of the travel performance obligation and, as such, are recognized as passenger revenue when the travel occurs. The Company recorded $308 million and $705 million of ancillary fees within passenger revenue in the three months ended March 31, 2021 and 2020, respectively.
Frequent Flyer Accounting. The table below presents a roll forward of Frequent flyer deferred revenue (in millions):
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|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Total Frequent flyer deferred revenue - beginning balance
|
$
|
5,975
|
|
|
$
|
5,276
|
|
|
|
|
|
Total miles awarded
|
272
|
|
|
559
|
|
|
|
|
|
Travel miles redeemed (Passenger revenue)
|
(123)
|
|
|
(322)
|
|
|
|
|
|
Non-travel miles redeemed (Other operating revenue)
|
(15)
|
|
|
(25)
|
|
|
|
|
|
Total Frequent flyer deferred revenue - ending balance
|
$
|
6,109
|
|
|
$
|
5,488
|
|
|
|
|
|
In the three months ended March 31, 2021 and 2020, the Company recognized, in Other operating revenue, $362 million and $530 million, respectively, related to the marketing, advertising, non-travel miles redeemed (net of related costs) and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our JPMorgan Chase Bank, N.A. co-brand agreement. The portion related to the MileagePlus miles awarded of the total amounts received from our various partner agreements is deferred and presented in the table above as an increase to the frequent flyer liability. We determine the current portion of our frequent flyer liability based on expected redemptions in the next 12 months. Given the uncertainty in travel demand caused by COVID-19, we currently estimate a large percentage of award redemptions will occur beyond 12 months; however, this estimate may change as travel demand and award redemptions become clearer in future periods.
NOTE 2 - LOSS PER SHARE
The computations of UAL's basic and diluted loss per share are set forth below (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders
|
$
|
(1,357)
|
|
|
$
|
(1,704)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding, basic and diluted
|
316.6
|
|
|
248.5
|
|
|
|
|
|
Loss per share, basic and diluted
|
$
|
(4.29)
|
|
|
$
|
(6.86)
|
|
|
|
|
|
During the first quarter of 2021, UAL entered into a warrant agreement with Treasury pursuant to which UAL issued to Treasury warrants to purchase up to approximately 1.7 million shares of UAL common stock (the "PSP2 Warrants"). The PSP2 Warrants have a strike price of $43.26 per share. The PSP2 Warrants will expire five years after issuance, and are exercisable either through net share settlement in cash or in shares of UAL common stock, at UAL's option. The relative fair value of the PSP2 Warrants was calculated using a Black-Scholes options pricing model, and approximately $47 million was recorded within stockholders' equity with an offset to the CARES Act grant credit. The PSP2 Warrants contain customary anti-dilution provisions, registration rights and are freely transferable. Pursuant to the terms of the PSP2 Warrants, PSP2 Warrant holders do not have any voting rights. As of March 31, 2021, the Company had the following warrants outstanding:
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|
|
|
|
Warrant Description
|
|
Number of Shares of UAL Common Stock (in millions)
|
|
Exercise Price
|
|
Expiration Dates
|
PSP1 Warrants (a)
|
|
4.8
|
|
|
$
|
31.50
|
|
|
4/20/2025
|
—
|
9/30/2025
|
CARES Act Loan Warrants (b)
|
|
1.7
|
|
|
31.50
|
|
|
9/28/2025
|
PSP2 Warrants
|
|
1.7
|
|
|
43.26
|
|
|
1/15/2026
|
—
|
3/8/2026
|
Total
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Warrants issued in connection with the $1.5 billion 10-year senior unsecured promissory note with Treasury provided under the Payroll Support Program of the CARES Act ("PSP1").
|
(b)
|
Warrants issued in connection with the CARES Act Loan.
|
On June 15, 2020, UAL entered into an equity distribution agreement with Citigroup Global Markets Inc., BofA Securities, Inc. and J.P. Morgan Securities LLC, relating to the issuance and sale from time to time by UAL (the "2020 ATM Offering"), of up to 28 million shares of UAL's common stock, par value $0.01 per share. In the first quarter of 2021, the Company sold approximately 7 million shares at an average price of $42.98 per share, with net proceeds to the Company of approximately $282 million. With these sales, the Company sold all of the shares authorized under the 2020 ATM Offering.
On March 3, 2021, the Company entered into an equity distribution agreement (the "Distribution Agreement") with Morgan Stanley & Co. LLC, AmeriVet Securities, Inc., Barclays Capital Inc., BofA Securities, Inc., BBVA Securities Inc., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Loop Capital Markets LLC and Wells Fargo Securities, LLC (collectively, the "Managers"), relating to the issuance and sale from time to time by UAL (the "2021 ATM Offering"), through the Managers, of up to 37 million shares of UAL's common stock, par value $0.01 per share (the "2021 ATM Shares"). Sales of the 2021 ATM Shares, if any, under the Distribution Agreement may be made in any transactions that are deemed to be "at the market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"). Under the terms of the Distribution Agreement, UAL may also sell the 2021 ATM Shares to any Manager, as principal for its own account, at a price agreed upon at the time of sale. If UAL sells the 2021 ATM Shares to a Manager as principal, UAL will enter into a separate terms agreement with such Manager. During the quarter ended March 31, 2021, approximately 4 million shares were sold in the 2021 ATM Offering at an average price of $57.50 per share, with net proceeds to the Company totaling approximately $250 million.
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the components of the Company's accumulated other comprehensive income (loss), net of tax ("AOCI") (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Other Postretirement Liabilities
|
|
Investments and Other
|
|
Deferred Taxes
|
|
Total
|
|
Balance at December 31, 2020
|
|
$
|
(1,102)
|
|
|
$
|
2
|
|
|
$
|
(39)
|
|
|
$
|
(1,139)
|
|
Changes in value
|
|
13
|
|
|
(1)
|
|
|
(3)
|
|
|
9
|
|
Amounts reclassified to earnings
|
|
5
|
|
(a)
|
—
|
|
|
(1)
|
|
|
4
|
|
Balance at March 31, 2021
|
|
$
|
(1,084)
|
|
|
$
|
1
|
|
|
$
|
(43)
|
|
|
$
|
(1,126)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
(560)
|
|
|
$
|
2
|
|
|
$
|
(160)
|
|
|
$
|
(718)
|
|
Changes in value
|
|
(49)
|
|
|
(16)
|
|
|
15
|
|
|
(50)
|
|
Amounts reclassified to earnings
|
|
(4)
|
|
(a)
|
—
|
|
|
1
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
|
$
|
(613)
|
|
|
$
|
(14)
|
|
|
$
|
(144)
|
|
|
$
|
(771)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) 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
The Company's effective tax rate for the three months ended March 31, 2021 and March 31, 2020 was 22.5% and 19.4%, respectively. The provision for income taxes is based on the estimated annual effective tax rate which represents a blend of federal, state and foreign taxes and includes the impact of certain nondeductible items. The first quarter 2020 rate was impacted by a $66 million valuation allowance related to unrealized capital losses. We recognize deferred tax assets to the extent that we
believe these assets are more likely than not to 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. On the basis of this evaluation, we continue to maintain a valuation allowance of $242 million as of March 31, 2021 which is primarily attributable to deferred tax assets on unrealized capital losses and certain state net operating losses and state credits.
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 March 31 (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
Affected Line Item
in the Statements of
Consolidated Operations
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Service cost
|
|
$
|
60
|
|
|
$
|
54
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Salaries and related costs
|
Interest cost
|
|
46
|
|
|
56
|
|
|
6
|
|
|
7
|
|
|
Miscellaneous, net
|
Expected return on plan assets
|
|
(71)
|
|
|
(91)
|
|
|
—
|
|
|
—
|
|
|
Miscellaneous, net
|
Amortization of unrecognized (gain) loss
|
|
43
|
|
|
35
|
|
|
(7)
|
|
|
(11)
|
|
|
Miscellaneous, net
|
Amortization of prior service credit
|
|
—
|
|
|
—
|
|
|
(31)
|
|
|
(31)
|
|
|
Miscellaneous, net
|
Special termination benefits
|
|
—
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
Miscellaneous, net
|
Other
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
Miscellaneous, net
|
Total
|
|
$
|
78
|
|
|
$
|
57
|
|
|
$
|
16
|
|
|
$
|
(33)
|
|
|
|
As part of a first quarter VSL program, the Company offered special termination 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 into the employee's 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 in the first quarter of 2021.
Share-Based Compensation. In the three months ended March 31, 2021, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2017 Incentive Compensation Plan. These share-based compensation awards included 2.8 million restricted stock units ("RSUs"), consisting of 1.2 million time-vested RSUs and 1.6 million short-term performance-based RSUs. The time-vested RSUs vest equally in 25% increments every 6 months over a two-year period from the date of grant (on August 31st and February 28th). The short-term performance-based RSUs vest upon the achievement of established goals based on financial and customer satisfaction metrics for the performance period January 1, 2021 to December 31, 2021. RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees. The cash payments are based on the 20-day average closing price of UAL common stock immediately prior to the vesting date.
The table below presents information related to share-based compensation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Share-based compensation expense
|
$
|
34
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
Unrecognized share-based compensation
|
$
|
203
|
|
|
$
|
88
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash and cash equivalents
|
$
|
12,666
|
|
|
$
|
12,666
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,269
|
|
|
$
|
11,269
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash - current
|
254
|
|
|
254
|
|
|
—
|
|
|
—
|
|
|
255
|
|
|
255
|
|
|
—
|
|
|
—
|
|
Restricted cash - non-current
|
218
|
|
|
218
|
|
|
—
|
|
|
—
|
|
|
218
|
|
|
218
|
|
|
—
|
|
|
—
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
252
|
|
|
—
|
|
|
252
|
|
|
—
|
|
|
330
|
|
|
—
|
|
|
330
|
|
|
—
|
|
Asset-backed securities
|
35
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
51
|
|
|
—
|
|
|
51
|
|
|
—
|
|
U.S. government and agency notes
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
33
|
|
|
—
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
182
|
|
|
182
|
|
|
—
|
|
|
—
|
|
|
205
|
|
|
205
|
|
|
—
|
|
|
—
|
|
Other assets
|
116
|
|
|
—
|
|
|
81
|
|
|
35
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
36
|
|
Restricted cash - current — Primarily includes $217 million of cash collateral for a standby letter of credit associated with guarantees related to the BRW Term Loan (as defined below). See Note 7 of this report for additional information on the BRW Term Loan and guarantees. The balance also 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. As of March 31, 2021, corporate debt securities have remaining maturities of less than two years, asset-backed securities have remaining maturities of less than one year to approximately nine years and U.S. government and agency notes have maturities of less than one year.
Equity securities — Equity securities represent United's investment in Azul Linhas Aéreas Brasileiras S.A. ("Azul"), consisting of approximately 8% of Azul's outstanding preferred shares (representing approximately 2% of the total capital stock of Azul). The Company recorded $23 million and $293 million in losses during the three months ended March 31, 2021 and 2020, respectively, for changes to the fair market value of its equity investment in Azul in Unrealized losses on investments, net in the Company's statements of consolidated operations. The carrying value of our investment in Azul was $182 million at March 31, 2021.
Other assets — The other assets represent warrants provided to United for the purchase of Class B membership units in Alclear Holdings, LLC and warrants for the purchase of shares from Archer.
Investments presented in the table above have the same fair value as their carrying value.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
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
|
$
|
27,632
|
|
|
$
|
28,939
|
|
|
$
|
—
|
|
|
$
|
22,644
|
|
|
$
|
6,295
|
|
|
$
|
26,747
|
|
|
$
|
27,441
|
|
|
$
|
—
|
|
|
$
|
21,985
|
|
|
$
|
5,456
|
|
Fair value of the financial instruments included in the tables above was determined as follows:
|
|
|
|
|
|
Description
|
Fair Value Methodology
|
Cash and cash equivalents
|
The carrying amounts approximate fair value because of the short-term maturity of these assets.
|
Short-term investments,
Equity securities and
Restricted cash (current and non-current)
|
Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services.
|
Other assets
|
Fair value is determined utilizing the Black-Scholes options pricing model or observable market prices.
|
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.
|
Avianca Loan. Avianca Holdings S.A. ("AVH") and certain of its affiliates filed voluntary reorganization proceedings under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York on May 10, 2020 (the "AVH Reorganization Proceedings"). As part of the AVH Reorganization Proceedings, the Company has a debtor-in-possession ("DIP") term loan ("DIP Loan") receivable under the terms of the DIP credit agreement. The DIP Loan is not convertible. It bears paid-in-kind interest at a rate of 14.5% per annum and has a scheduled maturity date in November 2021. The DIP Loan becomes immediately payable upon AVH's emergence from bankruptcy, in either cash or shares of AVH stock, at AVH's election. As of March 31, 2021, the DIP Loan had a balance of $164 million and was recorded in Receivables on the Company's consolidated balance sheet.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Commitments. As of March 31, 2021, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing"), Airbus S.A.S. ("Airbus") and Embraer S.A. ("Embraer") as presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Aircraft Deliveries
|
Aircraft Type
|
|
Number of Firm
Commitments (a)
|
|
Last Nine Months
of 2021
|
|
2022
|
|
After 2022
|
Airbus A321XLR
|
|
50
|
|
|
—
|
|
|
—
|
|
|
50
|
|
Airbus A350
|
|
45
|
|
|
—
|
|
|
—
|
|
|
45
|
|
Boeing 737 MAX
|
|
180
|
|
|
13
|
|
|
40
|
|
|
127
|
|
Boeing 787
|
|
9
|
|
|
9
|
|
|
—
|
|
|
—
|
|
Embraer E175
|
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
(a) United also has options and purchase rights for additional aircraft.
|
|
|
|
|
|
|
|
|
The aircraft listed in the table above are scheduled for delivery through 2030. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company's future capital commitments could change.
United also has an agreement to purchase seven used Boeing 737-700 aircraft with expected delivery dates in 2021. In addition, United has an agreement to purchase 15 used Airbus A319 aircraft, which it intends to sell, with expected delivery dates in 2021 and 2022.
In 2020, United entered into agreements with third parties to finance through sale and leaseback transactions new Boeing model 787-9 aircraft and Boeing model 737 MAX aircraft subject to purchase agreements between United and Boeing. In connection with the delivery of each aircraft from Boeing, United assigned its right to purchase such aircraft to the buyer, and simultaneous with the buyer's purchase from Boeing, United entered into a long-term lease for such aircraft with the buyer as lessor. Ten Boeing model aircraft were delivered in the first quarter of 2021 under these transactions (and each is presently subject to a long-term lease to United). Remaining aircraft in the agreements are scheduled to be delivered in the last nine months of 2021. Upon delivery of aircraft in these sale and leaseback transactions in 2021, the Company accounted for six of these aircraft, which have a repurchase option at a price other than fair value, as part of Flight equipment on the Company's consolidated balance sheet and the related obligation recorded in Other current liabilities and Other financial liabilities from sale-leasebacks (noncurrent) since they do not qualify for sale recognition. The remaining four aircraft that qualified for sale recognition were recorded as Operating lease right-of-use assets and Current/Long-term obligations under operating leases on the Company's consolidated balance sheet after recognition of related gains on such sale.
The table below summarizes United's commitments as of March 31, 2021, which include aircraft and related spare engines, aircraft improvements and all non-aircraft capital commitments (in billions):
|
|
|
|
|
|
|
|
|
Last nine months of 2021
|
|
$
|
4.0
|
|
2022
|
|
2.9
|
|
2023
|
|
2.8
|
|
2024
|
|
1.7
|
|
2025
|
|
2.1
|
|
After 2025
|
|
10.2
|
|
|
|
$
|
23.7
|
|
Regional CPAs. The table below summarizes the Company's expected future payments through the end of the terms of our capacity purchase agreements ("CPAs"), excluding aircraft ownership costs and variable pass-through costs such as fuel and landing fees, among others. Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict. We have set forth below estimates based on our current assumptions of our anticipated level of flight activity or any contractual minimum utilization levels if applicable, whichever is higher. Based on these assumptions as of March 31, 2021, our estimated future payments through the end of the terms of our CPAs are presented in the table below (in billions):
|
|
|
|
|
|
|
|
|
Last nine months of 2021
|
|
$
|
1.6
|
|
2022
|
|
2.1
|
|
2023
|
|
1.9
|
|
2024
|
|
1.7
|
|
2025
|
|
1.4
|
|
After 2025
|
|
3.7
|
|
|
|
$
|
12.4
|
|
Guarantees. As of March 31, 2021, United is the guarantor of approximately $1.9 billion in aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with 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 2038.
In November 2018, United, as lender, entered into a Term Loan Agreement (the "BRW Term Loan Agreement") with, among others, BRW Aviation Holding LLC and BRW Aviation LLC ("BRW"), as guarantor and borrower, respectively. BRW Aviation Holding LLC and BRW are affiliates of Synergy Aerospace Corporation, and BRW is the majority shareholder of AVH. Pursuant to the BRW Term Loan Agreement, United provided to BRW a $456 million term loan (the "BRW Term Loan"). In November 2018, in connection with funding the BRW Term Loan Agreement, the Company entered into an agreement with Kingsland Holdings Limited ("Kingsland"), AVH's largest minority shareholder, pursuant to which, in return for Kingsland's pledge of its 144.8 million common shares of AVH (which are eligible to be converted into the same number of preferred shares, which may be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the NYSE, in exchange for 18.1 million ADRs) and its consent to BRW's pledge of its AVH common shares to United under the BRW Term Loan Agreement and related agreements, United (1) granted to Kingsland the right to put its AVH common shares to United at market price on the fifth anniversary of the BRW Term Loan Agreement or upon certain sales of AVH common shares owned by BRW, including upon a foreclosure of United's security interest, and (2) guaranteed BRW's obligation to pay Kingsland the difference if the market price of AVH common shares on the fifth anniversary, or upon any such sale, as applicable, is less than $12 per ADR on the NYSE, for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary of $217 million. Due to AVH’s financial uncertainty and subsequent bankruptcy filing in 2019, the Company recorded the full amount of the guarantee as a liability. Additionally, the Company posted $217 million as cash collateral for a standby letter of credit in favor of Citibank, N.A. that serves as security for a loan from Citibank to Kingsland (recorded in Restricted cash – current on the Company's consolidated balance sheet). Any drawings under the letter of credit would offset the Company's maximum possible put and guarantee payment to Kingsland by an equal amount. The posting of this collateral, and any potential credit against the Company's put and guarantee payment, are entirely related to the original transactions entered in 2018 and do not represent any new or incremental investment.
As of March 31, 2021, United is the guarantor of $116 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 March 31, 2021, the Company had $10.4 billion of floating rate debt with remaining terms of up to approximately 12 years that are subject to these increased cost provisions. In several financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to approximately 12 years and an aggregate balance of $8.2 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to customary exclusions.
Labor Negotiations. As of March 31, 2021, the Company had approximately 84,100 employees, of whom approximately 85% were represented by various U.S. labor organizations.
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 cash or other collateral reserves to be established or withholding of payments related to receivables to be collected, including if the Company does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments.
NOTE 8 - DEBT
As of March 31, 2021, United had $1.0 billion available for borrowing under the 2017 Revolving Credit Facility at any time until April 1, 2022 and $1.0 billion aggregate principal amount outstanding under the 2017 Revolving Credit Facility. United also had $1.4 billion aggregate principal amount outstanding under the 2017 Term Loan Facility. On April 21, 2021, United paid all amounts outstanding under the 2017 Revolving Credit Facility and the 2017 Term Loan Facility, terminated the 2017 Revolving Credit Facility and the 2017 Term Loan Facility and entered into the New Loan Facilities described below.
EETCs. In February 2021, United created EETC pass-through trusts which issued pass-through certificates. The proceeds from the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft financed with the proceeds of such notes. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. The pass-through certificates represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on our consolidated balance sheet because the proceeds held by the depositary are not United's assets. Certain details of the pass-through trusts with proceeds received from issuance of debt in 2021 are as follows (in millions, except stated interest rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EETC Issuance Date
|
|
Class
|
|
Face Amount
|
|
|
|
Stated interest rate
|
|
Total proceeds received from issuance of debt
|
|
Total debt recorded as of March 31, 2021
|
February 2021
|
|
B
|
|
$
|
600
|
|
|
|
|
4.88%
|
|
$
|
600
|
|
|
$
|
600
|
|
PSP2 Note. During the first quarter of 2021, UAL issued a $753 million PSP2 Note to Treasury evidencing senior unsecured indebtedness of UAL. The PSP2 Note is guaranteed by United, and will mature ten years after issuance on January 15, 2031 (the "Maturity Date"). If any subsidiary of UAL (other than United) guarantees other unsecured indebtedness of UAL with a principal balance in excess of a specified amount, then such subsidiary shall be required to guarantee the obligations of UAL under the PSP2 Note. UAL may, at its option, prepay the PSP2 Note, at any time, and from time to time, at par. UAL is required to prepay the PSP2 Note upon the occurrence of certain change of control triggering events. The PSP2 Note does not require any amortization, and is to be repaid in full on the Maturity Date. Interest on the PSP2 Note is payable semi-annually in arrears on the last business day of March and September of each year, beginning on March 31, 2021, at a rate of 1.00% in years 1 through 5, and at the Secured Overnight Financing Rate (SOFR) plus 2.00% in years 6 through 10.
As of March 31, 2021, UAL and United were in compliance with their respective debt covenants.
The table below presents the Company's contractual principal payments (not including $533 million of unamortized debt discount, premiums and debt issuance costs) at March 31, 2021 under then-outstanding long-term debt agreements (in millions):
|
|
|
|
|
|
|
|
|
Last nine months of 2021
|
|
$
|
1,427
|
|
2022
|
|
3,952
|
|
2023
|
|
2,792
|
|
2024
|
|
5,257
|
|
2025
|
|
3,841
|
|
After 2025
|
|
10,896
|
|
|
|
$
|
28,165
|
|
Notes. On April 21, 2021, United issued, through a private offering to eligible purchasers, $4.0 billion in aggregate principal amount of two series of Notes, consisting of $2.0 billion in aggregate principal amount of the 2026 Notes and $2.0 billion in aggregate principal amount of the 2029 Notes. The 2026 Notes, issued at a price of 100% of their principal amount, bear interest at a rate of 4.375% per annum and will mature on April 15, 2026. The 2029 Notes, issued at a price of 100% of their principal amount, bear interest at a rate of 4.625% per annum and will mature on April 15, 2029. The Notes are guaranteed on an unsecured basis by UAL.
New Loan Facilities. Concurrently with the closing of the offering of the Notes, United also entered into the New Loan Facilities, consisting of the New Term Loan Facility initially providing New Term Loans up to an aggregate amount of $5.0 billion and the New Revolving Credit Facility initially providing revolving loan commitments of up to $1.75 billion. United borrowed the full amount of the New Term Loans on April 21, 2021, which bear interest at a variable rate equal to LIBOR (but not less than 0.75% per annum) plus a margin of 3.75% per annum. The principal amount of the New Term Loan Facility must be repaid in consecutive quarterly installments of 0.25% of the original principal amount thereof with the balance due at maturity. Borrowings under the New Revolving Credit Facility bear interest at a variable rate equal to LIBOR plus a margin of 3.00% to 3.50% per annum. United pays a commitment fee equal to 0.75% per annum on the undrawn amount available under the New Revolving Credit Facility.
United used the net proceeds from the offering of the Notes and borrowings under the New Term Loan Facility (i) to repay in full all of the Facilities, including the $1.4 billion aggregate principal amount outstanding under the 2017 Term Loan Facility, the $1.0 billion aggregate principal amount outstanding under the 2017 Revolving Credit Facility and the $520 million aggregate principal amount outstanding under the CARES Act Loan, (ii) to pay fees and expenses relating to the offering of the Notes and (iii) for United’s general corporate purposes. As a result of such repayments, the Facilities were terminated on April 21, 2021 and no further borrowings may be made thereunder.
The Notes and the New Loan Facilities are secured on a senior basis by security interests granted by United to the collateral trustee for the benefit of the holders of the Notes and the lenders under the New Loan Facilities, among other parties, on the following: (i) all of United's route authorities granted by the U.S. Department of Transportation to operate scheduled service between any international airport located in the United States and any international airport located in any country other than the United States (except Cuba), (ii) United's rights to substantially all of its landing and take-off slots at foreign and domestic airports, including at John F. Kennedy International Airport, LaGuardia Airport and Ronald Reagan Washington National Airport (subject to certain exclusions), and (iii) United's rights to use or occupy space at airport terminals, each to the extent necessary at the relevant time for servicing scheduled air carrier service authorized by an applicable route authority.
NOTE 9 - SPECIAL CHARGES (CREDITS)
For the three months ended March 31, special charges (credits), certain credit losses and unrealized losses on investments in the statements of consolidated operations consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
CARES Act grant
|
$
|
(1,810)
|
|
|
$
|
—
|
|
|
|
|
|
Severance and benefit costs
|
417
|
|
|
—
|
|
|
|
|
|
Impairment of assets
|
—
|
|
|
50
|
|
|
|
|
|
(Gains) losses on sale of assets and other special charges
|
16
|
|
|
13
|
|
|
|
|
|
Total operating special charges (credits)
|
(1,377)
|
|
|
63
|
|
|
|
|
|
Nonoperating special termination benefits
|
46
|
|
|
—
|
|
|
|
|
|
Nonoperating unrealized losses on investments, net
|
22
|
|
|
319
|
|
|
|
|
|
Nonoperating credit loss on BRW Term Loan and related guarantee
|
—
|
|
|
697
|
|
|
|
|
|
Total nonoperating special charges and unrealized losses on investments, net
|
68
|
|
|
1,016
|
|
|
|
|
|
Total operating and nonoperating special charges (credits) and unrealized losses on investments, net
|
(1,309)
|
|
|
1,079
|
|
|
|
|
|
Income tax expense (benefit), net of valuation allowance
|
291
|
|
|
(14)
|
|
|
|
|
|
Total operating and nonoperating special charges (credits) and unrealized losses on investments, net of income taxes
|
$
|
(1,018)
|
|
|
$
|
1,065
|
|
|
|
|
|
2021
CARES Act grant. During the three months ended March 31, 2021, the Company received approximately $2.6 billion in funding pursuant to the PSP2 Agreement, which included a $753 million unsecured loan. The Company recorded $1.8 billion as grant income and $47 million for the PSP2 Warrants issued to Treasury as part of the PSP2 Agreement, within stockholders' equity, as an offset to the grant income.
Severance and benefit costs. During the three months ended March 31, 2021, the Company recorded $417 million 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 benefits. Approximately 4,500 employees elected to voluntarily separate from the Company.
Impairment of assets. In February 2021, the Company voluntarily and temporarily removed all 52 Boeing 777-200/200ER aircraft powered by Pratt & Whitney 4000 series engines from its schedule due to an engine failure incident with one of its aircraft. The Company viewed this incident as an indicator of potential impairment. Accordingly, as required under relevant accounting standards only, United performed forecasted cash flow analyses and determined that the carrying value of the Boeing 777-200/200ER fleet is expected to be recoverable from future cash flows expected to be generated by that fleet and, consequently, no impairment was recorded.
(Gains) losses on sale of assets and other special charges. During the three months ended March 31, 2021, the Company recorded $16 million of net charges, driven by charges for the termination of the lease associated with three floors of its headquarters at the Willis Tower in Chicago and utility charges related to the February winter storms in Texas, partially offset by net gains, primarily on sale-leaseback transactions (see Note 7 of this report for additional information on the sale-leaseback transactions).
Nonoperating special termination benefits. During the three months ended March 31, 2021, as part of a first quarter VSL program, 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 are in the form of a one-time contribution into the employee's Retiree Health Account of $125,000 for full-time employees and $75,000 for part-time employees.
Nonoperating unrealized losses on investments, net. During the three months ended March 31, 2021, the Company recorded losses of $22 million primarily for the decrease in the market value of its investment in Azul.
2020
Impairment of assets. During the three months ended March 31, 2020, the Company recorded a $50 million impairment for its China routes, which was primarily caused by the COVID-19 pandemic and the Company's subsequent suspension of flights to China.
Gains (losses) on sale of other assets and other special charges. During the three months ended March 31, 2020, the Company recorded a $10 million one-time special charge related to the wind-down of the CPA with Trans States Airlines, LLC and $3 million for costs related to the transition of fleet types within other regional carrier contracts.
Nonoperating credit loss on BRW Term Loan and related guarantee. During the three months ended March 31, 2020, the Company recorded a $697 million expected credit loss allowance for the BRW Term Loan and related guarantee. AVH is currently in bankruptcy. See Notes 6 and 7 of this report for additional information.
Nonoperating unrealized losses on investments, net. During the three months ended March 31, 2020, the Company recorded losses of $319 million primarily for the $293 million decrease in the market value of its investment in Azul and $24 million for the decrease in fair value of the AVH share call options, AVH share appreciation rights and AVH share-based upside sharing agreement.