• Company reports $1.5 billion loss for the quarter including a $326 million non-cash tax expense; pre-tax loss is $1.1 billion for the quarter.
• Company reports $3.2 billion loss for the full year on both a pre- and post-tax basis.
• On Dec. 9, 2002, UAL files for Chapter 11 protection to transform its business through reorganization and receives commitment for $1.5 billion in DIP financing.
• Despite financial challenges, United posts record operational performance results.

CHICAGO, January 31, 2003 -- UAL Corporation (NYSE: UAL), the holding company whose primary subsidiary is United Airlines, reported its fourth-quarter financial results today.

The company incurred a fourth-quarter loss of $1.5 billion, or a loss per basic share of $20.70 (see Note: EPS Calculation).  This loss includes $77 million in special items and a non-cash tax expense described in the notes to the financial tables.  This performance compares to a fourth-quarter 2001 loss of $308 million, or a loss per basic share of $5.68, including special items.

UAL's loss for the full year, including the special items, totals $3.2 billion, or a loss of $53.55 per basic share.  This compares to a full-year 2001 loss of $2.1 billion, or a loss of $40.04 per basic share.

The company's results reflect an effective tax rate of zero for 2002.  At a statutory tax rate of 36%, the net loss for the quarter would have been $686 million, or a loss per basic share of $9.65, and a net loss for the full year of $2.1 billion or a loss of $34.56 per basic share, excluding special items.

“The biggest single challenge United faced in 2002 was to reduce its costs, the highest in the industry, as the essential underpinning of becoming a competitive, sustainable airline,” said Glenn Tilton, chairman, president and chief executive officer.  “And United did everything within its control, slashing costs in every aspect of the business -- without sacrificing reliability and safety -- including reducing capital investments, reducing airline capacity, furloughing employees, obtaining concessions from vendors and more.   Those initiatives were simply not sufficient to address United’s immediate and long-term issues.  We now have the opportunity in Chapter 11 to make significant additional changes by working with our unions and others.  By making the difficult but critical changes necessary to create a cost-competitive business, United can succeed consistently over time.

“As we move forward in 2003, United will continue to compete aggressively through smart initiatives that take us toward a more compelling customer value proposition," Tilton continued.  "We'll achieve that by focusing on areas such as superb operational performance, simplicity of fares, attractive routes, good connectivity and more.  Our employees have clearly demonstrated their ability to focus relentlessly on operational excellence and customer service even as we go through the Chapter 11 process.  Despite the distractions of this process, United’s people delivered record operational results, including record-breaking on-time performance.  I am grateful for this continued, outstanding effort by our employees as they seek to provide exceptional service to our customers.”

Operational Performance

During 2002, United’s employees set company records and turned in industry-leading performance in a number of areas of critical importance to customers.  Highlights from the quarter include:

• The U.S. Department of Transportation ranked United #1 in on-time performance for the first 11 months of 2002.
• United's flight completion rate for 2002 was 99.3 % - an average of only 13 flights per day were cancelled out of approximately 1,700, compared to 99 flights cancelled per day in 2001.
• United successfully transitioned to 100 % inspection of all checked baggage with virtually no direct impact on customers.
• United experienced excellent load factors in 2002, including a record 90.7 % on Monday,
  Dec. 30.

“I can't say enough about the outstanding work our employees are doing,"  said Pete McDonald, executive vice president - Operations.  "United's people are stepping up to a tremendous challenge every day.  United's operational performance is at the top of the industry and it has not gone unnoticed by our customers.  I thank our employees for showing our customers that we are committed not only to their safety, but to their comfort as well."

Financial Results

UAL's fourth-quarter 2002 operating revenues were $3.5 billion, up 18 % compared to fourth-quarter 2001.  Passenger revenue for the quarter was up 12% from last year on a 6% capacity increase.  System passenger unit revenue was up 5% year-over-year, as yields were 2% lower and load factor increased by 4 points.  Unit revenue, yield and load factor by entity are shown below: 

Fourth-Quarter Year-Over-Year Changes

Increase/(Decrease)

United’s load factor for the quarter was 72%, about a point higher than the average for other network carriers and more than four points higher than fourth quarter 2001.

Operating expenses for the quarter were up 16 %.  Excluding special items, operating expenses of $4.4 billion were up 15% and the company’s unit cost, excluding its fuel subsidiary, was up 5 %.   The unit cost increase was largely a result of the effects of new labor agreements and contractual increases and higher fuel expense.  Average fuel price for the quarter was 86.5 cents per gallon, up more than 10% year-over-year.  For the full-year, fuel averaged 78.2 cents per gallon, down 10% year-over-year.   The company does not have fuel hedges in place for 2003.

During the fourth quarter, UAL recorded a special charge of $67 million for severance related to furloughs announced for various employee groups.   UAL also recorded $10 million in reorganization items related to its bankruptcy filing, primarily consisting of professional fees.  The company recorded $326 million in additional non-cash tax expense to achieve a zero effective tax rate for the year.  At year end, the company recorded a significant minimum pension liability, resulting in an approximate $2.4 billion non-cash charge to shareholder's equity.  The  company's current tax situation does not allow this charge to be made net of tax.  At a statutory tax rate of 36%, the pension equity charge would have been $1.5 billion.

UAL ended the quarter with a cash balance of $1.9 billion.  UAL's cash balance includes $579 million in restricted cash, including $117 million in long-term restricted cash.  During the quarter, the company received $700 million in cash from its Debtor-In-Possession (DIP) financing arrangements.

Financial Recovery

On Dec. 9, 2002, UAL filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois.  In connection with its Chapter 11 filing, the company arranged for and has gained court approval of its $1.5 billion in DIP financing provided by Bank One, J.P. Morgan Chase, Citibank and CIT Group.  The company has drawn $700 million on this facility.  This financing will help provide UAL with the liquidity necessary to operate in the normal course throughout the reorganization process.

Since December, UAL has made steps forward in restructuring its operations, including reducing 2003 capacity by six percent as compared to 2002; reorganizing the company’s executive team; realigning divisions; and completing plans to close certain reservation call centers and all U.S. City Ticket Offices.  In January, the company also closed stations in Latin America and Europe and announced plans to suspend operations to New Zealand in March.  Overall, the company has to date identified approximately $1.4 billion in annual non-labor cost savings and profit improvements. 

On the labor side, in December, the company implemented wage reductions of between approximately three and 11% for United’s salaried and management employees, and was successful in collaboratively negotiating agreements on interim wage concessions of nine to 29% with four of its six labor unions.  United also filed a motion under section 1113 of Chapter 11 of the U.S. Bankruptcy Code in order to achieve interim wage reductions from its two remaining unions; the court approved the company’s motion on Jan. 10, 2003.  The interim wage concessions from all six unions total approximately $70 million in monthly labor savings for United effective through May 1, 2003. 

Outlook

UAL expects to report a significant loss for the first quarter of 2003.  The company’s domestic booked load factor is about the same as it was last year, though United expects that the mix of business traffic will be down.  United’s overall international bookings are somewhat weaker, and the Pacific markets specifically are being affected by a significant increase in industry capacity in the region.    United’s outlook for the quarter could be affected by the developing situation in Iraq.
 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain information contained in this press release and attached supplement should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements reflect UAL’s current views with respect to certain current and future events and financial performance.  Such forward-looking statements are and will be, as the case may be, subject to many risks and uncertainties relating to the operations and business environments of UAL and its subsidiaries (collectively, the “company”) that may cause the actual results of the company to be materially different from any future results expressed or implied in such forward-looking statements.  Such factors include, but are not limited to, the following: the company’s ability to continue as going concerns; the company’s ability to operate pursuant to the terms of the debtor-in-possession facility; the company’s ability to obtain court approval with respect to motions in the Chapter 11 proceeding prosecuted by it from time to time; the company’s ability to develop, prosecute, confirm and consummate one or more plans of reorganization with respect to the Chapter 11 cases; risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for the company to propose and confirm one or more plans of reorganization, for the appointment of a Chapter 11 trustee or to convert the cases to Chapter 7 cases; the company’s ability to achieve necessary reductions in labor costs; the company’s ability to obtain and maintain normal terms with vendors and service providers; the company’s ability to maintain contracts that are critical to its operations; the potential adverse impact of the Chapter 11 cases on the company’s liquidity or results of operations; the costs and availability of financing; the company’s ability to execute its business plan; the company’s ability to attract, motivate and/or retain key employees; the company’s ability to attract and retain customers; demand for transportation in the markets in which the company operates; general economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; the ability of other air carriers with whom the company has alliances or partnerships to provide the services contemplated by the respective arrangements; the costs and availability of aircraft insurance; the costs of aviation fuel; the costs associated with existing or future security measures and practices; competitive pressures on pricing (particularly from lower-cost competitors); government legislation and regulation; consumer perceptions of the company’s products; weather conditions; and other risks and uncertainties set forth from time to time in UAL’s reports to the United States Securities and Exchange Commission.  The company disclaims any intent or obligation to update or alter any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

Note:

EPS Calculation.  In periods of loss, GAAP requires that earnings per share be calculated based only on actual number of common shares outstanding, which was 71 million in fourth quarter 2002.   The number of outstanding shares significantly increased from the third quarter.  The UAL Employee Stock Ownership Plan's (ESOP) independent fiduciary, State Street Bank, converted preferred stock to common stock and subsequently sold common stock, which caused the number of outstanding shares to increase.  Potential common shares, such as UAL’s ESOP convertible preferred stock, which at approximately 45 million shares represent a significant portion of the company’s ownership base, are not used in the earnings per share calculation.  However, in profitable periods, both common and potential common shares are used in calculating the earnings per share.

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