****UNITED STATES****SECURITIES AND EXCHANGE COMMISSION****Washington, D.C.  20549**
**FORM 10-Q**
**(**Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE            SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE           SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-11355
**UNITED AIR LINES, INC.**(Exact name of registrant as specified in its charter)**Delaware****36-2675206**(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)  **Location:  1200 East AlgonquinRoad, Elk Grove Township, Illinois           60007****Mailing Address:  P. O.Box 66919, Chicago, Illinois                                     60666**(Address of principal executiveoffices)                                                           (Zip Code)   **(847) 700-4000****(Registrant's telephone number, including areacode)**
     Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes    X      No
     Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer. See definition of "accelerated filer and large acceleratedfiler" in Rule 12b-2 of the Exchange Act.
      Large accelerated filer [   ]                      Accelerated filer  [X]                    Non-accelerated filer  [   ]
     Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).   Yes [   ]     No [X]
     Indicate by check mark whetherthe registrant has filed all documents and reports required to be filedby Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequentto the distribution of securities under a plan confirmed by a court. Yes [X]     No  [   ]
  Indicate the number of shares outstanding of eachof the issuer's classes of common stock, as of the latest practicable date.    Outstanding atClassApril 30, 2006Common Stock ($5 par value)205
United Air Lines, Inc. and Subsidiary Companies Report on Form 10-QFor the Quarter Ended March 31, 2006
Index PART I.FINANCIAL INFORMATIONPage No.  Item 1. Financial Statements  Statements of Consolidated FinancialPosition (Unaudited)3  Statements of Consolidated Operations(Unaudited) 5  Statements of Consolidated CashFlows (Unaudited) 6    Statements of Consolidated Stockholder'sEquity (Deficit) (Unaudited)7  Notes to Consolidated FinancialStatements (Unaudited)8 Item 2. Management's Discussionand Analysis of Financial Condition and Results of Operations44  Item 3. Quantitative and QualitativeDisclosures About Market Risk59    Item 4. Controls and Procedures60PART II.OTHER INFORMATION  Item 1. Legal Proceedings61    Item 6. Exhibits62 Signature63 Exhibit Index64 
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Air Lines, Inc. and Subsidiary CompaniesStatements of Consolidated Financial Position (Unaudited)(In Millions) SuccessorPredecessor March 31,December 31, 20062005Assets  Current assets:  Cash and cash equivalents$ 3,599 $ 1,722 Receivables, less allowance fordoubtful    accounts(2006 - $25; 2005 - $22)1,006 822 Restricted cash380 643 Prepaid fuel291 258 Aircraft fuel, spare parts andsupplies, less  obsolescence allowance (2006 -$1; 2005 - $66)161 193     Receivablesfrom related parties144 201     Deferred incometaxes139 - Short-term investments4 77 Prepaid expenses and other506486 6,2304,402Operating property and equipment:  Owned -   Flight equipment8,598 13,443 Advances on flight equipment91 116 Other property and equipment  1,349  3,833 10,038 17,392 Less - accumulated depreciationand amortization(93)(6,104) 9,94511,288Capital leases -  Flight equipment1,573 2,581 Other property and equipment      15      84 1,588 2,665 Less - accumulated amortization(14)(739) 1,5741,926 11,51913,214Other assets:  Intangibles, less accumulatedamortization  (2006 - $32; 2005 - $207)3,136 370    Goodwill2,756 2 Aircraft lease deposits497 477    Restricted cash482 285 Investments112 20 Prepaid rent8 67 Other, net1,009559 8,0001,780    $25,749$19,396
See accompanying Notes to Consolidated Financial Statements. 
United Air Lines, Inc. and Subsidiary CompaniesStatements of Consolidated Financial Position (Unaudited)(In Millions) SuccessorPredecessor March 31,December 31, 20062005Liabilities and Stockholder'sEquity  Current liabilities:  Advance ticket sales$ 2,060 $ 1,575    Mileage Plus deferredrevenue1,031 681 Accrued salaries, wages and benefits862 842 Accounts payable 744 595   Advanced purchaseof miles (Note 14)696 679 Long-term debt maturing withinone year (Note 9)  346      13 Fuel purchase commitments291 258    Payables to relatedparties249  463 Current obligations under capitalleases115 20 Other1,206511 7,6005,637   Long term debt (Note 9)   8,851   1,298Long-term obligations under capitalleases   1,392    102   Other liabilities and deferredcredits:     Mileage Plus deferredrevenue2,376 242 Postretirement benefit liability(Note 5)1,997 1,932 Deferred income taxes624 354 Deferred pension liability (Note5)128 95 Other629545 5,7543,168   Liabilities subject to compromise-35,060Mandatorily convertible preferred stock (Note 16)338-Commitments and contingent liabilities(Note 11)     Stockholder's equity (deficit):  Predecessor Company common stockat par, $5.00 par      value; authorized 1,000shares; issued 205 shares at December 31, 2005- -    Successor Companycommon stock at par, $5.00 par      value; authorized1,000 shares; issued 205 shares at      March31, 2006- - Additional capital invested2,021 4,213 Retained deficit(215)(28,809)Accumulated other comprehensiveincome (loss)8       (36)Receivables from affiliates-  (1,237) 1,814(25,869)    $ 25,749$ 19,396
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary CompaniesStatements of Consolidated Operations (Unaudited)(In Millions, Except Per Share) Successor Predecessor Period from February 1 to March 31,Period from January 1 to January 31,Three Months Ended March 31, 200620062005Operating revenues:   Passenger - United Airlines$ 2,182  $ 1,074  $ 2,916  Passenger - Regional Affiliates465  204  524  Cargo124  56  172  Other operating revenues235 120 304  3,006 1,454 3,916 Operating expenses:      Salaries and related costs725  358  1,031  Aircraft fuel 705  362  805  Regional affiliates468  228  645  Purchased services296  133  360  Aircraft maintenance materialsand outside repairs179  80  219  Depreciation and amortization148  68  212  Landing fees and other rent145  75  233  Cost of sales126  63  136  Aircraft rent75  30  121  Commissions51  24  77  Other operating expenses     204      85   316  3,122 1,506 4,155        Loss from operations(116)   (52) (239)        Other income (expense):      Interest expense(131) (42) (112) Interest capitalized3  -  (5) Interest income28  6  4  Miscellaneous, net1 -  58  (99) (36) (55)        Loss before reorganization items,income taxes and equity            in earningsof affiliates(215) (88) (294) Reorganization items, net     - 22,709 (718)        Earnings (loss) before incometaxes and equity in earnings            of affiliates(215) 22,621  (1,012) Income taxes- -  -        Earnings (loss) before equityin earnings of affiliates(215) 22,621  (1,012) Equity in earnings of affiliates- 5 - Net income (loss)$ (215) $22,626 $ (1,012)        
See accompanying Notes to Consolidated Financial Statements. 
United Air Lines, Inc. and Subsidiary CompaniesStatements of Consolidated Cash Flows (Unaudited)(In Millions) SuccessorPredecessor Period from February 1 to March 31,Period from January 1 to January 31,Three Months Ended March 31, 200620062005Cash flows provided (used) byoperating activities:   Net loss before reorganizationitems and equity in earnings of affiliates$ (215) $ (83) $ (294) Adjustments to reconcile to netcash provided (used) by operating      activities -      Mileage Plus deferred revenue  46   14   4  Pension expense-  8  98  Postretirement benefit expense9  (9) (5) Depreciation and amortization 148   68   213  Increase in receivables(71) (98) (189) Increase in other current assets(105) (26) (138) Increase in advance ticket sales 395   109   467  Increase in accounts payable  119   25   57  Increase (decrease) in accruedliabilities(111) 146  34  Increase (decrease) in accruedaircraft rent(18)  6   10        Stock-based compensation69 -  -  Amortization of deferred gains-   (6)  (21) Other,net28 9     21  294 163 257 Cash flows provided (used) byreorganization activities:      Reorganization items, net -  22,709  (718) Increase in aircraft rejectionliability-  -  162  Increase in other liabilities-  38  93  Increase in non-aircraft claimsaccrual-  421 -       Discharge of claims and liabilities-  (24,389) -       Revaluation of Mileage Plus frequent flyer deferred revenue-  2,399  -       Revaluation of other assets and liabilities-  (2,111) -  Pension curtailment, settlementand employee claims- 912 433  - (21) (30) Cash flows provided (used) byinvesting activities:      Additions to property and equipment(62) (30) (13) Proceeds on disposition of propertyand equipment-  (1) 22  Decrease in short-term investments71  2  8  Decrease (increase) in restrictedcash269  (203) (8)      Decrease in segregated funds200  -  -  Other, net(14) (6) (4) 464(238)5Cash flows provided (used) byfinancing activities:      Proceeds from Credit Facility2,961  -  -  Repayment of Credit Facility(161) -  -       Proceeds from Chase128  -  -       Payments to Chase(130) -  -       Repayment of DIP Financing(1,157) -  (4) Repayment of other long-term debt(338) (24) (55) Principalpayments under capital leases(3) (5) (28)      Decrease in advances/loans with affiliates-  -  (5) Other, net(55) (1) 1  1,245 (30) (91) Increase (decrease) in cash andcash equivalents during the period2,003  (126) 141  Cash and cash equivalents at beginningof the period1,596 1,722 1,248 Cash and cash equivalents at endof the period$ 3,599 $ 1,596 $1,389        
See accompanying Notes to Consolidated Financial Statements. 
United Air Lines, Inc. and Subsidiary CompaniesStatements of Consolidated Stockholders' Equity (Deficit) (Unaudited)(In millions)      Accumulated  Receivable Additional Other  fromCommonCapitalRetainedComprehensive  AffiliatesStockInvested(Deficit)Income (Loss)TotalBalance at December31, 2005, (Predecessor Company)$(1,237) $ -  $ 4,213  $(28,809) $ (36) $(25,869)  Net income from January1 to January 31, 2006- - - 22,626 - 22,626Balance at January 31, 2006, (PredecessorCompany)(1,237) -  4,213  (6,183) (36) (3,243)Fresh start adjustments:             Elimination of Predecessor  accumulated deficit and   accumulated other comprehensive  loss-  -  -    6,183    36    6,219   Cancellation of receivablefrom   affiliates, additional capital invested 1,237  -  (4,213) -  -  (2,976)Allocation of UAL's reorganization  value in connection with emergence   from Chapter 11- - 1,952 - - 1,952Balance at February 1, 2006, (SuccessorCompany)-  -  1,952  -  -  1,952   Net loss from February1 to March   31, 2006-  -  -  (215) -  (215)  Unrealized gain on derivatives,net-  -  -  -  8  8   Stock-based compensation- - 69 - - 69Balance at March 31, 2006, (SuccessorCompany)$ - $ - $ 2,021 $ (215) $ 8 $ 1,814
See accompanying Notes to Consolidated Financial Statements. 
United Air Lines, Inc. and Subsidiary CompaniesNotes to Consolidated Financial Statements (Unaudited)
The Company
United Air Lines, Inc. (together with its consolidated subsidiaries,"we," "our," "us," "United" or the "Company") is a wholly owned subsidiaryof UAL Corporation ("UAL").
Interim Financial Statements
The Company has prepared the unaudited consolidated financial statementsshown here as required by the Securities and Exchange Commission (the "SEC").Some information and footnote disclosures normally included in financialstatements that meet generally accepted accounting principles ("GAAP")have been condensed or omitted as permitted by the SEC. The Company believesthat the disclosures presented here are not misleading. The financial statementsinclude all adjustments (which include only normal recurring adjustments,adjustments required by fresh-start reporting and reorganization itemsdescribed below) that are considered necessary for a fair presentationof its financial position and operating results. These financial statementsshould be read together with the information included in our most recentAnnual Report on Form 10-K for the year 2005.
As a result of the application of fresh-start reporting in accordancewith American Institute of Certified Public Accountants' Statement of Position90-7 "*Financial Reporting by Entities in Reorganization under the BankruptcyCode*" ("SOP 90-7"), the financial statements prior to February 1, 2006are not comparable with the financial statements for periods on or afterFebruary 1, 2006. References to "Successor Company" refer to United onor after February 1, 2006, after giving effect to the application of fresh-startreporting. References to "Predecessor Company" refer to United prior toFebruary 1, 2006. See Note 1, "Voluntary Reorganization Under Chapter 11- Fresh-Start Reporting" for further details.
**(1) Voluntary Reorganization Under Chapter 11**
***Bankruptcy Considerations*.**   The following discussionprovides general background information regarding the Company's Chapter11 cases, and is not intended to be an exhaustive summary. Detailed informationpertaining to the bankruptcy filings may be obtained at www.pd.ual.com.
On December 9, 2002 (the "Petition Date"), UAL, United and 26 directand indirect wholly-owned subsidiaries (collectively, the "Debtors") filedvoluntary petitions to reorganize their businesses under Chapter 11 ofthe United States Bankruptcy Code in the United States Bankruptcy Courtfor the Northern District of Illinois, Eastern Division (the "BankruptcyCourt"). On January 20, 2006, the Bankruptcy Court confirmed the Debtors'Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of theUnited States Bankruptcy Code (the "Plan of Reorganization"). The Planof Reorganization became effective and the Debtors emerged from bankruptcyprotection on February 1, 2006 (the "Effective Date"). On the EffectiveDate, United implemented fresh-start reporting.
The Plan of Reorganization generally provided for the full payment orreinstatement of allowed administrative claims, priority claims, and securedclaims, and the distribution of new equity securities to the Debtors' creditorsand employees in satisfaction of allowed unsecured and deemed claims. ThePlan of Reorganization contemplated UAL issuing up to 125 million sharesof common stock (out of the one billion shares of new common stock authorizedunder its certificate of incorporation). The new UAL common stock was listedon the NASDAQ National Market and began trading under the symbol "UAUA"on February 2, 2006. The distributions of common stock, subject to certainholdbacks as described in the Plan of Reorganization, will be as follows:- Approximately 115 million shares of UAL common stock to unsecured creditorsand employees;
- Up to 9.825 million shares of UAL common stock and options (or rights toacquire shares) under the management equity incentive plan ("MEIP") approvedby the Bankruptcy Court; and
- Up to 175,000 shares of UAL common stock and options (or rights to acquireshares) under the director equity incentive plan ("DEIP") approved by theBankruptcy Court.
The Plan of Reorganization also provided for the issuance of the followingsecurities:- 5,000,000 shares of 2% mandatorily convertible preferred stock, which wereissued to the Pension Benefit Guaranty Corporation ("PBGC") shortly afterthe Effective Date;
- Approximately $150 million in aggregate principal amount of convertible5% notes, which were issued to holders of certain municipal bonds shortlyafter the Effective Date;
- Approximately $726 million in aggregate principal amount of convertiblenotes, which are issuable within the first six months after the EffectiveDate to employees;
- $500 million in aggregate principal amount of 6% senior unsecured notes,which were issued to the PBCG shortly after the Effective Date; and
- $500 million in aggregate principal amount of 8% senior unsecured notes(in up to eight equal tranches of $62.5 million) issuable to the PBGC subjectto the satisfaction of certain contingencies.
Pursuant to the Plan of Reorganization, UAL common stock, preferred stockand Trust Originated Preferred Securities issued prior to the PetitionDate were canceled on the Effective Date, and no distribution was madeto holders of those securities.
On the Effective Date, the Company secured access to up to $3.0 billionin secured exit financing (the "Credit Facility") which consists of a $2.45billion term loan, a $350 million delayed draw term loan and a $200 millionrevolving credit line consisting of $161 million in cash and $39 millionin letters of credit. On the Effective Date, the $2.45 billion term loanand the entire revolving credit line were drawn and used to repay the Debtor-In-Possessioncredit facility (the "DIP Financing") and to make other payments requiredupon exit from bankruptcy, as well as to provide ongoing liquidity to conductpost-reorganization operations. Subsequently, during the first quarterof 2006, the Company repaid $161 million on the revolving credit line andaccessed the $350 million delayed draw term loan.
***Significant**Matters Resolved Since Emergence from Bankruptcy.***Duringthe course of the Chapter 11 proceedings, the Company successfully reachedsettlements with most of its creditor constituencies and resolved mostpending claims against the Debtors. The following material matters wereresolved in the Bankruptcy Court after the Effective Date:**(a)**    The Company had an ongoing disputewith respect to a group of mostly-public financiers (the "Public Debt Group")involving 14 aircraft financed under the Series 1997-1 Enhanced EquipmentTrust Certificates ("1997-1 EETC"). During the first quarter of 2006, theCompany resolved the dispute and entered into a settlement agreement thatwas approved by the Bankruptcy Court. The settlement agreement resolvedall pending litigation in connection with the 1997-1 EETC transaction andaircraft and provided for a permanent mutual release of all related claims.The Company remitted $281 million to the 1997-1 EETC trustee as final paymentto the holders of the Tranche A certificates. The Company previously acquiredthe 1997-1 EETC Tranche B and Tranche C certificates as a precursor toutilizing the transaction par buyout mechanism to purchase the TrancheA certificates. Following shortly thereafter in the first quarter of 2006,the Company refinanced the 14 aircraft with the $350 million delayed drawterm loan provided under the Credit Facility. The Company recorded the1997-1 EETC debt at fair market value upon its emergence from bankruptcyin accordance with fresh-start reporting. As a result, no gain or losswas realized on the extinguishment of debt. See "Fresh-Start Reporting"for further details.
**(b)**    Wells Fargo Bank Northwest, N.A., not individuallybut in its capacity as a trustee, filed a notice of appeal of the confirmationorder to the United States District Court for the Northern District ofIllinois ("District Court"). The parties subsequently filed a stipulationagreeing to voluntarily dismiss the appeal, and the appeal has been dismissed.**Significant *Matters Remaining to be Resolved in Chapter 11 Cases.***Thefollowing material matters remain to be resolved in the Bankruptcy Courtor another court:**(a)**    In August 2005, United enteredinto term sheets to restructure the financings for all of the aircraftin United's fleet that are controlled by the Public Debt Group, excludingthe 1997-1 EETC discussed above.  As of the Effective Date, definitivedocumentation was not yet complete on the restructurings contemplated bythe term sheets.  With respect to the pre-1997 transactions financing19 aircraft, United subsequently closed transactions covering 18 of the19 aircraft.  The Company has reached agreement on all business termsassociated with the last aircraft and anticipates closing shortly afterother technical documentation has been executed.  With respect tothe three post-1997 Enhanced Equipment Trust Certificate transactions,financing 80 aircraft, there was a dispute with respect to interpretationof the term sheets as to both the terms under which the Company can repaythe obligations in advance of the maturity dates, and the principal andinterest amortization schedule for payments made by United.  Thisdispute prevented United from closing the transactions.  All of thePublic Debt Group term sheets provide that in the event the Company andthe trustees did not execute definitive documentation prior to United exitingfrom Chapter 11 and the parties did not extend the date by which definitivedocumentation had to be completed, the restructured transactions wouldbe unwound.  The Bankruptcy Court has ordered several extensions ofthe date by which definitive documentation must be completed.  OnMay 3, 2006, United reached a settlement with the Public Debt Group. United and the Public Debt Group jointly filed a motion to approve thesettlement on May 12, 2006 for hearing on May 30, 2006.  In conjunctionwith the settlement, the date for completion of definitive documentationhas been extended to at least May 31, 2006.  If United cannot completedefinitive documentation, it could potentially have a material adverseimpact on the Company by, for example, imposing higher costs for the useof these aircraft or causing loss of access to one or more aircraft.
**(b)**    United is a party to numerous long-termagreements to lease certain airport and maintenance facilities that arefinanced through tax-exempt municipal bonds that are issued by variouslocal municipalities to build or improve airport and maintenance facilities.During 2003, the Company filed four complaints for declaratory judgmentand corresponding motions for temporary restraining orders concerning United'smunicipal bond obligations for facilities at Denver International Airport("DEN"), John F. Kennedy International Airport ("JFK"), San Francisco InternationalAirport ("SFO"), and Los Angeles International Airport ("LAX"). In eachcase, United sought clarification of its obligations to pay principal andinterest under the applicable municipal bonds, and the protection of itsrights concerning related airport lease agreements at the applicable airports.With respect to SFO, LAX and JFK, the Bankruptcy Court ruled in United'sfavor. With respect to DEN, the Bankruptcy Court ruled against United.The Bankruptcy Court's rulings with respect to each of the four matterswere subsequently appealed to the District Court. The District Court reversedthe Bankruptcy Court's rulings with respect to SFO and LAX but upheld theBankruptcy Court's rulings with respect to JFK and DEN. All four of theDistrict Court's rulings in turn were appealed to the United States Courtof Appeals for the Seventh Circuit (the "Court of Appeals"). The Courtof Appeals reversed the District Court's ruling against the Company withrespect to the SFO adversary proceeding and the SFO defendants' petitionfor a rehearing was denied. The defendants in the SFO matter petitionedthe United States Supreme Court ("Supreme Court") for a writ of certiorari,which was denied in March 2006. As a result of this final non-appealableorder in favor of United, approximately $24 million in interim paymentsmade by United into an escrow account, plus interest, were returned toUnited in April 2006. In addition, see item (d) below for details on thesecurity interest claim filed by the trustee of the SFO municipal bondsas a result of United's success in the Court of Appeals. On May 4, 2006,the Court of Appeals also reversed the District Court's ruling againstthe Company with respect to the LAX matter. The defendants might stillpursue a rehearing en banc or file a petition of writ of certiorari withthe Supreme Court. The Court of Appeals affirmed the District Court's rulingin United's favor with respect to the JFK adversary proceeding. The defendantsin the JFK matter filed a petition for rehearing with the Court of Appeals,which was denied. The time for filing a petition for writ of certiorariin the JFK matter has expired. With respect to the DEN appeal, briefinghas now been completedand the Court of Appeals heardoral argument in February2006. The Court of Appeals, however, has not yet ruled on this matter.Accordingly, the final outcome of the DEN and LAX matters remains uncertainand, therefore, the ultimate treatment of these municipal bond obligationsas financings or as true leases is uncertain. Even if the DEN and LAX obligationsare determined to be financings and not true leases, there is likely toremain an issue regarding the extent to which those financings would beconsidered to have a security interest in the underlying leasehold or thevalue thereof.
**(c)**    Similarly, in 2003, United filed a complaintfor declaratory judgment for all seven municipal bond issues (which representapproximately $601 million in principal) relating to its facilities atO'Hare International Airport ("O'Hare"), seeking, among other things, adeclaration that a certain cross-default provision in the O'Hare airportlease is unenforceable. In 2005, the Bankruptcy Court approved an agreement("O'Hare Settlement Agreement") resolving the disputes between United,the trustees and the bondholders. The City of Chicago, a party to theseadversary proceedings, is not a party to the O'Hare Settlement Agreement.Subsequently, the Company announced that it had reached an agreement inprinciple with the City of Chicago, with respect to all unresolved disputesrelating to our facilities at O'Hare. However, the parties were unableto finalize the terms of this settlement. The City of Chicago maintainedthat it could revoke United's exclusive rights to terminals in place of"preferential" rights if United did not meet the terms of the cross-defaultprovision (the O'Hare Airport Use Agreement did not define or provide forany usage rights, other than exclusive rights). United responded that thecross-default provision was unenforceable against a debtor in bankruptcyas provided under Section 365 of the Bankruptcy Code, and thus United shouldretain its exclusive rights at O'Hare. The Bankruptcy Court held a oneday trial to determine certain evidentiary issues underlying a determinationof whether the cross-default provision was enforceable. The parties subsequentlycompleted post-trial briefing and currently are awaiting a ruling fromthe Bankruptcy Court. Any ruling which would deny United exclusive rightsto its leased facilities at O'Hare could be materially adverse to its financialcondition and operations.
**(d)**    HSBC Bank Inc. ("HSBC"), as trustee forthe 1997 municipal bonds related to SFO, filed a complaint against Unitedasserting a security interest in United's leasehold for portions of itsmaintenance base at SFO. Pursuant to Section 506(a) of the Bankruptcy Code,HSBC alleges that it is entitled to be paid the value of that securityinterest, which HSBC claims is as much as $257 million. HSBC and Unitedwent to trial in April 2006 and the Court rejected as a matter of law HSBC's$257 million claim and limited HSBC to evidence regarding its approximately$93 million claim. The Court has ordered the parties to file post-trialbriefs on or before May 25, 2006, and has scheduled oral argument for June6, 2006. The Company is currently unable to predict the outcome of thislitigation.
**(e)**    In December 2004, the PBGC filed an InvoluntaryTermination Proceeding ("Involuntary Termination Proceeding") against United,as plan administrator for the United Airlines Pilot Defined Benefit PensionPlan (the "Pilot Plan"), in the District Court. In January 2005, the DistrictCourt granted a motion filed by the Company and referred the InvoluntaryTermination Proceeding to the Bankruptcy Court. The Air Line Pilots Association("ALPA") and the United Retired Pilots Benefit Protection Association andseven retired pilots (collectively, "URPBPA") were later granted leaveto intervene in the Involuntary Termination Proceeding.
After several months, the Bankruptcy Court conducted a trial and determinedthat the Pilot Plan should be involuntarily terminated under the EmployeeRetirement Income Security Act ("ERISA") Section 4042 with a terminationdate of December 30, 2004. Subsequently, the Bankruptcy Court entered anorder authorizing termination of the Pilot Plan.
The PBGC, ALPA and URPBPA filed notices of appeal with the DistrictCourt and in February 2006, the Bankruptcy Court's order was reversed basedon a determination that the Bankruptcy Court lacked "core" jurisdictionover the Involuntary Termination Proceeding. However, the District Courtdid not address the substantive merits of the Bankruptcy Court's ruling.The District Court remanded the proceedings to the Bankruptcy Court. TheBankruptcy Court submitted proposed findings and conclusions of law tothe District Court for review and the matter has been fully briefed. OnMay 3, 2006, the District Court heard oral arguments on the proposed findingsand conclusions of law and has indicated that it expects to rule in June2006. The District Court's determination (and that of any court consideringan appeal of the District Court's order) regarding the termination of thePilot Plan may have a material adverse effect on the Company's financialperformance, should such determination result in the reversal of the terminationof one or more defined benefit pension plans.
**(f)**    After the PBGC commenced its InvoluntaryTermination Proceeding and sought a December 30, 2004 termination date,the Company suspended payment of ALPA non-qualified pension benefits pendingthe setting of such a termination date. In the first quarter of 2005, theBankruptcy Court required the Company to continue paying non-qualifiedpension benefits to retired pilots pending a termination in the InvoluntaryTermination Proceeding, notwithstanding the possibility that the PilotPlan might be terminated retroactively to December 30, 2004. Then, on October6, 2005, the Bankruptcy Court entered an order requiring the Company tocontinue paying non-qualified pension benefits until entry of an orderterminating the Pilot Plan. However, United appealed that order and placedthe funds necessary to pay non-qualified benefits for the month of October2005 in a segregated account. Following the entry of the Bankruptcy Court'stermination order on October 28, 2005, United ceased paying non-qualifiedbenefits. Subsequently, during the first quarter of 2006, the DistrictCourt dismissed the Company's appeal of the Bankruptcy Court's October6, 2005 order in light of its earlier decision reversing the BankruptcyCourt's termination order. The Company filed a notice of appeal of theDistrict Court's ruling to the Court of Appeals. The Court of Appeals hasset deadlines for the Company to file its opening brief on June 5, 2006,for URPBPA to file a response brief on July 5, 2006, and for the Companyto file a reply thereto on July 19, 2006. The Court of Appeals has notyet scheduled oral argument.
In March 2006, the Bankruptcy Court ruled that the Company was obligatedto make payment of all non-qualified pension benefits for the months ofNovember and December 2005 and January 2006. The Bankruptcy Court alsoruled that the Company's obligation to pay non-qualified pension benefitsceased as of January 31, 2006. The Company filed a notice of appeal ofthe Bankruptcy Court's ruling to the District Court. URPBPA and ALPA alsofiled notices of appeal with respect to the Bankruptcy Court's order. Unitedagreed with URPBPA and ALPA to pay the disputed non-qualified pension benefitsfor the months of November and December 2005 and January 2006, an aggregateamount totaling approximately $17 million, into an escrow account. On April19, 2006, the Bankruptcy Court transmitted the records with respect tothese appeals to the District Court. The District Court has scheduled astatus date of May 25, 2006. The parties have filed a joint motion to consolidatethose appeals, which is set for hearing on May 25, 2006.
**(g)**    In January 2005, United filed a motionseeking approval of a restructuring agreement with ALPA regarding ALPA'scollective bargaining agreement pursuant to Section 363(b) of the BankruptcyCode. The Bankruptcy Court approved the ALPA agreement over the objectionsof various parties. The active pilots ratified the agreement, and the BankruptcyCourt entered an order approving the ALPA agreement (the "ALPA Order").In February 2005, URPBPA filed its notice of appeal of the ALPA Order basedprincipally on the allegation that United was unfairly treating the retiredpilots by not distributing the same unsecured notes to the retired pilotsthat it was distributing to the active pilots pursuant to the ALPA agreement.In June 2005, the District Court entered an order and memorandum opiniondismissing URPBPA's appeal of the ALPA Order. URPBPA appealed the DistrictCourt's judgment to the Court of Appeals. In March 2006, the Court of Appealsdecided this appeal in United's favor by affirming the ruling of the DistrictCourt. In particular, the Court concluded that the Company did not havean obligation to include the retired pilots in the Company's negotiationswith ALPA or to provide the retired pilots with any consideration underthe ALPA agreement. URPBPA has until June 29, 2006 to petition for a writof certiorari from the Supreme Court.
**(h)**    URPBPA filed a notice of appeal of theorder confirming the Plan of Reorganization and its brief in support ofthe appeal of the confirmation order to the District Court. United fileda motion to dismiss the appeal based on the substantial consummation ofUnited's Plan of Reorganization. At a status hearing in March 2006, theDistrict Court ordered a briefing schedule that combines both the meritsof the appeal with United's request to dismiss the appeal. On April 19,2006, United filed a brief combining its motion to dismiss URPBPA's appealand its argument on the merits. ALPA also filed a response brief in supportof the confirmation order. On May 3, 2006 URPBPA filed a brief that repliesto United's and ALPA's briefs on the merits and responds to United's requestfor dismissal. United will have until May 17, 2006 to file a reply in supportof its request for dismissal. The District Court set June 22, 2006 forthe next status hearing in this matter at which time a ruling may be made.If the confirmation order was ultimately reversed on appeal, it could havea materially adverse effect on the Company's financial performance.***Claims Resolution Process*.**As permitted under the bankruptcyprocess, the Debtors' creditors filed proofs of claim with the BankruptcyCourt. Through the claims resolution process, the Company identified manyclaims which were disallowed by the Bankruptcy Court for a number of reasons,such as claims that were duplicative, amended or superseded by later filedclaims, were without merit, or were otherwise overstated. Throughout theChapter 11 proceedings, the Company resolved many claims through settlementor objections ordered by the Bankruptcy Court. The Company will continueto settle claims and file additional objections with the Bankruptcy Court.
With respect to unsecured claims, once a claim is deemed to be valid,either through the Bankruptcy Court process or through other means, theclaimant is entitled to a distribution of the new UAL common stock. Pursuantto the terms of the Plan of Reorganization, 115 million shares of new UALcommon stock have been authorized to satisfy valid unsecured claims. TheBankruptcy Court confirmed the Plan of Reorganization and established January20, 2006 as the record date for purposes of establishing the persons thatare claimholders of record to receive distributions. Approximately 93 millionshares have been issued and distributed to holders of valid unsecured claimsbetween February 2, 2006, the first distribution date established in thePlan of Reorganization, and March 31, 2006. To date, approximately 42,000valid unsecured claims aggregating to approximately $27 billion in claimvalue received equity to satisfy those claims. The remaining shares areheld in reserve to satisfy all of the remaining disputed unsecured claims,once those disputes are resolved.
The Company's estimate of the probable range of unsecured claims tobe allowed by the Bankruptcy Court will be between $28 and $31 billion.Differences between claim amounts filed and the Company's estimates arebeing investigated and will be resolved in connection with the claims resolutionprocess. However, there will be no further financial impact to the Companyassociated with the settlement of such unsecured claims, as the holdersof all allowed unsecured claims will receive under the Plan of Reorganizationonly their pro rata share of the distribution of the 115 million sharesof new UAL common stock, together with the previously-agreed issuance ofcertain securities.
With respect to administrative and priority claims, pursuant to theterms of the Plan of Reorganization these claims will be satisfied withcash. Many administrative and priority claims still remain unpaid, andthe Company will continue to settle claims and file objections with theBankruptcy Court to eliminate or reduce such claims. All of these claimshave been accrued by the Successor Company based upon the best availableestimates of amounts to be paid. However, it should be noted that the claimsresolution process is uncertain and could result in material adjustmentsto the Successor Company's financial statements.
Additionally, secured claims were deemed unimpaired under the Plan ofReorganization. Pursuant to the Plan of Reorganization those claims weresatisfied upon either reinstatement of the obligations in the SuccessorCompany, surrendering the collateral to the secured party, or by makingfull payment in cash. However, certain disputes still remain with respectto the valuation of some security interests that may result in materialfuture adjustments to the Successor Company's financial results.
***Financial Statement Presentation*.**We have prepared theaccompanying consolidated financial statements in accordance with SOP 90-7and on a going-concern basis, which assumes continuity of operations, realizationof assets and satisfaction of liabilities in the ordinary course of business.
SOP 90-7 requires that the financial statements for periods subsequentto a Chapter 11 filing separate transactions and events that are directlyassociated with the reorganization from the ongoing operations of the business.Accordingly, all transactions (including, but not limited to, all professionalfees, realized gains and losses and provisions for losses) directly associatedwith the reorganization and restructuring of the business are reportedseparately in the financial statements as reorganization items, net. Forthe month ended January 31, 2006 and the three months ended March 31, 2005,the Company recognized the following primarily non-cash reorganizationincome (expense) in our financial statements: Predecessor Period fromJanuary 1 to 31,Three Months Ended March 31,(In millions)20062005Discharge of claims and liabilities$ 24,389  $ -  [a]Revaluation of frequent flyerobligations (2,399) -  [b]Revaluation of other assets andliabilities2,111  -  [c]Employee-related charges(898) (7) [d]Contract rejection charges(421) -  [e]Professional fees  (47) (44)  Pension-related charges(14) (433) [f]Aircraft claim charges-  (244) [g]Other(12) 10   $ 22,709 $ (718)  **(a)**    The discharge of claims and liabilitiesprimarily relates to those unsecured claims arising during the bankruptcyprocess, such as the termination and settlement of the Company's U.S. definedbenefit pension plans and other employee claims; aircraft-related claims,such as those arising as a result of aircraft rejections; other unsecuredclaims due to the rejection or modification of executory contracts, unexpiredleases and regional carrier contracts; and claims associated with certainmunicipal bond obligations based upon their rejection, settlement or theestimated impact of the outcome of pending litigation. In accordance withthe Plan of Reorganization, the Company discharged its obligations to unsecuredcreditors in exchange for the distribution of 115 million new UAL commonshares and the issuance of certain other securities. Accordingly, the Companyrecognized a non-cash reorganization gain of $24.4 billion.
**(b)**    The Company revalued its Mileage Plus frequentflyer obligations at fair value as a result of fresh-start reporting, whichresulted in a $2.4 billion non-cash reorganization charge.
**(c)**    In accordance with fresh-start reporting,the Company revalued its assets at their estimated fair value and liabilitiesat estimated fair value or the present value of amounts to be paid. Thisresulted in a non-cash reorganization gain of $2.1 billion, primarily asa result of newly recognized intangible assets, offset partly by reductionsin the fair value of tangible property and equipment.
**(d)**    Employee-related charges include the valueof the deemed claim that the salaried and management group received uponconfirmation of the Plan of Reorganization. The deemed claim was basedupon the cost savings provided by this employee group during the bankruptcyprocess.
**(e)**    Contract rejection charges are non-cashcosts that include our estimate of claims resulting from the Company'srejection or negotiated modification of certain contractual obligationssuch as executory contracts, unexpired leases and regional carrier contracts.
**(f)**    In the first quarter of 2005, the Companyrecognized pension curtailment charges of $433 million associated withactions taken by the PBGC to involuntarily terminate the Company's definedbenefit pension plan for covered members of certain ground employees. ThePBGC was appointed statutory trustee of the plan in May 2005.
**(g)**    Aircraft claim charges include the Company'sestimate of claims incurred as a result of the rejection of certain aircraftleases and return of aircraft as part of the bankruptcy process, togetherwith certain claims resulting from the modification of other aircraft financingsin bankruptcy.The Statements of Consolidated Financial Position distinguish pre-petitionliabilities subject to compromise from both those pre-petition liabilitiesthat are not subject to compromise and from post-petition liabilities.Liabilities subject to compromise were reported at the amounts expectedto be allowed by the Bankruptcy Court, even if they were settled for lesseramounts.
At December 31, 2005, we had liabilities subject to compromise consistingof the following:(In millions)  Employee claims and deemed claims$18,007Long-term debt, including accruedinterest6,528Aircraft-related accruals anddeferred gains6,031Capital lease obligations, includingaccrued interest1,631Municipal bond obligations andclaims1,344Accounts payable260Early termination fees162Intercompany accounts payableand loans214Other 883 $35,060
***DIP Financing.***At January 31, 2006, the Company's outstandingbalance of its DIP Financing was $1.2 billion.    On theEffective Date, the proceeds from the Credit Facility were drawn and usedto repay the DIP Financing. For further details on the Credit Facility,see Note 9, "Debt Obligations".
***Fresh-Start Reporting.***Upon emergence from its Chapter11 proceedings on February 1, 2006, the Company adopted fresh-start reportingin accordance with SOP 90-7. The Company's emergence from Chapter 11 resultedin a new reporting entity with no retained earnings or accumulated deficit.Accordingly, the Company's consolidated financial statements for periodsprior to February 1, 2006 are not comparable to consolidated financialstatements presented on or after February 1, 2006.
Fresh-start reporting reflects the value of UAL, as determined in theconfirmed Plan of Reorganization. Under fresh-start reporting, UAL's assetvalues are remeasured using fair value, and are allocated in conformitywith Statement of Financial Accounting Standards No. 141, "*BusinessCombinations*" ("SFAS 141"). The excess of reorganization value overthe fair value of tangible and identifiable intangible assets is recordedas goodwill in the accompanying Statements of Consolidated FinancialPosition. In addition, fresh-start reporting also requires that allliabilities, other than deferred taxes, should be stated at fair valueor at the present values of the amounts to be paid using appropriate marketinterest rates. Deferred taxes are determined in conformity with Statementof Financial Accounting Standards No. 109 "*Accounting for Income Taxes*"("SFAS 109"). United was allocated a reorganization value based upon thefair value of its assets and liabilities, as noted above, and certain relatedparty transactions.
Estimates of fair value represent the Company's best estimates basedon independent appraisals and valuations and, where the foregoing havenot yet been completed or are not available, industry data and trends andby reference to relevant market rates and transactions. The foregoing estimatesand assumptions are inherently subject to significant uncertainties andcontingencies beyond the control of the Company. Accordingly, we cannotprovide assurance that the estimates, assumptions, and values reflectedin the valuations will be realized, and actual results could vary materially.In accordance with SFAS 141, the preliminary allocation of the reorganizationvalue is subject to additional adjustment within one year after emergencefrom bankruptcy when additional or improved information on asset and liabilityvaluations becomes available. The Company expects that adjustments to recordedfair values may include those relating to:- Completion of valuation reports associated with long-lived tangible andnewly identified intangible assets, and certain liabilities, such as theMileage Plus frequent flyer liability, and debt discounts which may changebased on the consideration of new or improved information by the Companyand its valuation consultants;
- Deferred tax assets and liabilities, which may be adjusted based upon additionalinformation, including adjustments to fair value estimates of underlyingassets or liabilities and the determination of cancellation of indebtednessincome; and
- Adjustments to recorded fair values and deferred tax assets and liabilitieswhich could change the amount of recorded goodwill, as well as the allocationof such goodwill to reportable segments.
To facilitate the calculation of the enterprise value of UAL, we developeda set of financial projections. Based on these financial projections andwith the assistance of financial advisors, the equity value was determinedby the Company, using various valuation methods, including (i) a comparisonof the Company and its projected performance to the market values of comparablecompanies; (ii) a review and analysis of several recent transactions ofcompanies in similar industries to the Company; and (iii) a calculationof the present value of the future cash flows of the Company under itsprojections.
The estimated enterprise value, and corresponding equity value, is highlydependent upon achieving the future financial results set forth in theprojections as well as the realization of certain other assumptions. Theestimated equity value of UAL was determined to be approximately $1.9 billion.After including certain adjustments to reflect the fair value of the assetsand liabilities of United and certain related party transactions, the equityvalue of the Company was calculated to be approximately $2.0 billion. Theestimates and assumptions made in this valuation are inherently subjectto significant uncertainties and the resolution of contingencies beyondthe reasonable control of the Company. Accordingly, there can be no assurancethat the estimates, assumptions, and amounts reflected in the valuationswill be realized, and actual results could vary materially.
Pursuant to the Plan of Reorganization, UAL issued debt and equity instrumentsto certain unsecured creditors and employees of United. At the EffectiveDate, United pushed down the fair value of these instruments. These newly-issuedinstruments consist of 5% convertible notes, UAL's obligation to issueemployee convertible notes within the first six months after the EffectiveDate, 6% senior unsecured notes and 2% mandatorily convertible preferredstock.
As part of the provisions of SOP 90-7, we were required to adopt onFebruary 1, 2006 all accounting guidance that was going to be effectivewithin the subsequent twelve-month period. See Note 2(m), "Summary of SignificantAccounting Policies - New Accounting Pronouncements".
The following Fresh-Start Balance Sheet illustrates the financial effectson the Company of the implementation of the Plan of Reorganization andthe adoption of fresh-start reporting. This Fresh-Start Balance Sheet reflectsthe effect of the consummation of the transactions contemplated in thePlan of Reorganization, including settlement of various liabilities, issuanceof certain securities, incurrence of new indebtedness, repayment of oldindebtedness, and other cash payments.
As a result of the adoption of fresh-start reporting, the Company'sfinancial statements on or after February 1, 2006 are not comparable withits pre-emergence financial statements because they are, in effect, thoseof a new entity. The effects of the Plan of Reorganization and fresh-startreporting on the Company's Statements of Consolidated Financial Positionare as follows (in millions):  Fresh-Start Adjustments  Predecessor( a )Settlement of Unsecured Claims( b )Reinstatement of Liabilities( c )Revaluation of Assets and LiabilitiesSuccessor**Assets**     **Current assets:**     Cash and cash equivalents$ 1,596 $ - $ - $ - $ 1,596 Restricted cash818 - - - 818 Short-term investments75 - - - 75 Receivables, net      928        -        -        10       938 Prepaid fuel   280        -        -         -    280     Receivablesfrom related parties204 - - (57)147 Aircraft fuel, spare parts andsupplies, net203        -        -        (34)169     Deferred incometaxes- - - 112 112 Prepaid expenses and other      498       -       -      107      605    4,602       -       -     138   4,740**Operating property and equipment:**     Owned -      Flight equipment13,446        -        -      (4,831)8,615 Advances on flight equipment116      (25)       -         - 91 Other property and equipment    3,840       -       -  (2,520)    1,320   17,402      (25)       -   (7,351)  10,026 Less - Accumulated depreciationand         amortization   (6,156)       -       -   6,156        -   11,246    (25)       -  (1,195)  10,026Capital leases     Flight equipment2,581        -        -      (1,145)1,436 Other property and equipment      84       -       -   (69)      15 2,665        -        -   (1,214)1,451 Less - Accumulated amortization(747)      -       -747        -     1,918      -       -   (467)   1,451   13,164    (25)       - (1,662) 11,477**Other assets:**        Restricted cash315        -       -        - 315 Investments25        -        -        87 112 Goodwill       2        -        - 2,754 2,756 Intangibles, net361        -        - 2,801 3,162 Pension assets10 - - (9)1 Aircraft lease deposits492 - - - 492 Prepaid rent66 - - (58)8 Receivables from related parties- - - 201 201 Other, net557       -       -      156713**Total other assets**1,828       -       -    5,9327,760      **Total assets **$ 19,594$   (25)$      - $   4,408$ 23,977    Fresh-Start Adjustments  Predecessor( a )Settlement of Unsecured Claims( b )Reinstatement of Liabilities( c )Revaluation of Assets and LiabilitiesSuccessor      **Liabilities & Stockholders'Equity**     Current liabilities:   Long-term debt maturing withinone year$ 13 $ - $ 333 $ - $ 346    Advanced purchaseof miles686 - - - 686 Current obligations under capitalleases20 - 77 - 97 Advance ticket sales1,679        -       -       (14)1,665 Accounts payable    620        -        -       8   628 Accrued salaries, wages and benefits927 37        -        - 964    Payables to relatedparties449 - - (201)248 Fuel purchase commitments280 - - - 280    Mileage Plus deferredrevenue698 - -   361 1,059 Other    573      93      546   (4)   1,208    5,945   130   956    150   7,181      Long-term debt :     DIP Financing   1,157 - - -     1,157 Other     141   1,130    5,301     (143)   6,429   1,2981,130    5,301     (143)  7,586Long-term obligations under capitalleases      97      -    1,209    (31)   1,275      **Other liabilities and deferredcredits:**     Deferred pension liability95- - 29 124 Postretirement benefit liability 1,924 - - 601,984 Deferred income taxes362 - - 235 597    Mileage Plus deferredrevenue276 - - 2,038 2,314 Other      521    -      79   26    626   3,178    -      79 2,388  5,645      Liabilities subject to compromise 36,379(27,964)(7,545)(870)      -Mandatorily covertible preferred stock      -__338      -      -__338      **Stockholders' equity:**     Serial preferred stock - - - - - ESOP preferred stock - - - - - Common stock at par- - - - - Additional capital invested4,213 1,952 - (4,213)1,952 Retained deficit(30,243)24,389 - 5,854 - Receivables from affiliates(1,237)- - 1,237 - Accumulated other comprehensiveloss      (36)--36      - (27,303)26,341-2,9141,952      **Total liabilities & stockholders'equity**$ 19,594$      (25)$       - $   4,408$ 23,977**(a)**    *Settlement of Unsecured Claims.*This column reflects a discharge of $28.0 billion of liabilities subjectto compromise pursuant to the terms of the Plan of Reorganization. Alongwith other creditor and employee claims incurred through the bankruptcyproceedings (i.e. by the rejection of aircraft, executory contracts, etc.),discharged liabilities include claims related to termination of the Debtor'sdefined benefit pension plans. Pursuant to the Plan of Reorganization,the unsecured creditors will receive 115 million new UAL common sharesin satisfaction of such claims, together with certain debt securities andpreferred stock. The Company recorded a $24.4 billion non-cash reorganizationgain on the discharge of unsecured claims net of newly-issued securities.See Note 1, "Voluntary Reorganization Under Chapter 11 -Financial StatementPresentation" and Note 9, "Debt Obligations" for further details.
**(b)**    *Reinstatement of Liabilities.* Thiscolumn reflects the reinstatement of certain secured liabilities pursuantto the terms of the Plan of Reorganization. As a result of the reinstatementof liabilities, the Company reclassified $7.5 billion of liabilities subjectto compromise.- $7.1 billion represents the reinstatement of secured debt plus accruedinterest.
- $0.4 billion represents accruals for administrative and priority payments,reinstatement of certain municipal bond obligations, and other accrualsof payments required under the Plan of Reorganization.
**(c)**    *Revaluation of Assets and Liabilities*.Fresh-start adjustments are made to reflect asset values at their estimatedfair value and liabilities at estimated fair value or the present valueof amounts to be paid, including:Recognition of additional estimated fair value of $2.8 billion for internationalroute authorities, slots and other separately-identifiable intangible assets,
Recognition of additional estimated fair value of $2.4 billion for theMileage Plus frequent flyer liability,
$1.3 billion to reduce the values of operating property and equipment totheir estimated fair market value,
- The elimination of the predecessor entity's equity accounts, and establishmentof opening equity of the successor entity,
- $0.4 billion to reduce flight equipment as a result of refinancing certainaircraft from mortgage and capital lease financing to operating lease financing,and
- Net changes in deferred tax assets and liabilities, together with othermiscellaneous adjustments.
Additionally, goodwill of $2.8 billion was recorded to reflect the excessof the Successor Company's reorganization value over the estimated fairvalue of tangible and identifiable intangible assets. Changes in the fairvalues of these assets and liabilities from the current estimated values,as well as changes in other assumptions could significantly impact thereported value of goodwill. Accordingly, there can be no assurance thatthe estimates, assumptions, and values reflected in the valuations willbe realized, and actual results could vary materially.
***Post-Emergence Items.*** Certain additional Successor Companymaterial transactions occurred on February 2, 2006 and have been reflectedin the accompanying Statements of Consolidated Financial Positionas of March 31, 2006.
*Release of Segregated Funds*. The Company reclassified $271 millionfor the release of cash previously restricted by a certain credit cardprocessor. Additionally, $200 million of segregated tax funds recordedas other current assets were released and reclassified to unrestrictedcash.
*Credit Facility Financing Transactions*. On the Effective Date,the Company received $1.4 billion in net proceeds from the Credit Facility,consisting of borrowings of $2.65 billion under the Credit Facility whichincludes $200 million of revolving credit consisting of $161 million incash and $39 million in letters of credit, and the simultaneous repaymentof the Company's $1.2 billion DIP Financing. For further details, see Note9, "Debt Obligations".
**(2) Summary of Significant Accounting Policies Update**
Described below are the Successor Company's significant accounting policieswhich may materially differ from the policies that existed in United'smost recently filed Form 10-K. These changes are a result of fresh-startreporting in accordance with SOP 90-7.**(a)    *Basis of Presentation* -**United is a wholly owned subsidiary of UAL. The consolidated financialstatements include the accounts of United and all of our majority-ownedaffiliates. All significant intercompany transactions are eliminated. Certainprior year amounts have been reclassified to conform to the current year'spresentation.Upon emergence from its Chapter 11 proceedings, the Companyadopted fresh-start reporting in accordance with SOP 90-7 as of February1, 2006. The Company's emergence from reorganization resulted in a newreporting entity with no retained earnings or accumulated deficit as ofFebruary 1, 2006. Accordingly, the Company's consolidated financial statementsfor periods prior to February 1, 2006 are not comparable to consolidatedfinancial statements presented on or after February 1, 2006.
**(b)    *Use of Estimates*** - The preparationof financial statements in conformity with GAAP requires management tomake estimates and assumptions that affect the amounts reported in thefinancial statements and accompanying notes. Actual results could differfrom those estimates.
Under fresh-start reporting, the Company's asset values are remeasuredusing fair value, which is allocated using purchase accounting in conformitywith SFAS 141. In addition, fresh-start reporting also requires that allliabilities, other than deferred taxes, should be stated at fair value,or at the present values of the amounts to be paid using appropriate marketinterest rates. Deferred taxes are determined in conformity with SFAS 109.
Estimates of fair value represent the Company's best estimates basedon appraisals and valuations and, where the foregoing have not yet beencompleted or are not available, industry data and trends and by referenceto relevant market rates and transactions. The foregoing estimates andassumptions are inherently subject to significant uncertainties and contingenciesbeyond the control of the Company. Accordingly, we cannot provide assurancethat the estimates, assumptions, and values reflected in the valuationswill be realized, and actual results could vary materially. In accordancewith SFAS 141, the preliminary allocation of the fair value of assets andliabilities is subject to additional adjustment within one year after emergencefrom bankruptcy.
**(c)    *Airline Revenues*** - We record passengerfares and cargo revenues as operating revenues when the transportationis provided. The value of unused passenger tickets is included in currentliabilities as advance ticket sales. We periodically evaluate the balancein advance ticket sales and record any adjustments in the period the evaluationis completed. In addition, we have code-sharing agreements with other airlinesunder which one carrier's flights can be marketed under the two-letterairline designator code of another carrier. Revenues earned under thesearrangements are allocated between the code share partners based on existingcontractual agreements and airline industry standard prorate formulas andare recognized as passenger revenue when the transportation is provided.
**(d)    *Cash and Cash Equivalents and Short-TermInvestments* -** Cash in excess of operating requirements is investedin short-term, highly liquid, income-producing investments. Investmentswith a maturity of three months or less on their acquisition date are classifiedas cash and cash equivalents. Other investments are classified as short-terminvestments.
At March 31, 2006, the Successor Company did not have any investmentsin debt securities that were classified as available-for-sale. The PredecessorCompany had $77 million of debt securities that were classified as available-for-saleas of December 31, 2005. The Successor Company had investments in debtsecurities classified as held-to-maturity of $3.6 billion at March 31,2006, and the Predecessor Company had $1.6 billion at December 31, 2005.Investments in debt securities classified as available-for-sale are statedat fair value. Investments classified as held-to-maturity are stated atcost, which approximates market due to their short-term maturities. Thegains or losses from sales of available-for-sale securities are includedin interest income for each respective year.
The Successor Company had $380 million classified as short-term restrictedcash at March 31, 2006 while the Predecessor Company had $643 million inshort-term restricted cash at December 31, 2005, representing securityfor worker compensation obligations, security deposits for airport leasesand reserves with institutions that process our credit card ticket sales.In addition, the Successor Company had $482 million and the PredecessorCompany had $285 million in long-term restricted cash at March 31, 2006and December 31, 2005, respectively.
**(e)    *Aircraft Fuel, Spare Parts and Supplies*-** In accordance with fresh-start reporting, aircraft fuel, maintenanceand operating supplies were revalued to estimated fair values on February1, 2006. Flight equipment spare parts were also stated at estimated fairvalue at the Effective Date. The Successor Company records fuel, maintenance,and operating supplies, as well as flight equipment spare parts, at costwhen acquired, and provides an obsolescence allowance for aircraft spareparts.
**(f)    *Operating Property and Equipment* -**Owned operating property and equipment, and equipment under capital leases,were stated at fair value as of February 1, 2006. The Successor Companyrecords additions to owned operating property and equipment at cost whenacquired. Property under capital leases, and the related obligation forfuture lease payments, is recorded at an amount equal to the initial presentvalue of those lease payments.
Depreciation and amortization of owned depreciable assets is based onthe straight-line method over the assets' estimated service lives. Leaseholdimprovements are amortized over the remaining term of the lease, includingestimated renewal options when renewal is reasonably assured at key airports,or the estimated service life of the related asset, whichever is less.Aircraft are depreciated to estimated salvage values, generally over livesof 27 to 30 years; buildings are depreciated over lives of 25 to 45 years;and other property and equipment are depreciated over lives of 2 to 15years.
Properties under capital leases are amortized on the straight-line methodover the life of the lease or, in the case of certain aircraft, over theirestimated service lives. Lease terms are 9 to 18 years for aircraft and40 years for buildings. Amortization of capital leases is included in depreciationand amortization expense.
Maintenance and repairs, including the cost of minor replacements, arecharged to maintenance expense as incurred, except for costs incurred underour power by the hour engine maintenance agreements, which are expensedbased upon the number of hours flown. Costs of additions to and renewalsof units of property are capitalized as property and equipment additions.
**(g)    *Mileage Plus Awards* -** As a resultof the application of fresh-start reporting, the Mileage Plus frequentflyer obligation was revalued at the Effective Date to reflect the estimatedfair value of miles to be redeemed in the future. Outstanding miles earnedby flying United or its partner carriers were revalued using a weightedaverage per-mile equivalent ticket value, taking into account such factorsas differing classes of service and domestic and international ticket itineraries,which can be reflected in awards chosen by Mileage Plus members.
The Successor Company also elected to change its accounting policy froman incremental cost basis to a deferred revenue model, as of the EffectiveDate, to measure its obligation for miles to be redeemed based upon theequivalent ticket value of similar restricted fares or amounts paid toother Star Alliance partners. United's policy for the cancellation of milesis to deactivate Mileage Plus customer accounts for which there has beenno activity for three consecutive years. The Company recognizes revenuefrom the breakage of miles by amortizing such breakage over the 36-monthvalidity period.
At March 31, 2006, the Company had recorded deferred revenue for itsfrequent flyer program totaling $3.4 billion. At December 31, 2005, theCompany had recorded a liability and deferred revenue for its frequentflyer program totaling $1.6 billion (consisting of $679 million for advancedpurchase of miles and $923 million (of which $681 million was current)related to award travel.)
**(h)    *United Express*** - United has capacityand prorate agreements under which independent regional carriers, flyingunder the United Express name, connect passengers to other United Expressand/or United flights (the latter of whom we also refer to as "mainline"operations, to distinguish them from United Express regional operations.)
United Express operating expenses include both allocated as well asdirect costs. Direct costs represent expenses that are specifically andexclusively related to United Express flying activities, such as commissions,booking fees, fuel expenses and dedicated staffing. Allocated costs representUnited Express' portion of shared expenses and include charges for itemssuch as airport operating costs, reservation-related costs, credit carddiscount fees and facility rents. For each of these expense categories,we estimate United Express' portion of total expense and allocate the applicableportion of expense to the United Express carrier.
Additionally, contractual payments made to United Express regional carriersinclude payments for aircraft operated by them as part of the United Expressagreements. United has the right to exclusively operate and direct theoperations of these aircraft, and accordingly the minimum future leasepayments for these United Express-operated aircraft are included in ourlease obligations as described in Note 12, "Lease Obligations."
United has call options on 152 regional jet aircraft currently beingoperated by certain United Express carriers. These options are intendedto allow United to secure control over regional jets used for United Expressflying in certain circumstances. The conditions under which United canexercise these call options vary by contract, but include operational performancemetrics and in some cases the financial standing of one or both of theparties. At this time, none of the call options are exercisable.
**(i)    *Advertising* -** Advertising costs,which are included in other operating expenses, are expensed as incurred.Upon adoption of fresh-start reporting, the Company changed its accountingpolicy to record earned Mileage Plus mileage on the deferred revenue basis.Prior to emergence from bankruptcy, the Predecessor Company recorded milesoutstanding that were eligible for a mileage award on an incremental costbasis through advertising expense.
**(j)    *Intangibles*** - Goodwill representsthe excess of the reorganization value of the Successor Company over thefair value of tangible assets and identifiable intangible assets resultingfrom the application of SOP 90-7. Identifiable intangible assets consistprimarily of international route authorities, trade-names, the MileagePlus customer database, airport slots and gates, certain favorable contracts,hubs, patents, and other items. Most airport slots and gates, internationalroute authorities and trade-names are indefinite-lived and, as such, arenot amortized. Instead, these indefinite-lived intangible assets are reviewedfor impairment annually or more frequently if events or circumstances indicatethat the asset may be impaired. Definite lived intangible assets are amortizedon a straight-line basis over the estimated lives of the related assets,which span periods of 1 to 20 years, except for the Mileage Plus customerdatabase. The Mileage Plus customer database is amortized on an acceleratedbasis utilizing cash flows correlating to the expected attrition rate ofmembers from the database.
In accordance with Statement of Financial Accounting Standards No. 142,"*Goodwill and Other Intangible Assets*" ("SFAS 142"), we will applya fair value-based impairment test to the net book value of goodwill andindefinite-lived intangible assets on an annual basis or on an interimbasis when a triggering event occurs. The annual impairment test date forour goodwill and indefinite-lived intangible assets is October 1. We havenot performed impairment testing on amounts of goodwill or indefinite-livedintangible assets subsequent to February 1, 2006, as there have been noevents or changes that would indicate that such assets are impaired.
As discussed in Note 7, "Segment Information*"*, we have five reportablesegments that reflect the management of our business to which only threereportable segments were allocated goodwill: North America, the Pacific,the Atlantic, Latin America and UAL Loyalty Services, LLC ("ULS"). SFAS142 requires that a two-step impairment test be performed on goodwill.In the first step, the Company compares the fair value of each reportablesegment to its carrying value. If the fair value of a reportable segmentexceeds the carrying value of the net assets of the reportable segment,goodwill is not impaired and the Company is not required to perform furthertesting. If the carrying value of the net assets of a reportable segmentexceeds the fair value of the reportable segment, then the Company mustperform the second step in order to determine the implied fair value ofthe goodwill and compare it to the carrying value of the goodwill. If thecarrying value of goodwill exceeds its implied fair value, then the Companymust record an impairment charge equal to such difference.
We expect to assess the fair value of our reportable segments consideringboth the market and income approaches. Under the market approach, the fairvalue of the reportable segment is based on a comparison of similar publiclytraded companies. Under the income approach, the fair value of the reportablesegment is based on the present value of estimated future cash flows. Theincome approach is dependent on a number of factors including estimatesof future capacity, passenger yield, traffic, operating costs, appropriatediscount rates and other relevant factors.
The following table presents information about our intangible assets,including goodwill, at March 31, 2006 and December 31, 2005:  SuccessorPredecessor  March 31, 2006December 31, 2005 AssetGross CarryingAccumulatedGross CarryingAccumulated(In millions)LifeAmountAmortizationAmountAmortizationAmortized intangible assets     Mileage Plus database7 yrs$ 521 $ 14 $ - $ - Contracts2 to 9 yrs211 10 - - Hubs6 to 20 yrs145 1 - -             Airport slots and gates1 to 9 yrs73 2 32 19 Patents3 yrs70 4 - - Other7 to 8 yrs18 1 36 23   $ 1,038 $ 32 $ 68 $ 42           Unamortized intangibleassetsIndefinite        Goodwill $ 2,756   $ 2   Route authorities 1,132   344   Trade-name 743   -   Airport slots 255   -     $ 4,886   $ 346   
Total amortization expense recognized was approximately $1 million forone month period ended January 31, 2006, $31 million for the two monthperiod ended March 31, 2006, and $1 million for the three month periodended March 31, 2005. We expect to record amortization expense of $136million for the remaining nine months ended December 31, 2006, and $152million, $92 million, $70 million and $63 million for 2007, 2008, 2009and 2010, respectively.
**(k)    *Measurement of Impairments****-*The Company recognizes an impairment charge when an asset's carrying valueexceeds its net undiscounted future cash flows and its fair market value.The amount of the charge is the difference between the asset's carryingvalue and fair market value.
**(l)    *Stock Option Accounting***- The Companyadopted SFAS 123R effective January 1, 2006. This pronouncement requirescompanies to measure the cost of employee services received in exchangefor an award of equity instruments (typically stock options) based on thegrant-date fair value of the award. The fair value is estimated using option-pricingmodels. The resulting cost is recognized over the period during which anemployee is required to provide service in exchange for the award, usuallythe vesting period.
**(m)    *New Accounting Pronouncements***-In accordance with SOP 90-7, we are required to adopt all new accountingpronouncements upon emergence from bankruptcy, if they have effective dateswithin one year of the date of adoption of fresh-start reporting. The Companyadopted fresh-start reporting on February 1, 2006. In February 2006, theFinancial Accounting Standards Board ("FASB") issued Statement of FinancialAccounting Standards No. 155, "*Accounting for Certain Hybrid FinancialInstruments - an amendment of FASB Statements No. 133 and 140*" whichis effective for fiscal years beginning after September 15, 2006. The statementwas issued to clarify the application of Financial Accounting StandardsNo. 133, "*Accounting for Derivative Instruments and Hedging Activities*"("SFAS 133") to beneficial interests in securitized financial assets andto improve the consistency of accounting for similar financial instruments,regardless of the form of the instruments. We are currently evaluatingthe new statement to determine the potential impact, if any, this wouldhave on our financial results.
**(n)    *Tax Contingencies*** - We have recordedreserves for taxes and associated interest in accordance with SFAS No.5, "*Accounting for Contingencies",* that may become payable in futureyears as a result of audits by tax authorities. Although we believe thatthe positions taken by the Company on previously filed tax returns arereasonable, we nevertheless have established tax and interest reservesin recognition that various taxing authorities may challenge certain ofthe positions taken by the Company, potentially resulting in additionalliabilities for taxes and interest. Our tax contingency reserves are reviewedperiodically and are adjusted as events occur that affect our estimatedliability for additional taxes, such as the lapsing of applicable statutesof limitations, the conclusion of tax audits, the measurement of additionalestimated liability based on current calculations, the identification ofnew tax contingencies, the release of administrative tax guidance affectingour estimates of tax liabilities, or the rendering of court decisions affectingour estimates of tax liabilities.**(3) Stock Option Accounting**
The Company adopted SFAS 123R effective January 1, 2006. This pronouncementrequires companies to measure the cost of employee services received inexchange for an award of equity instruments (typically stock options) basedon the grant-date fair value of the award. The fair value is estimatedusing option-pricing models. The resulting cost is recognized over theperiod during which an employee is required to provide service in exchangefor the award, usually the vesting period. Prior to the adoption of SFAS123R, this accounting treatment was optional with pro forma disclosuresrequired.
***Predecessor Company*** - As of January 31, 2006, a totalof 9 million stock options were outstanding. UAL did not issue any stockoptions or restricted shares during 2005 or 2004. Under the confirmed Planof Reorganization, these stock options were canceled upon the EffectiveDate. No material stock-based compensation expense was incurred for theseoptions for the month of January 2006.
***Successor Company*** - As part of the Plan of Reorganization,the Bankruptcy Court approved the DEIP and MEIP share-based compensationplans.
*Director Equity Incentive Plan*. The Nominating/GovernanceCommittee of the UAL Board (the "Governance Committee") is authorized togrant equity-based awards ("DEIP Awards") to non-employee directors ofUAL. The DEIP authorizes the Governance Committee to grant any of a varietyof incentive awards to participants, including the following:- non-qualified UAL stock options,
- stock appreciation rights, which provide the participant the right to receivethe excess (if any) of the fair market value of a specified number of sharesof UAL common stock at the time of exercise over the grant price of thestock appreciation right,
- stock awards to be granted at no cost to the participant, including grantsin the form of UAL restricted stock and UAL unrestricted stock,
- annual compensation in the form of credits to a participant's share accountestablished under the DEIP, and
- shares of UAL common stock in lieu of receipt of all or any portion ofcash amounts payable by the Company to a participant ("Director Cash Compensation")including retainer fees, board attendance fees and committee fees (butexcluding expense reimbursements and similar items).
The shares may be issued from authorized and unissued shares of UAL commonstock or from UAL's treasury stock. The exercise price for each underlyingshare of UAL common stock under all options and stock appreciation rightsawarded under the DEIP will not be less than the fair market value of ashare of UAL common stock on the date of grant.
Each option granted under the DEIP will generally expire 10 years afterits date of grant. If the participant ceases to serve as a director forany reason other than a "qualified retirement" (i.e., has attained age60 and has completed five years or more of continuous service as a memberof the Board), then the option will remain exercisable until the earlierof the expiration of five years after the date of separation or the remainingterm of the option.
As of March 31, 2006, a total of 90,000 shares were granted to non-employeeUAL directors and accordingly, $3 million of related expense was recognized.The number of shares available for future grants at March 31, 2006 was85,000.
*Management Equity Incentive Plan*. Under the MEIP share-basedcompensation plan, the Human Resources Subcommittee of the UAL Board (the"HR Subcommittee") is authorized to grant equity-based and other performance-basedawards ("Awards") to executive officers and other key management employeesof the Company and its subsidiaries.
All executive officers and other key management employees of the Companyand its subsidiaries are eligible to become participants in the MEIP. TheHR Subcommittee will select from time to time, from among all eligibleindividuals, the persons who will be granted an Award. The MEIP authorizesthe HR Subcommittee to grant any of a variety of incentive Awards to participants,including the following:- UAL stock options, including both tax qualified and non-qualified options,
- stock appreciation rights, which provide the participant the right to receivethe excess (if any) of the fair market value of a specified number of sharesof UAL common stock at the time of exercise over the grant price of thestock appreciation right,
- stock awards to be granted at no cost to the participant, including grantsin the form of (i) an immediate transfer of shares which are subject toforfeiture and certain transfer restrictions and (ii) an immediate transferof shares which are not subject to forfeiture or a deferred transfer ofshares if and when the conditions specified by the HR Subcommittee aremet, and
- performance-based awards, in which the HR Subcommittee may grant a stockaward that will entitle the holder to receive a specified number of sharesof UAL common stock, or the cash value thereof, if certain performancegoals are met.
The shares may be issued from authorized and unissued shares of UAL commonstock or from UAL's treasury stock. The exercise price for each underlyingshare of UAL common stock under all options and stock appreciation rightsawarded under the MEIP will not be less than the fair market value of ashare of UAL common stock on the date of grant.
As of March 31, 2006, a total of 3.8 million UAL restricted shares hadbeen awarded to participants. Under SFAS 123R, the fair value of thesegrants was based upon the volume weighted average share price on the dateof grant. Total compensation expense of $34 million was recognized duringthe two-month period ending March 31, 2006.
In addition, as of March 31, 2006, stock options to purchase 5.7 millionshares of UAL common stock had been awarded to plan participants. Compensationexpense of $32 million was recognized for these awards during the two monthperiod ended March 31, 2006. The number of restricted shares and stockoptions to purchase shares of UAL common stock available for future grantsat March 31, 2006 was 277,750.
The fair value of options is determined at the grant date using a Black-Scholesoption pricing model, which requires us to make several assumptions. Therisk-free interest rate is based on the U.S. Treasury yield curve in effectfor the expected term of the option at the time of grant. The dividendyield on UAL common stock is assumed to be zero since UAL does not paydividends and has no current plans to do so in the future.
The volatility assumptions were based upon historical volatilities ofcomparable airlines whose shares are traded using daily stock price returnsequivalent to the contractual term of the option. Due to its emergencefrom bankruptcy, historical volatility data for UAL was not consideredin determining expected volatility. The Company also considered impliedvolatility data for both UAL and comparable airlines, using current exchangetraded options.
The expected life of the options was determined based upon a simplifiedassumption that the option will be exercised evenly from vesting to expirationunder the transitional guidance of Staff Accounting Bulletin No. 107, Topic14, "Share-Based Payments".
The table below summarizes stock option activity pursuant to the MEIPfor the period February 1 through March 31, 2006: OptionsWeighted-Average Exercise PriceWeighted-Average Contractual Life (in years)Aggregate Intrinsic Value(in millions)Outstandingat beginning of period- ---         Granted 5,757,445  $35.25     Exercised -  -     Canceled    (17,377) $35.25     Outstandingat end of period 5,740,068 $35.25 5.8 $ 27          Exercisableat end of period - - - -  
The weighted-average fair value of options granted during the firstquarter of 2006 was determined to be $21.43 based on the following weighted-averageassumptions:Risk-freeinterest rate 4.7%Dividendyield 0%Expectedmarket price volatility of our common stock 57%Expectedlife of options (years) 5.8  
The following tables summarize the range of exercise prices and theweighted average remaining contractual life of the options outstandingand the exercise prices for the options exercisable at March 31, 2006:Exercise pricesOutstandingWeighted-Average Remaining Contractual LifeWeighted-Average Exercise Price$34.18 1,913,200 5.8 $34.18 $35.91  1,913,405 5.8 $35.91  $35.65  1,913,463 5.8 $35.65         Totaloutstanding5,740,068 5.8 $35.25 
There were no stock options exercisable as ofMarch 31, 2006.
The table below summarizes restricted stock activity for the periodFebruary 1 through March 31, 2006: Restricted StockGrant PriceOutstandingat beginning of period-  -       Granted 3,818,705  $36.95 Exercised -  - Terminated   (11,523) $36.95 Outstandingat end of period 3,807,182 $36.95 
**(4) Income Taxes**
For the one month ended January 31, 2006, two months ended March 31,2006 and three months ended March 31, 2005, United incurred both a regularand an alternative minimum tax ("AMT") loss. The primary differences betweenour regular tax loss and AMT loss are certain depreciation adjustmentsand preferences.
In assessing the realizability of our deferred tax assets, managementconsiders whether it is more likely than not that some portion of the deferredtax asset will be realized. For periods 2005 through 2006, we recordeda valuation allowance against our deferred tax assets.
Temporary differences and carry forwards that give rise to a significantportion of deferred tax assets and liabilities at March 31, 2006 and December31, 2005 are as follows:  SuccessorPredecessor(In millions)March 31, 2006December 31, 2005 Deferred TaxDeferred TaxDeferred TaxDeferred Tax AssetsLiabilitiesAssetsLiabilitiesEmployee benefits, including    postretirement medical and ESOP$ 1,495 $ - $    5,470 $ 28 Depreciation, capitalized interest    and transfers of tax benefits- 2,662 - 3,445 Federal and state net operatingloss    Carry forwards2,893 - 2,688 - Mileage Plus deferred revenue945 - 50 - Gains on sale and leasebacks- - 69 - Rent expense- 8 525 - AMT credit carry forwards291 - 294 - Intangibles- 1,056 18 - Restructuring charges460 - 4,457 - Other1,603 1,596 1,517 1,489 Less: Valuation allowance(2,850)-(10,494)- $ 4,837$ 5,322$ 4,594$ 4,962
As a result of the Company's emergence from bankruptcy, the Companyhas an excess tax deduction of $930 million that has not been realized.The excess tax deduction results from the Company receiving a tax deductionfor the fair value of the UAL common stock issued to unsecured creditorspursuant to the Plan of Reorganization. The Company will recognize thisexcess tax deduction when it is realized pursuant to SFAS 123R.
At March 31, 2006, United and its subsidiaries had $291 million of federalAMT credits, $2.6 billion of federal tax benefits and $0.3 billion of statetax benefits, resulting from $7.5 billion of net operating losses whichmay be carried forward to reduce the tax liabilities of future years. Ifnot utilized, the federal tax benefits of $0.2 billion expire in 2022,$1.2 billion expire in 2023, $0.4 billion expire in 2024, $0.5 billionexpire in 2025 and $0.1 billion expire in 2026 and $0.2 billion expirein 2027. In addition, the state tax benefit, if not utilized, expires overa five to twenty year period.
We have determined that it is more likely than not that our net deferredtax asset at March 31, 2006, will be realized through the reversals ofexisting deferred tax credits.
At March 31, 2006, the federal and state net operating loss carryforwardswere reduced by discharge of indebtedness income of $1.1 billion that resultedfrom the bankruptcy proceedings. In addition, an Internal Revenue CodeSection 382 change of ownership occurred for UAL upon emergence from bankruptcyand issuance of new common stock.
**(5) Retirement and Postretirement Plans**
Our net periodic benefit cost included the following components: Pension Benefits SuccessorPredecessor Period from February 1 to March 31,Period from January 1to January 31,Three Months Ended March 31, 200620062005Service cost$ 2  $ 1  $ 38  Interest cost 2   1   221  Expected return on plan assets(2) (1) (182) Amortization of prior service      cost/(credit)-  -  8  Amortization of transitionobligation- - - Curtailment charge- - 433 Settlement losses, net-  -  (15) Recognized actuarial loss-  -  47  Revaluation of liability- 43 - Net periodic benefit costs$ 2 $ 44 $ 550 (In millions)Other Benefits SuccessorPredecessor Period from February 1 
to March 31,Period from January 1 
to January 31,Three Months Ended March 31, 200620062005Service cost$ 6  $ 3  $ 12  Interest cost21  11  35  Expected return on plan assets(1) (1) (2) Amortization of prior service      cost/(credit)-  (13) (38) Recognized actuarial loss-  8  26  Revaluation of liability-  73 - Net periodic benefit costs$ 26 $ 81 $ 33 
Upon emergence from bankruptcy on February 1, 2006, the Company completeda revaluation of the post-retirement liabilities using census data as ofJanuary 1, 2006, and updating the assumed discount rate from a weightedaverage of 5.68% (as of December 31, 2005) to 5.84% (as of February 1,2006), resulting in a reduction of the net accumulated benefit obligationby approximately $28 million. In accordance with SOP 90-7, we also acceleratedthe recognition of $73 million in net unrecognized actuarial and priorservice gains and losses upon emergence as reorganization expense. We alsoaccelerated the recognition of all net unrecognized actuarial and priorservice gains and losses pertaining to our foreign pension plans upon emergence,and recorded a reorganization expense of $43 million thereon.
After the PBGC commenced its Involuntary Termination Proceeding andsought a December 30, 2004 termination date, the Company suspended paymentof ALPA non-qualified pension benefits pending the setting of such a terminationdate. In the first quarter of 2005, the Bankruptcy Court required the Companyto continue paying non-qualified pension benefits to retired pilots pendinga termination in the Involuntary Termination Proceeding, notwithstandingthe possibility that the Pilot Plan might be terminated retroactively toDecember 30, 2004. Then, on October 6, 2005, the Bankruptcy Court enteredan order requiring the Company to continue paying non-qualified pensionbenefits until entry of an order terminating the Pilot Plan. However, Unitedappealed that order and placed the funds necessary to pay non-qualifiedbenefits for the month of October 2005 in a segregated account. Followingthe entry of the Bankruptcy Court's termination order on October 28, 2005,United ceased paying non-qualified benefits. Subsequently, during the firstquarter of 2006, the District Court dismissed the Company's appeal of theBankruptcy Court's October 6, 2005 order in light of its earlier decisionreversing the Bankruptcy Court's termination order. The Company filed anotice of appeal of the District Court's ruling to the Court of Appeals.The Court of Appeals has set deadlines for the Company to file its openingbrief on June 5, 2006, for URPBPA to file a response brief on July 5, 2006,and for the Company to file a reply thereto on July 19, 2006. The Courtof Appeals has not yet scheduled oral argument.
In March 2006, the Bankruptcy Court ruled that the Company was obligatedto make payment of all non-qualified pension benefits for the months ofNovember and December 2005 and January 2006. The Bankruptcy Court alsoruled that the Company's obligation to pay non-qualified pension benefitsceased as of January 31, 2006. The Company filed a notice of appeal ofthe Bankruptcy Court's ruling to the District Court. URPBPA and ALPA alsofiled notices of appeal with respect to the Bankruptcy Court's order. Unitedagreed with URPBPA and ALPA to pay the disputed non-qualified pension benefitsfor the months of November and December 2005 and January 2006, an aggregateamount totaling approximately $17 million, into an escrow account. On April19, 2006, the Bankruptcy Court transmitted the records with respect tothese appeals to the District Court. The District Court has scheduled astatus date of May 25, 2006. The parties have filed a joint motion to consolidatethose appeals, which is set for hearing on May 25, 2006.
In January 2005, United filed a motion seeking approval of a restructuringagreement with ALPA regarding ALPA's collective bargaining agreement pursuantto Section 363(b) of the Bankruptcy Code. The Bankruptcy Court approvedthe ALPA agreement over the objections of various parties. The active pilotsratified the agreement, and the Bankruptcy Court entered an order approvingthe ALPA agreement (the "ALPA Order"). In February 2005, URPBPA filed itsnotice of appeal of the ALPA Order based principally on the allegationthat United was unfairly treating the retired pilots by not distributingthe same unsecured notes to the retired pilots that it was distributingto the active pilots pursuant to the ALPA agreement. In June 2005, theDistrict Court entered an order and memorandum opinion dismissing URPBPA'sappeal of the ALPA Order. URPBPA appealed the District Court's judgmentto the Court of Appeals. In March 2006, the Court of Appeals decided thisappeal in United's favor by affirming the ruling of the District Court.In particular, the Court concluded that the Company did not have an obligationto include the retired pilots in the Company's negotiations with ALPA orto provide the retired pilots with any consideration under the ALPA agreement.URPBPA has until June 29, 2006 to petition for a writ of certiorari fromthe Supreme Court.
With the termination of the Company's defined benefit retirement plans(see Note 1, "Voluntary Reorganization Under Chapter 11 - Significant MattersRemaining to be Resolved in Chapter 11 Cases" items (e) through (h) forfurther details on pending matters), the Company has reached agreementswith all of its employee groups to implement replacement plans, largelydefined contribution plans. Contributions under the Company's defined contributionplans are based on matching percentage, years of service or employee eligibleearnings.  The International Association of Machinists ("IAM") replacementplan is a multi-employer plan whereby the assets contributed by the Company(based on hours worked) may be used to provide benefits to employees ofother participating companies, since assets contributed by all participatingcompanies are not segregated or restricted to provide benefits specificallyto employees of that company. The IAM replacement plan took effect as ofMarch 1, 2006, while all others were in effect for the entire quarter endedMarch 31, 2006. During the first quarter of 2006, the Company recordedexpense of $52 million for all of the defined contribution employee retirementplans.
**(6) Restricted Cash**
At March 31, 2006, United had $862 million in restricted cash (of which$380 million is classified as current), primarily representing securityfor workers' compensation obligations, security deposits for airport leasesand reserves with institutions that process our credit card ticket sales.There can be no assurance that these institutions will not require additionallevels of security deposits or reserve holdbacks.
**(7) Segment Information**
We have five reportable segments that reflect the management of ourbusiness: North America, the Pacific, the Atlantic, Latin America and UALLoyalty Services, LLC ("ULS"). For internal management and decision-makingpurposes, we have allocated expenses and revenues (as incorporated in ourconsolidated financial statements) to these segments as follows: (In millions)Period February 1 to March 31, 2006 (Successor)   Inter-United North  Latin SegmentConsolidated AmericaPacificAtlanticAmericaULSEliminationTotalRevenue$  1,957 $ 496 $ 296 $ 101 $ 156 $ - $ 3,006 Intersegment revenue54 18 10 4 13 (99)- Net income (loss)  (136)  (75)(28)(24) 48 - (215)        Goodwill$   - $ 725 $ 659 $ - $ 1,372 $ - $ 2,756 (In millions)Period January 1 to January 31, 2006 (Predecessor)  Inter-United North  Latin segmentConsolidated AmericaPacificAtlanticAmericaULSEliminationTotalRevenue$   905 $ 265 $  158 $   51 $    75 $ - $ 1,454 Intersegment revenue29 11 6 2 7 (55)- Net income (loss) before       reorganization items$   (81)$   (5)$ (13)$ (10)$  26 $ - $ (83)(In millions)Three Months Ended March 31, 2005 (Predecessor)  Inter-United North  Latin segmentConsolidated AmericaPacificAtlanticAmericaULSEliminationTotalRevenue$ 2,403 $ 697 $  464 $ 127 $  225 $ - $ 3,916 Intersegment revenue63 24 13 4 17 (121)- Net income (loss) before       reorganization items$ (298)$ (33)$ (38)$ (19)$  94 $ - $ (294)
A reconciliation of the total amounts reported by reportable segmentsto the applicable amounts in the consolidated financial statements follows:  SuccessorPredecessor Period from February 1 to March 31,Period from January 1 to January 31,Three Months Ended March 31,(In millions)200620062005Total loss for reportable segments$ (215) $ (83) $ (294) Reorganization items, net- 22,709 (718) Net income (loss) $ (215) $22,626 $(1,012) 
United's operations involve an insignificant level of dedicated revenue-producingtangible assets by reportable segment as the overwhelming majority of theCompany's revenue producing tangible assets (primarily U. S. registeredaircraft) generally can be deployed in any of its reportable segments,as any given aircraft may be used in multiple segments on any given day.ULS had $1.9 billion in total assets as of March 31, 2006.
In accordance with SFAS 142, on the Effective Date the Company allocatedgoodwill upon adoption of fresh-start reporting in a manner similar tohow the amount of goodwill recognized in a business combination is determined.This required the determination of the fair value of each reportable segmentto calculate an estimated purchase price for such segment. This purchaseprice was then allocated to the individual assets and liabilities assumedto be related to that segment. Any excess purchase price is the amountof goodwill assigned to that reporting unit. As stated above, the overwhelmingmajority of the Company's revenue producing assets and the related liabilitiesrelate to aircraft that may be used in multiple segments on any given day.As a result, the Company allocated such asset values and the related liabilitieson the basis of available seat miles flown in each segment. To the extentthat individual assets and liabilities could be assigned directly to specificsegments, those assets and liabilities were assigned to such segments.In accordance with SFAS 141, any adjustments to the preliminary allocationof reorganization value could change the amount of recorded goodwill andthe allocation of such goodwill to the reportable segments.
**(8) Comprehensive Income (Loss)**
We include in other comprehensive income (loss) changes in minimum pensionliabilities and changes in the fair value of derivative financial instrumentsthat qualify for hedge accounting. For the one month period ended January31, 2006, two month period ended March 31, 2006 and three month periodended March 31, 2005, total comprehensive income (loss) amounted to $22.6billion, $(207) million and $(1.0) billion, respectively.
**(9) Debt Obligations**
In accordance with the Plan of Reorganization, the Company reinstatedcertain secured aircraft debt, entered into the Credit Facility, guaranteedUAL's newly-issued debt and securities and entered into other debt agreementsnegotiated during the bankruptcy process (including aircraft financings),which consist of the following:(in millions)March 31, 2006Secured notes, 3.72%to 9.52%, due 2014$ 5,300 Credit Facility, 8.6%,due 20122,800 Employee convertiblenotes, due 20217266% senior subordinated notes, due 20315005% senior convertible notes, due 2021150Total debt9,476 Less: unamortizeddebt discount(279)Less: current portion(346)Long-term debt, lesscurrent portion$ 8,851
*Credit Facility.*On the Effective Date, United entered into theCredit Facility provided by a syndicate of banks and other financial institutionsled by J.P. Morgan Securities Inc. and Citicorp Global Markets Inc., asjoint lead arrangers and joint book runners; JPMorgan Chase Bank, N.A.("JPMCB") and Citicorp USA, Inc. ("CITI"), as co-administrative agentsand co-collateral agents; General Electric Capital Corporation, as syndicationagent; and JPMCB as paying agent. The Credit Facility provides for a totalcommitment of up to $3.0 billion, comprised of two separate tranches: (i)Tranche A consisting of up to $200 million revolving commitment availablefor Tranche A loans and for standby letters of credit to be issued in theordinary course of business of United or one of its subsidiary guarantors,and (ii) Tranche B consisting of a term loan commitment of up to $2.45billion available at the time of closing and additional term loan commitmentsof up to $350 million available upon, among other things, United's acquiringunencumbered title to some or all of the 14 airframes and related enginesthat were subject to United's 1997-1 EETC financing. The Credit Facilitymatures on February 1, 2012.
Borrowings under the Credit Facility bear interest at a floating rate,which can be either a base rate, or at our option, a LIBOR rate, plus anapplicable margin of 2.75% in the case of the base rate loans and 3.75%in the case of the LIBOR loans. The Tranche B term loan requires regularlyscheduled semi-annual payments of principal equal to 0.5% of the originalprincipal amount of the Tranche B term loan. Interest is payable on thelast day of the applicable interest period but in no event less than quarterly.The Company has since entered into an interest rate swap whereby it fixedthe rate of interest for the term loan to 5.14% plus a fixed credit margin.For further details, see Note 10, "Financial Instruments and Risk Management".At any time prior to February 1, 2007, United may use the proceeds fromany lower-cost refinancing to redeem some or all of the term loans at aprice equal to 101% of the principal amount plus accrued and unpaid interest,if any, to the date of redemption.
The obligations under the Credit Facility are unconditionally guaranteedby UAL and certain of the direct and indirect domestic subsidiaries ofUAL (other than United) (the "Guarantors"), and are secured by a securityinterest in substantially all of the tangible and intangible assets ofthe Guarantors. The obligations under the Credit Facility are also securedby a pledge of the capital stock of United and the direct and indirectsubsidiaries of UAL and United, except that a pledge of any first-tierforeign subsidiary is limited to 65% of the stock of such subsidiary andsuch foreign subsidiaries are not required to pledge the stock of theirsubsidiaries.
The Credit Facility contains covenants that will limit the ability ofUnited and the Guarantors to, among other things, incur or guarantee additionalindebtedness, create liens, pay dividends on or repurchase stock, makecertain types of investments, pay dividends or other payments from United'sdirect or indirect subsidiaries, enter into transactions with affiliates,sell assets or merge with other companies, modify corporate documents orchange lines of business. The Credit Facility also requires compliancewith several financial covenants, including (i) a minimum ratio of EBITDARto the sum of cash, interest expense, aircraft rent and scheduled debtpayments, (ii) a minimum unrestricted cash balance of $1.2 billion, tobe reduced to $1.0 billion after December 31, 2006 assuming United is incompliance with the ratio calculated under (i) above, and (iii) the marketvalue of the collateral must be greater than 150% of the sum of (a) theaggregate outstanding amount of the loans plus (b) the undrawn amount ofoutstanding letters of credit, plus (c) the unreimbursed amount of drawingsunder any letters of credit, and (d) the termination value of certain interestrate protection and hedging agreements with the exit lenders and theiraffiliates. The Credit Facility received a rating of B+ from Standard &Poor's and B1 from Moody's Investment Services.
United used $2.65 billion of the borrowings under the Credit Facilityat the Effective Date to finance working capital needs and for other generalcorporate purposes, including repayment of the borrowings outstanding underthe DIP Financing. Subsequently, the Company repaid $161 million on therevolving credit line and accessed the remaining $350 million of the delayeddraw term loan. We expect to be in compliance with Credit Facility covenants,but there are no assurances we will be able to do so. Failure to complywith our Credit Facility covenants could result in a default under theCredit Facility unless we obtain a waiver of, or otherwise mitigate, thedefault. Additionally, the Credit Facility contains a cross-default provisionwith respect to defaults on our other credit arrangements that exceed $40million. A default could result in a termination of the Credit Facilityand a requirement to accelerate repayment of all outstanding borrowings.
As of March 31, 2006, the Company had outstanding borrowings of $2.8billion at an interest rate of 8.6%. In addition, letters of credit wereissued under the Credit Facility in an aggregate amount of $39 million.The Company is in compliance with the Credit Facility covenants.
*Push Down of UAL Securities.*Pursuant to the Plan of Reorganization,UAL issued debt and equity instruments to certain unsecured creditors andemployees of United. The following instruments ahave been pushed down toUnited and are reflected as debt of United as part of fresh-start reporting:
*Employee Convertible Notes.* In accordance with the Planof Reorganization, UAL will issue convertible notes to certain employees,including employees under collective bargaining agreements, within sixmonths after the Effective Date. The notes are convertible into UAL commonstock at a conversion price of $46.86 per common share. As of February1, 2006, UAL had recorded long-term debt of $725 million and an embeddedderivative of $1 million.
As stated in the various agreements, the following terms and conditionsare to be contained in these notes upon issuance:- As of the Effective Date, an interest rate on these employee convertiblenotes has not been established. The parties are to establish an interestrate no later than 30 days prior to the issuance date of these notes. Suchinterest rate is to be set such that these notes will trade at par value,or better, on the date of issuance.
- These notes are to be unsecured, have a term of 15 years from the dateof issuance and will not require any payment of principal prior to maturity.Interest is to be payable semi-annually, in arrears. Interest for the firstyear may be paid in kind, at the option of UAL, in UAL common stock.
- After issuance, these employee convertible notes may be converted intoUAL common stock, at any time, at a per share price of $46.86. These employeeconvertible notes are to be callable in cash or UAL common stock, undercertain conditions, 5 years after the issuance date. In addition, UAL willhave the option to repurchase these notes on the 5 th  and 10 th anniversary of the date of issuance, payable in cash or UAL common stock.
*Newly-issued Debt and Equity Instruments.*- 5% senior convertible notes were issued on the Effective Date to certainholders of the O'Hare municipal bonds. The notes are unsecured, have aterm of 15 years from the date of issuance and do not require any paymentof principal prior to maturity. Interest is payable semi-annually, in arrears.Interest for the first year may be paid in kind, at the option of UAL,in UAL common stock. These 5% senior convertible notes may be convertedinto UAL common stock, at any time, at a per share price of $46.86. Thesenotes are callable in cash or in UAL common stock, under certain conditions,5 years after the issuance date. In addition, UAL has the option to repurchasethese notes on the 5 th  and 10 th  anniversary of thedate of issuance, payable in cash or UAL common stock.
- 6% senior subordinated notes were issued to the PBGC on the Effective Date.These notes are unsecured, mature 25 years from issuance date and do notrequire any payment of principal prior to maturity. Interest is payablesemi-annually, in arrears. Interest may be paid with in kind notes or inUAL common stock through 2011 and thereafter in cash. These notes are callableat any time at 100% of par value.
**(10) Financial Instruments and Risk Management**
In the one month ended January 31, 2006, the Company had no hedges inplace. In the two months ended March 31, 2006, the Successor Company enteredinto cash flow hedges and economic hedges. Instruments designated as cashflow hedges receive favorable accounting treatment under SFAS 133, as longas the hedge is effective and the underlying transaction is probable. Ifboth factors are present, the effective portion of the changes in fairvalue of these contracts is recorded in accumulated other comprehensiveincome (loss) until earnings are affected by the cash flows being hedged.
Instruments classified as designated economic hedges do not qualifyfor hedge accounting under SFAS 133. Under this classification all changesin the fair value of these contracts are recorded in operating income withthe offset to either current assets or liabilities each reporting period.
Instruments classified as an undesignated fuel hedge do not qualifyfor SFAS 133 accounting treatment. Due to the nature of these instrumentsall changes in the fair value of these contracts are recorded in non-operatingincome with the offset to either current assets or liabilities each reportingperiod.
*Aircraft Fuel Hedges*. In the one month ended January 31, 2006,the Predecessor Company had no fuel hedges in place. In the two monthsended March 31, 2006, the Successor Company entered into and exercisedaircraft fuel hedges for its mainline and regional affiliate operationsthat were classified as economic hedges. The Successor Company used calloptions to hedge a portion of its price risk related to projected fuelrequirements. Each call option was entered into and exercised within thesame month. The Successor Company recognized income of $9 million thatwas classified as mainline fuel expense and Regional affiliates expensein the Statement of Consolidated Operations.
In the three months ended March 31, 2005, the Predecessor Company recognizedincome of $42 million (which included income of $4 million relating tothe options' time-value and $3 million as a result of ineffective hedges)in non-operating income mainly due to non-designated fuel hedges.
At March 31, 2006, the Company had no fuel hedges in place.
Interest Rate Swap. In the two months ended March 31, 2006, United enteredinto an interest rate swap whereby it fixed the interest rate on $2.45billion of floating-rate debt.  As a result, the Company will payon an ongoing basis the LIBOR swap rate of 5.14% (which includes a smallcredit-related charge) plus the fixed credit margin on the underlying financingfacility.  The swap will amortize according to a pre-established schedulestarting in November 2007 through its expected maturity date of February2012.
The Company will use interest rate swap agreements to effectively limitexposure to interest rate movements within the parameters of the Company'sinterest rate hedging policy. These instruments are designated as cashflow hedges under SFAS 133. Per SFAS 133, as long as the hedge is effectiveand the underlying transaction is probable, the effective portion of thechanges in fair value of these contracts is recorded in accumulated othercomprehensive income (loss) until earnings are affected by the cash flowsbeing hedged. Assuming prevailing interest rates, the fair value of ourinterest rate derivative agreements is the estimated amount that we wouldpay or receive to terminate the agreements. The Company recognized $8 millionin accumulated other comprehensive income for the two months ended March31, 2006.
**(11) Commitments and Contingencies**
***Legal and Environmental Contingencies.***United has certaincontingencies resulting from litigation and claims (including environmentalissues) incident to the ordinary course of business. Management believes,after considering a number of factors, including (but not limited to) theviews of legal counsel, the nature of contingencies to which we are subjectand prior experience, that the ultimate disposition of these contingencieswill not materially affect the Company's consolidated financial positionor results of operations.
We record liabilities for legal and environmental claims against usin accordance with GAAP. These amounts are recorded based on our assessmentsof the likelihood of their eventual disposition. The amounts of these liabilitiescould increase or decrease in the near term, based on revisions to estimatesrelating to the various claims.
The Company anticipates that if ultimately found liable, its damagesfrom claims arising from the events of September 11, 2001 could be significant;however, we believe that, under the Air Transportation Safety and SystemStabilization Act of 2001, our liability will be limited to our insurancecoverage.
We have not incurred any material environmental obligations relatingto the events of September 11, 2001.
***Commitments.***At March 31, 2006, future commitments forthe purchase of property and equipment, principally aircraft, approximated$2.5 billion, after deducting advance payments.  Our current commitmentswould require the payment of an estimated $0.1 billion in 2006, $0.1 billionfor combined years 2007 and 2008, $0.1 billion for years 2009 and 2010and $2.2 billion thereafter primarily for the purchase of A319 and A320aircraft.  However, the Company has the right to cancel these orders.Such action could cause the forfeiture of $91 million of advance paymentsif United does not take future delivery of these aircraft.
**(12) Lease Obligations**
United leases aircraft, airport passenger terminal space, aircraft hangarsand related maintenance facilities, cargo terminals, other airport facilities,other commercial real estate, office and computer equipment and vehicles.As allowed under Section 365 of the Bankruptcy Code, during our reorganizationwe assumed, assumed and assigned, or rejected certain executory contractsand unexpired leases, including leases of real property, aircraft and aircraftengines, subject to the approval of the Bankruptcy Court and certain otherconditions. During bankruptcy, the Company also entered into numerous aircraftfinancing term sheets with financiers, some of which were implemented priorto the Effective Date, and others which were implemented on the EffectiveDate. These term sheets required the Company to apply lease modificationtesting as of fresh-start, which resulted in the reclassification of somefinancings as capital leases or operating leases for the Successor Company,which were different from classifications for the Predecessor Company.
In connection with fresh-start reporting, aircraft operating leaseswere adjusted to fair value and a net deferred asset of $263 million wasestablished in the Statements of Consolidated Financial Positionon the Effective Date, representing the net present value of the differencesbetween stated lease rates and the fair market rates.  These deferredamounts are amortized on a straight-line basis as an increase to aircraftrent expense over the applicable remaining lease periods, generally oneto 18 years.
At March 31, 2006, scheduled future minimum lease payments under capitalleases (substantially all of which are for aircraft) and operating leaseshaving initial or remaining noncancelable lease terms of more than oneyear were as follows: (In millions)Operating LeasesCapital AircraftNon-aircraftLeasesPayable during -   2006$    540$    363$     156 2007755459246 2008731445307 2009702435176 2010676421419 After 2010 2,261 3,414    855Total minimum lease payments$ 5,665$ 5,537$ 2,159 Imputed interest (at rates of1.5% to 10.0%)  (652)Present value of minimum leasepayments  1,507 Current portion  (115)Long-term obligations under capitalleases  $1,392
As of March 31, 2006, we leased 225 mainline aircraft, 50 of which wereunder capital leases. These leases have initial terms of 5 to 26 years,and expiration dates ranging from 2006 through 2024. Under the terms ofmost leases, we have the right to purchase the aircraft at the end of thelease term, in some cases at fair market value and in others at fair marketvalue or a percentage of cost. Additionally, the above amounts includelease payments related to our United Express contracts for 37 aircraftunder capital leases and 237 aircraft under operating leases as describedin Note 2(h), "Summary of Significant Accounting Policies - United Express."
Certain of our aircraft lease transactions contain provisions such asput options giving the lessor the right to require us to purchase the aircraftat lease termination for a certain amount resulting in residual value guarantees.Leases containing this or similar provisions are recorded as capital leaseson the balance sheet and, accordingly, any and all residual value guaranteeamounts contained in an aircraft lease are fully reflected as capital leaseobligations on the Statements of Consolidated Financial Position.
In connection with the financing of certain euro-denominated aircraftfinancings accounted for as capital leases, United had on deposit in certainbanks at March 31, 2006 an aggregate 397 million euros ($481 million) and$16 million in US denominated deposits, and had pledged an irrevocablesecurity interest in such deposits to certain of the aircraft lessors.These deposits will be used to repay an equivalent amount of recorded capitallease obligations, and are classified as aircraft lease deposits in theaccompanying Statements of Consolidated Financial Position. 
**(13) Statement of Consolidated Cash Flows - Supplemental Disclosures**
Supplemental disclosures of cash flow information and non-cash investingand financing activities were as follows:  Successor Predecessor (In millions)Period from February 1 to March 31,Period from January 1 to 31,Three Months Ended March 31, 200620062005Cash paid during the period for:   Interest (net of amounts capitalized)$  102  $  35  $  104  Income taxes -   -   -         Non-cash transactions:      Capital lease obligations incurred$  137  $  -  $  -  Decrease in pension intangibleassets-  (4) -  Net unrealized gain on derivatives8  24  -  
In addition to the above non-cash transactions, see Note 1, "VoluntaryReorganization Under Chapter 11" and Note 9, "Debt Obligations" for furtherpost-emergence transactions.
**(14) Advanced Purchase of Miles**
In October 2005, we entered into an amendment to our agreement withChase Bank USA N.A. ("Chase") regarding the Mileage Plus Visa card underwhich Chase pays for frequent flyer miles earned by Mileage Plus membersfor making purchases using the Mileage Plus Visa card. The existing agreementincludes an annual guaranteed payment for the purchase of frequent flyermiles.
In addition to extending the agreement until 2012 and making certainother adjustments in the relationship, the agreement provided for an advancepurchase of miles of $200 million. This advanced purchase of miles willreduce the annual guaranteed payment for 2006 through 2009 by $75 millionper year. In addition, the Company provided a junior lien upon, and securityinterest in, all collateral pledged or in which security interest is granted,as security in connection with the Credit Facility. The security interestis junior to other Credit Facility debt, and will apply to no more than$850 million in total advance purchases at any time. As of March 31, 2006,the total advance purchase of miles was $696 million. Based upon the grantingof the security interest, such advance purchases have been classified asdebt in the attached Statements of Consolidated Financial Position.
**(15) Related Party Transactions**
Air Wis Services, Inc., a wholly owned subsidiary of UAL, owns Air Wisconsin,Inc. At January 31, 2006 and December 31, 2005, United had outstandingloans to Air Wisconsin, Inc. in the amount of $115 million and $114 million,respectively. As a result of the bankruptcy filing, these loans were classifiedas liabilities subject to compromise and were subsequently eliminated uponexit. Air Wisconsin, Inc. and Air Wis Services, Inc. have no relationshipto Air Wisconsin Airlines Corporation, which is an independent regionalcarrier.
As of result of the bankruptcy filing in the predecessor period, wereclassified all intercompany accounts receivable to equity and all intercompanyaccounts payable to liabilities subject to compromise. At exit, certainintercompany balances were eliminated and the remainder were reclassifiedto their pre-bankruptcy categories.
**(16) Mandatorily Convertible Preferred Stock**
The following instrument has been pushed down to United and is reflectedon United's books as part of fresh-start reporting:
The 2% convertible UAL preferred stock was issued by UAL to the PBGCon the Effective Date.  The shares were issued at a liquidation valueof $100 per share, convertible at any time following the second anniversaryof the issuance date into new UAL common stock at a conversion price of$46.86 per common share; with dividends payable in kind semi-annually;the UAL preferred stock will rank pari passu with all current and futureUAL or United preferred stock; and will be redeemable at any time at $100par value at the option of the issuer; and will be non-transferable untiltwo years after the issuance date.  The UAL preferred stock is mandatorilyconvertible 15 years from the date of issuance.  This preferred stockis also redeemable upon a fundamental change or a change in ownership asdefined for transactions in which UAL is not the surviving entity. At March 31, 2006, the entire issue amount of $338 million remained outstanding,which was recorded at its estimated fair value on February 1, 2006.
**Item 2.  Management's Discussion and Analysis of FinancialCondition and Results of Operations**
**Overview**
United's operations consist primarily of the transportation of persons,property, and mail throughout the U.S. and abroad.  United providesthese services through full-sized jet aircraft (which we refer to as our"mainline" operations), as well as smaller aircraft in its regional operationsconducted under contract by "United Express®" carriers.
United is one of the largest passenger airlines in the world with morethan 3,600 flights a day to more than 200 destinations through its mainlineand United Express services. United offers 1,600 average daily mainline(including Ted(SM)) departures to morethan 120 destinations in 28 countries and two U.S. territories.  Unitedprovides regional service connecting primarily with United's domestic hubsthrough marketing relationships with United Express carriers, which providemore than 2,000 average daily departures to more than 150 destinations. United serves virtually every major market around the world, either directlyor through its participation in the Star Alliance®, theworld's largest airline network.
On December 9, 2002 (the "Petition Date"), UAL, United and 26 directand indirect wholly-owned subsidiaries (collectively, the "Debtors") filedvoluntary petitions to reorganize their businesses under Chapter 11 ofthe United States Bankruptcy Code in the United States Bankruptcy Courtfor the Northern District of Illinois, Eastern Division (the "BankruptcyCourt"). On January 20, 2006, the Bankruptcy Court confirmed the Debtors'Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of theUnited States Bankruptcy Code (the "Plan of Reorganization"). The Planof Reorganization became effective and the Debtors emerged from bankruptcyprotection on February 1, 2006 (the "Effective Date"). In connection withemergence from Chapter 11 bankruptcy protection, the Company adopted fresh-startreporting in accordance with SOP 90-7. Thus, the consolidated financialstatements prior to February 1, 2006 reflect results based upon the historicalcost basis of the Company while the post-emergence consolidated financialstatements reflect the new basis of accounting incorporating the fair valueadjustments made in recording the effects of fresh-start reporting. Therefore,the post-emergence periods are not comparable to the pre-emergence periods.However, for discussions on the results of operations, the Company hascombined the results for the one month ended January 31, 2006 and two monthsended March 31, 2006. The combined periods have been compared to the threemonths ended March 31, 2005. The Company believes that the combined financialresults provide management and investors a better perspective of the Company'score business and on-going operational financial performance and trendsfor comparative purposes.
The Company believes its restructuring has made United competitive withnetwork airline peers. In every year of the restructuring, beginning in2003, the Company has improved its financial performance. The Company'sfinancial results clearly demonstrate this progress - despite continuedincreases in fuel price. While the cost of mainline fuel has increasedmore than $2.0 billion since 2002, the Company has reduced operating lossesby approximately $2.6 billion over the same period.
In the combined first quarter of 2006, the Company reported an operatingloss of $168 million, an improvement of $71 million, or 30%, as comparedto the operating loss of $239 million reported in the first quarter of2005.
The Company reported significant improvements in revenue performanceyear-over-year. Consolidated revenues increased by $544 million betweenperiods, increasing by 14% between quarters. Strong revenue improvementwas experienced by both mainline and regional express passenger operationsbetween quarters.
Consolidated operating expenses increased by $473 million between quarters.Fuel expense growth (mainline and regional affiliates) accounted for $314million of the total operating expense growth between years, due to significantincreases in the cost of jet fuel. Salary and related costs increased $52million, primarily due to stock-compensation expense recognized upon adoptionof FAS 123R in the first quarter to account for the MEIP and DEIP plansapproved upon exit from bankruptcy.
In the first quarter of 2006, non-operating income increased by $23.3billion to $22.6 billion (including reorganization income of $22.7 billion),from non-operating expense of $773 million (including reorganization expenseof $718 million) in the first quarter of 2005. Interest expense accountedfor $61 million of this increase. Interest cost on the Credit Facilityin the first quarter of 2006 was higher than interest cost for the DIPFinancing in the prior year, primarily due to a significantly higher outstandingprincipal balance between periods. The Company also recorded non-cash interestcosts in the 2006 quarter associated with the amortization of various discountswhich were recorded to adjust aircraft mortgage, operating and capitallease financings to fair value at the date of adoption of fresh-start reporting.
The Company recorded a net reorganization gain of $22.7 billion in thecombined first quarter of 2006, which was driven by the discharge of over$24.4 billion of claims and liabilities that had been recognized duringthe three-year restructuring process which began in late 2002. Reorganizationcharges in the first quarter of 2005 were $718 million.
The Company ended the first quarter of 2006 with total cash, includingrestricted cash, of $4.5 billion. Operating cash flows during the combinedfirst quarter of 2006 were $457 million, and total available cash was significantlyincreased by the replacement of the DIP Financing with the Credit Facilityon February 2, 2006.
**Commitments and Contingencies**
***Capital Commitments.***At March 31, 2006, future commitmentsfor the purchase of property and equipment, principally aircraft, approximated$2.5 billion, after deducting advance payments.  Our current commitmentsare primarily for the purchase of A319 and A320 aircraft.  The Companyhas the right to cancel these orders. Such action could cause the forfeitureof $91 million of advance payments if United does not take future deliveryof these aircraft.  For further details, see Note 11, "Commitmentsand Contingencies" in the Notes to Consolidated Financial Statements.
***Contingencies.***During the course of our Chapter 11 proceedings,the Company successfully reached settlements with most of its creditorsand resolved most pending claims against the Debtors. However, the followingmaterial matters remain to be resolved in the Bankruptcy Court. For furtherdetails, see Note 1, "Voluntary Reorganization Under Chapter 11 - BankruptcyConsiderations" in the Notes to the Consolidated Financial Statements.
*Section 1110 Aircraft Restructuring**.***  TheCompany negotiated with its aircraft lessors and lenders to restructuredebt and lease financings to reduce aircraft ownership costs to currentmarket rates, and was successful in reaching agreements to restructuresuch transactions with respect to a majority of our financed aircraft.However, certain aircraft financings are still unresolved and subject tothe settlement of pending litigation. United cannot accurately predictthe outcome of this litigation, which could potentially have a materialadverse impact on the Company.
*Municipal Bond Obligations*. The Company is a party tonumerous long-term agreements to lease certain airport and maintenancefacilities that are financed through tax-exempt municipal bonds that areissued by various local municipalities to build or improve airport andmaintenance facilities. As a result of the Company's bankruptcy filing,we were not permitted to make payments on unsecured pre-petition debt.The Company had been advised that these municipal bonds may be unsecured(or in certain instances, partially secured) pre-petition debt. Therefore,through the bankruptcy process, the Company had either settled or rejectedcertain pre-petition debt associated with the municipal bonds. The ultimatedisposition of a portion of the outstanding municipal bond obligationsremains subject to the uncertain outcome of pending litigation. Even ifa portion of the obligations are determined to be financings and not trueleases, there is likely to remain an issue regarding the extent to whichthose financings would be considered secured by an interest in the valueof the underlying leasehold, if any.
*Pension Terminations*. Currently, there is a dispute asto whether the Pilot Plan was effectively terminated by order of the BankruptcyCourt under ERISA Section 4042 with a termination date of December 30,2004. URPBPA and the PBGC filed notices of appeal with the District Courtand in February 2006, the Bankruptcy Court's order was reversed based ona determination that the Bankruptcy Court lacked "core" jurisdiction overthe Involuntary Termination Proceeding. However, the District Court didnot address the substantive merits of the Bankruptcy Court's ruling. TheDistrict Court remanded the proceedings to the Bankruptcy Court. The BankruptcyCourt submitted proposed findings and conclusions of law to the DistrictCourt for review and the matter has been fully briefed. On May 3, 2006,the District Court heard oral arguments and has indicated that it expectsto rule on this matter in June 2006. The District Court's determination(and that of any court considering an appeal of the District Court's order)regarding the termination of the Pilot Plan may have a material adverseeffect on the Company's financial performance.
There is also a dispute with respect to the continuing obligation ofUnited to pay non-qualified pension benefits to retired pilots pendingsettlement of the Involuntary Termination Proceeding. The Bankruptcy Courthad previously required the Company to continue paying these benefits untilentry of the Bankruptcy Court's order terminating the Pilot Plan. Thiswas appealed by the Company and the funds necessary to pay non-qualifiedbenefits for the month of October were placed in a segregated account.During the first quarter of 2006, the District Court dismissed the Company'sappeal in light of its own decision to reverse the Bankruptcy Court's terminationorder for the qualified Pilot Plan. The Company has appealed the DistrictCourt's ruling with respect to the continuing payment of non-qualifiedbenefits, and further litigation proceedings on the appeal are currentlyscheduled for the second quarter of 2006. In March 2006, the BankruptcyCourt ruled that the Company was obligated to make payment of all non-qualifiedpension benefits through January 31, 2006. The Company has appealed thisruling to the District Court, which is scheduled to be heard on May 25,2006.
*Objection to the Plan of Reorganization Confirmation*.URPBPA has filed a notice of appeal of the order confirming the Plan ofReorganization.  If the Bankruptcy Court were to grant the appeal,it could have a materially adverse effect on the Company.
*Legal and Environmental.*****UAL has certain contingenciesresulting from litigation and claims (including environmental issues) incidentto the ordinary course of business. Management believes, after consideringa number of factors, including (but not limited to) the views of legalcounsel, the nature of contingencies to which we are subject and priorexperience, that the ultimate disposition of these contingencies will notmaterially affect the Company's consolidated financial position or resultsof operations.
We record liabilities for legal and environmental claims against usin accordance with GAAP. These amounts are recorded based on our assessmentsof the likelihood of their eventual disposition. The amounts of these liabilitiescould increase or decrease in the near term, based on revisions to estimatesrelating to the various claims.
The Company anticipates that if ultimately found liable, its damagesfrom claims arising from the events of September 11, 2001 could be significant;however, we believe that, under the Air Transportation Safety and SystemStabilization Act of 2001, our liability will be limited to our insurancecoverage.
We have not incurred any material environmental obligations relatingto the events of September 11, 2001.
**Results of Operations**
The air travel business is subject to seasonal fluctuations. Our operationscan be impacted by adverse weather and our first- and fourth-quarter resultsnormally reflect reduced travel demand. Historically, results of operationsare better in the second and third quarters.
On the Effective Date, United implemented fresh-start reporting in accordancewith SOP 90-7. As a result of the application of fresh-start reporting,the financial statements prior to February 1, 2006 are not comparable withthe financial statements for the period February 1, 2006 to March 31, 2006.However, for management's discussion and analysis of the results of operations,the three months ended March 31, 2006 have been compared to the three monthsended March 31, 2005. The Company believes that the reported non-GAAP financialresults provide management and investors a better perspective of the Company'son-going financial and operational performance and trends by combiningthe periods for this purpose. References to "Successor Company" refer toUnited on or after February 1, 2006, after giving the effect to the applicationof fresh-start reporting. References to "Predecessor Company" refer toUnited prior to February 1, 2006. For detailed information concerning theeffects of the adoption of fresh-start reporting on the balance sheet ofthe Successor Company, see Note 1, "Voluntary Reorganization Under Chapter11 - Fresh-Start Reporting".  
**Summary of Results**
For the three month periods ended March 31, 2006 and 2005, we reportedlosses from operations of $168 million and $239 million, respectively,and we reported net income (loss) of $22.4 billion and $(1.0) billion forthe same respective periods. For the one month ended January 31, 2006,the Predecessor Company recognized a gain of $24.4 billion on the dischargeof claims and liabilities pursuant to the terms of the confirmed Plan ofReorganization. For further details, see Note 1, "Voluntary ReorganizationUnder Chapter 11 - Financial Statement Presentation and Fresh-Start Reporting".
The $71 million improvement in the Company's operating results for thecombined three month period ending March 31, 2006, as compared to the sameperiod of 2005, is primarily a result of increased passenger yield partiallyoffset by higher fuel costs.
Operating Revenues. Compared to the same quarter last year, totaloperating revenue increased $544 million, or 14 percent, with mainlineoperating revenue per available seat mile ("RASM") increasing 11 percent.
Strong demand, industry capacity restraint, yield improvements and ourdifferentiated customer product strategy all contributed to a $485 millionincrease in total passenger revenue and a 12 percent increase in consolidatedpassenger unit revenue ("PRASM") for the quarter. Mainline traffic increasedby 3 percent on a 1 percent increase in capacity, resulting in a 1 pointincrease in load factor. The higher load factor along with a 9 percentincrease in yield produced an 11 percent year-over-year increase in mainlinePRASM. Regional affiliate PRASM was 13 percent higher than last year drivenby a 9 percent increase in yield and a 3 point increase in load factor.
Cargo revenue increased $8 million or 5% year over year due primarilyto improved yield and higher fuel surcharge revenues. Other revenue increased$51 million compared to the same quarter last year, primarily due to anincrease in UAFC third-party fuel trading revenue.
The table below sets forth selected operating data by reportable segmentand regional affiliates for UAL consolidated operations:  (b)North AmericaPacificAtlanticLatinMainline(b)Regional AffiliatesConsolidatedThree Months Ended March 31, 2006(a):               Available seat miles (in millions)20,8197,6364,3161,71734,4883,73438,222Revenue passenger miles (in millions)16,5716,2653,2901,33627,4622,82430,286Passenger revenues (in millions)2,0706573921373,2566693,925Passenger revenue per availableseat mile (in cents)9.958.619.077.999.4417.9310.27Passenger load factor (points)79.682.076.277.979.675.679.2Yield (in cents)12.4510.4611.7910.0511.8223.7012.93        Three Months Ended March 31, 2005:               Available seat miles (in millions)20,2107,6574,9111,48134,2593,31137,570Revenue passenger miles (in millions)15,7736,1283,7321,15126,7842,40429,188Passenger revenues (in millions)   1,789   604   407   1162,916524   3,440Passenger revenue per availableseat mile (in cents)8.857.898.297.878.5115.819.16Passenger load factor (points)78.080.076.077.778.272.677.7Yield (in cents)11.309.8110.429.6910.8321.7811.74        Increase/(Decrease):               Available seat miles (in millions)609(21)(595)236229423652Revenue passenger miles (in millions)798137(442)1856784201,098Passenger revenues (in millions)   281   53   (15)   21340145   485Passenger revenue per availableseat mile (in cents)1.100.720.780.120.932.121.11Passenger load factor (points)1.62.00.20.21.43.01.5Yield (in cents)1.150.651.370.360.991.921.19        (a)    The combined period includesthe results for one month ended January 31, 2006 (Predecessor Company)and two months ended March 31, 2006 (Successor        Company).
(b)    For segment reporting purposes,the Company aggregates Regional Affiliates results within the North Americasegment.Mainline and regional affiliates showed strong domestic revenue performancein the first quarter of 2006 due to increased demand and competitive capacityrestraint. Mainline domestic PRASM increased 12% year-over-year drivenby 10% increase in yield and 2 points higher load factor. Regional affiliates'PRASM increased 13% on 9% increase in yield and 3 points higher load factor.
The Pacific and Atlantic also posted strong results due to strong demandand a good pricing environment. Both Pacific and Atlantic PRASM were upa little more than 9% year-over-year.
Latin did not perform as well as other entities.  Latin PRASM grewby 2% year-over-year on 16% higher capacity.  United expanded primarilyin the leisure markets, which are naturally more price sensitive. Unitedincreased its aircraft utilization and used its spare aircraft during theweekends to expand its capacity. Since the new capacity came at a lowerincremental cost, United is satisfied with its performance.
On a consolidated basis, PRASM increased 12% year-over-year driven by10% increase in yield and 2 points higher load factor.
Operating Expenses. The Company's operating expenses have fluctuatedas we have sought to restructure our obligations in bankruptcy, adjustour mainline and regional affiliate operating capacity to match marketplacedemand, and cope with historically high jet fuel prices. The Company'stotal operating expenses increased $473 million in the combined first quarterof 2006, or 11 percent, as compared to the same period in 2005. The Company'sconsolidated operating expense per available seat mile ("CASM") increasedby 9 percent from 11.1 cents for the three months ending March 31, 2005to 12.1 cents for the same period in 2006. Mainline CASM increased 11 percentwhile regional affiliates CASM decreased 4 percent year over year. In spiteof significant accomplishments in restructuring our operating expenses,including significant contributions from employees and creditors throughthe bankruptcy process, high fuel costs have had a significant adverseaffect on operating expenses. The increase in fuel prices between periodsadded approximately eight tenths of a cent to mainline CASM and 1.1 centsto regional affiliate CASM, for the combined three months ended March 31,2006, as compared to the same period in 2005.
Salary and related costs increased by $52 million in the combined firstquarter of 2006, as compared to the same quarter a year ago. During thequarter, the Company adopted SFAS 123R and recorded $69 million of expensefor the stock-based director and management employee incentive plans implementedin accordance with the confirmed Plan of Reorganization. The Company recognizedno such stock-based compensation expense in 2005. Stock-based compensationexpense will continue to impact the Company's salary and related costsduring the remainder of 2006, with $46 million expected to be recordedin the second quarter of 2006 and $165 million for the full year of 2006.Labor productivity improved 6 percent year over year as the Company reducedfull time equivalent employees by 5 percent while increasing mainline capacityby 1 percent. Both the Company's continuous improvement efforts acrossits operations and the outsourcing of certain non-core functions contributedto the labor productivity improvement between periods.
For the combined three months ended March 31, 2006 mainline aircraftfuel expense increased from $805 million in 2005 to $1.1 billion in 2006,or 33 percent. Mainline fuel price increased from $1.47 per gallon to $1.95per gallon, while fuel consumption remained relatively unchanged year overyear. The Company also recognized a fuel hedge gain of $9 million in aircraftfuel expense in the combined first quarter of 2006. Although the PredecessorCompany also had fuel hedges in place in the first quarter of 2005, therelated gain of $42 million was recognized as non-operating income sincethese hedges were non-designated.
Regional affiliate expense increased $51 million, or 8 percent duringthe combined quarter compared to the same period last year, due to a 13percent increase in capacity and a 26 percent increase in fuel price. Regionalaffiliate CASM declined 4 percent despite the fuel price and capacity increasesyear over year. By the first quarter of 2006, the Company had completedits transition from the Air Wisconsin capacity agreement to new regionalcarriers, and was receiving the benefit of the restructured lower-costregional carrier capacity agreements. The improvements from the Company'soverall network optimization, together with the replacement of some 50-seatregional jets with 70-seat regional jets, have also contributed to thereduction of regional affiliate unit costs.
Purchased services increased $69 million, or 19 percent for the combinedfirst quarter of 2006, as compared to the same period in 2005, driven bya $24 million increase in outsourcing costs, a $16 million increase intraffic-related costs, and a $10 million increase in post-bankruptcy professionalfees, which were classified as reorganization expenses by the PredecessorCompany. The Company recently outsourced certain categories of its technologyoperations, certain aircraft fueling operations, and has further increasedthe outsourcing of call centers, aircraft maintenance and certain airportfunctions. The offsetting benefits of higher outsourcing costs are reflectedin the 5 percent reduction in manpower noted for salaries and related costs.The Company expects to continue to increase outsourcing of various functionsin future periods wherever this produces economic and operational benefits.
For the combined quarter ended March 31, 2006, aircraft maintenancematerials and outside repairs increased $40 million, or 18 percent yearover year primarily due to engine-related maintenance cost increases. TheCompany began outsourcing a portion of the repair of its PW4000 engines,and first quarter 2006 costs reflect an increase in the rates for our V2500power-by-the hour engine maintenance contract.
In accordance with fresh-start reporting, the Company revalued its assetsand liabilities to estimated fair values. This resulted in an adjustmentof $1.7 billion to reduce the recorded value of tangible operating propertyand equipment, which is primarily aircraft and engines, and an adjustmentof $2.8 billion to increase the recorded value of intangible assets onthe Effective Date under the provisions of SFAS 141. Since some of thenewly-recognized intangible assets were determined to have indefinite livesunder the provisions of SFAS 142, the Company's depreciation and amortizationexpense in the combined first quarter of 2006 did not change materiallyfrom the first quarter of 2005.
Cost of sales increased $53 million year-over-year primarily due tohigher third-party fuel sales, which is consistent with the related increasein third-party fuel revenues noted above.
Aircraft rent decreased $16 million year-over-year due to restructuredand rejected aircraft financings pursuant to Section 1110 of the BankruptcyCode, as well as due to changes in the accounting classification of financingsfor certain of the Company's operating aircraft and engines as of the adoptionof fresh-start reporting.
Other operating expense decreased $27 million in the combined firstquarter of 2006, as compared to the first quarter of 2005. Upon adoptionof fresh-start reporting, the Company revalued its frequent flyer accrualto estimated fair value and changed its accounting policy to a deferredrevenue model for the Successor Company. For periods on or after February1, 2006, adjustments to the frequent flyer accrual are recorded to passengerand other operating revenues, whereas periodic adjustments under the incrementalcost basis were recognized in other operating expense. See "Critical AccountingPolicies" below for further details.
Non-operating income (expense). In the first quarter of 2006,non-operating income increased by $23.3 billion to $22.6 billion (includingreorganization income of $22.7 billion), from non-operating expense of$773 million (including reorganization expense of $718 million) in thefirst quarter of 2005. This includes a $61 million increase in interestexpense, which was partly due to the higher outstanding principal balanceof the Credit Facility for the Successor Company, as compared to the lowerDIP Financing balance for the Predecessor Company. Interest expense inthe 2006 quarter was also unfavorably impacted by the amortization of variousdiscounts recognized by the Company under fresh-start reporting to adjustaircraft mortgage and capital lease obligations and operating lease obligationsto fair value. In the first quarter of 2005, the Company recorded $42 millionof fuel hedge gains which were non-designated into other operating income,while in the first quarter of 2006 the $9 million gain from economic fuelhedges was recognized in aircraft fuel expense.
**Liquidity and Capital Resources**
***Liquidity.***United's total of cash, cash equivalents andshort-term investments, including restricted cash, was $4.5 billion atMarch 31, 2006 compared to $2.7 billion at December 31, 2005.
As of March 31, 2006, we had $862 million in restricted cash, a decreaseof $66 million as compared to December 31, 2005. Restricted cash primarilyrepresents cash collateral to secure workers' compensation obligations,security deposits for airport leases and reserves with institutions thatprocess our credit card ticket sales. We may be required to post significantadditional cash collateral to meet such obligations in the future.
In October 2005, we entered into a new processing agreement for MasterCardand Visa credit card transactions with JPMorgan Chase Bank, N.A. and Paymentech,L.P. The agreement replaces our former processing agreement with NationalProcessing Company (which expired on January 15, 2006) and provides creditcard processing services for transactions on and after January 16, 2006.The processing agreement required us to initially establish a restrictedcash reserve to secure the potential obligations to customers using a creditcard form of payment in the event the Company does not provide the ticketedtransportation services. The amount of this reserve is determined by applyinga reserve percentage to the Company's aggregate then-outstanding bank cardair traffic liability. The reserve percentage will vary between zero and100% based upon our credit rating and our ability to comply with the fixedcharge ratio and unrestricted cash covenants under the Credit Facility.The processing agreement expires on December 31, 2012. At March 31, 2006,the amount of the reserve was $278 million.
Concurrently with entering into the processing agreement, we enteredinto an amendment to our agreement with Chase regarding the Mileage PlusVisa card under which Chase pays for frequent flyer miles earned by MileagePlus members for making purchases using the Mileage Plus Visa card. Theexisting agreement includes an annual guaranteed payment for the purchaseof frequent flyer miles. In addition to extending the agreement until 2012and making certain other adjustments in the relationship, the agreementprovides for an advance purchase of miles of $200 million. This advancedpurchase of miles will reduce the annual guaranteed payment for 2006 through2009 by $75 million per year. In addition, the Company provided a juniorlien upon, and security interest in, all collateral pledged or in whichsecurity interest is granted, as security in connection with the CreditFacility. The security interest is junior to other Credit Facility debt,and will apply to no more than $850 million in total advance purchasesat any time. At March 31, 2006, the total advance purchase of miles was$696 million, which has been classified as debt in the attached Statementsof Consolidated Financial Position. See Note 14, "Advanced Purchaseof Miles" in the Notes to Consolidated Financial Statements forfurther details.
*Operating Activities.* We generated cash from operations of $457million in the three month period ended March 31, 2006. Cash generatedfrom operations was $257 million for the quarter ended March 31, 2005.The higher operating cash flow generated in 2006 was due to higher growthin advanced ticket sales, among other changes in operating cash flows.
The Company made a cash contribution of $92 million ($54 million ofwhich was for approximately six months of 2005 accrued contributions payableon the Effective Date) related to the defined contribution plans duringthe first quarter of 2006. Detailed information regarding our pension plansis included in Note 5, "Retirement and Postretirement Plans" in theNotesto Consolidated Financial Statements.
*Investing Activities.* Cash provided by investing activitieswas $226 million in the three months ended March 31, 2006, compared to$5 million in the three months ended March 31, 2005. Cash proceeds fromshort-term investments increased by $65 million in the quarter ended March31, 2006, as compared to the same period of 2005. Cash proceeds from reducingrestricted cash were $66 million in the 2006 quarter, as compared to cashused to increase restricted cash of $8 million in the 2005 quarter. Cashfrom investing activities was increased by $200 million as result of cashreleased from segregated funds in the 2006 quarter.
During the three months ended March 31, 2006, the Company did not sellany aircraft nor did it reject or return any aircraft under Section 1110of the Bankruptcy Code.
*Financing Activities.* Cash generated through financingactivities was $1.2 billion in the three month period ended March 31, 2006,compared to cash used of $91 million during the first quarter of 2005.During the first quarter of 2006, we made principal payments under long-termdebt and capital lease obligations of $1.5 billion and $8 million, respectively.
The Company secured access to up to $3.0 billion in secured exit financingwhich consists of a $2.45 billion term loan, $350 million delayed drawterm loan and a $200 million revolving credit line consisting of $161 millionin cash and $39 million in letters of credit. On the Effective Date, $2.45billion of the $2.8 billion term loan and the entire revolving credit linewas drawn and used to repay the DIP Financing as noted below and to makeother payments required upon exit from bankruptcy, as well as to provideongoing liquidity to conduct post-reorganization operations. Subsequently,the Company repaid $161 million on the revolving credit line and accessedthe remaining $350 million on the delayed draw term loan. For further detailson the Credit Facility, see Note 9, "Debt Obligations" in the Notesto Consolidated Financial Statements.
At March 31, 2006, we had a total of $2.8 billion in debt outstandingunder the Credit Facility and $39 million in letters of credit. The DIPFinancing was repaid on the Effective Date with the proceeds from the CreditFacility. For further details, see Note 1, "Voluntary Reorganization UnderChapter 11 - DIP Financing" in the Notes to Consolidated Financial Statements.
In March 2006, the Company secured control of 14 aircraft that wereincluded in the 1997-1 EETC transaction by remitting $281 million to the1997-1 EETC trustee on behalf of the holders of the Tranche A certificates. The Company subsequently refinanced the 14 aircraft on March 28, 2006 withthe $350 million delayed draw term loan provided under the Credit Facility.The 14 aircraft are comprised of four B737 aircraft, two B747 aircraft,four B777 aircraft and four A320 aircraft.
At March 31, 2006, future commitments for the purchase of property andequipment, principally aircraft, approximated $2.5 billion, after deductingadvance payments.  Our current commitments are primarily for the purchaseof A319 and A320 aircraft.  The Company has the right to cancel theseorders. Such action could cause the forfeiture of $91 million of advancepayments if United does not take future delivery of these aircraft. For further details, see Note 11, "Commitments and Contingencies" in theNotesto Consolidated Financial Statements.
**Critical Accounting Policies**
For complete information regarding the Company's critical accountingpolicies, see "Critical Accounting Policies" in Management's Discussionand Analysis of Financial Condition and Results of Operations in United'sAnnual Report on Form 10-K for the year 2005. The following informationdetails significant changes to the Company's critical accounting policiessince year-end.
*Fresh-Start Reporting*.   In connection withthe emergence from Chapter 11 protection as of February 1, 2006, the Companyadopted fresh-start reporting in accordance with SOP 90-7. Accordingly,United's assets, liabilities and equity were valued at their respectivefair values. The excess reorganization value over the fair value of tangibleand identifiable intangible assets has been reflected as goodwill in theaccompanying Statements of Consolidated Financial Position.
Fair value of assets and liabilities represents the Company's best estimatebased on independent appraisals and valuations and, where the foregoinghave not yet been completed or are not available, industry data and trendsand by reference to relevant market rates and transactions. Accordingly,we cannot provide assurance that the estimates, assumptions, and valuesreflected in the asset and liability valuations will be realized, and actualresults could vary materially from those estimates. In accordance withSFAS 141, the preliminary allocation of the equity values is subject toadditional adjustment within one year after emergence from bankruptcy asadditional or improved information on asset and liability valuations becomesavailable.
To facilitate the calculation of the enterprise value of the SuccessorCompany, we developed a set of financial projections. Based on these financialprojections, and with the assistance of financial advisors, the equityvalue was determined by the Company, using various valuation methods, including(i) a comparison of the Company and its projected performance to the marketvalues of comparable companies, (ii) a review and analysis of several recenttransactions of companies in similar industries to the Company, and (iii)a calculation of the present value of the future cash flows using the Company'sfinancial projections.
The estimated enterprise value, and corresponding equity value, is highlydependent upon achieving the future financial results set forth in theprojections as well as the realization of certain other assumptions thatcannot be guaranteed. The estimated equity value of the Company was calculatedto be approximately $2.0 billion. The foregoing estimates and assumptionsare inherently subject to significant uncertainties and contingencies beyondthe reasonable control of the Company. See Note 1, "Voluntary ReorganizationUnder Chapter 11 - Fresh-Start Reporting" in the Notes to the ConsolidatedFinancial Statements for further details related to the fresh-startfair value adjustments.
*Frequent Flyer Accounting.* In accordance with fresh-startreporting, the Company revalued its frequent flyer award liability to estimatedfair value at the Effective Date. The Successor Company also has electedto change its accounting policy for its Mileage Plus Frequent Flyer Programto a deferred revenue model. The Company believes that accounting for frequentflyer miles using a deferred revenue model is preferable, as it establishesa consistent valuation methodology for both miles earned by frequent flyersand miles sold to non-airline business partners.
Prior to the Effective Date, the Predecessor Company had used the currentindustry practice of accounting for frequent flyer miles earned on Unitedflights on an incremental cost basis as an accrued liability and as advertisingexpense, while miles sold to non-airline business partners were accountedfor on a deferred revenue basis. As of the Effective Date, the deferredrevenue value of all frequent flyer miles will be measured using equivalentticket value as described below, and all associated adjustments will bemade to operating revenues.
The deferred revenue measurement method used to record fair value ofthe frequent flyer award liability on the Effective Date was to allocatean equivalent per mile weighted-average ticket value to each outstandingmile, based upon projected redemption patterns for available award choiceswhen such miles are consumed. Such value was estimated assuming redemptionson both United and other participating carriers in the Mileage Plus program,and by estimating the relative proportions of awards to be redeemed byclass of service within broad geographic segments of the Company's operations,including North America, Atlantic, Pacific and Latin America.
The fresh-start valuation adjustment at the Effective Date resultedin a $2.4 billion increase to the frequent flyer award liability.
Under the previous method of accounting for this program, the Companyestimates that for the 11-month period ending December 31, 2006 it wouldhave recognized approximately $22 million in advertising expense, and wouldhave reduced earned revenues by approximately $80 million, in order toaccount for the effects of the program on its financial statements forthat hypothetical period. Such estimated adjustments would have been requiredto recognize the effect of an assumed 2.8% growth in outstanding milesearned, among other assumptions such as projected miles to be earned andredeemed, the rate of breakage of miles, and the ongoing award redemptionpatterns of members.
Under the new method of accounting for this program, the Company estimatesthat for the 11-month period ending December 31, 2006 it will reduce earnedrevenue by approximately $129 million in order to account for the effectsof the program on its financial statements for that hypothetical period.This estimated adjustment would be required using the same assumed 2.8%annual growth rate in outstanding miles, among other key assumptions suchas projected miles to be earned and redeemed and ongoing award redemptionpatterns by Mileage Plus members. The projected hypothetical accountingimpact under this new policy would be to earned revenues only, since theCompany's new accounting policy does not continue the use of the formerincremental cost method, which was adjusted to advertising expense underthat prior policy.
The estimation of deferred revenue to value each award mile requiresthe use of several significant assumptions, for which significant managementjudgment is required. For example, management must estimate how many milesare projected to be redeemed on United, versus on other airline partners.Since the equivalent ticket value of miles redeemed on United and on othercarriers can vary, this assumption can significantly affect the calculationof the weighted average ticket value from period to period.
Management must also estimate the expected redemption patterns of MileagePlus customers, who have a number of different award choices when redeemingtheir miles, each of which can have materially different values. Such choicesinclude different classes of service (first, business and several coachaward levels), as well as different flight itineraries, such as domesticand international routings, and different itineraries within domestic andinternational regions of United's and other participating carriers' flightnetworks. Management uses historical customer redemption patterns as thebest single indicator of future redemption behavior in making its estimates,but changes in customer mileage redemption behavior to patterns which arenot consistent with historical behavior can result in material changesto deferred revenue balances, and to recognized revenue as well.
Management's estimate of the expected breakage of miles as of the fresh-startdate, and for recognition of breakage post-emergence, also requires significantmanagement judgment. United's policy for the cancellation of miles is todeactivate Mileage Plus customer accounts for which there has been no activityfor three consecutive years; however, deactivated accounts can be reactivatedupon customer request. Management considers historical patterns of accountbreakage to be a useful indicator when estimating future breakage. Underits new deferred revenue accounting policy, the Company recognizes revenuefrom breakage of miles by amortizing such estimated breakage over the 36-monthvalidity period. However, current and future changes to program rules andprogram redemption opportunities can significantly alter customer behaviorfrom historical patterns with respect to inactive accounts. Such changesmay result in material changes to the deferred revenue balance, as wellas recognized revenues from the program. A hypothetical 1% change in ourestimated breakage rate, currently estimated at 14% annually, has approximatelya $17 million effect on the liability.
At March 31, 2006, our outstanding number of miles was approximately481 billion. The Company currently estimates that approximately 414 billionof these miles will ultimately be redeemed and, accordingly, has recordeddeferred revenue of $3.4 billion. A hypothetical 1% change in our outstandingnumber of miles or the weighted average ticket value has approximatelya $33 million effect on the liability.
*Goodwill and Intangible Assets.*In accordance with SFAS142, the Company applies a fair value-based impairment test to the bookvalue of goodwill and indefinite-lived intangible assets on an annual basisand, if certain events or circumstances indicate that an impairment lossmay have been incurred, on an interim basis. Goodwill and indefinite-livedintangible assets are significant assets and an impairment charge couldhave a material adverse effect on the Statements of Consolidated FinancialPosition, as well as the Statements of Consolidated Operations.
Upon the implementation of fresh-start reporting (see Note 1, "VoluntaryReorganization Under Chapter 11 - Fresh-Start Reporting" in the Notesto Consolidated Financial Statements) the Company's assets, liabilitiesand equity were valued at their respective fair value. The excess of reorganizationvalue over the fair value of tangible and identifiable intangible assetshas been reflected as goodwill in the accompanying Statements of ConsolidatedFinancial Position on the Effective Date. As discussed in Note 7, "Segments"in the Notes to Consolidated Financial Statements, there are threereportable segments with assigned goodwill aggregating $2.8 billion atMarch 31, 2006. In addition, the adoption of fresh-start reporting resultedin the recognition of $2.1 billion of indefinite-lived intangible assets.
SFAS 142 requires that a two-step impairment test be performed on goodwill.In the first step, the Company compares the fair value of the reportablesegment to its carrying value. If the fair value of the reportable segmentexceeds the carrying value of the net assets of the reportable segment,goodwill is not impaired and the Company is not required to perform furthertesting. If the carrying value of the net assets of the reportable segmentexceeds the fair value of the reportable segment, then the Company mustperform the second step in order to determine the implied fair value ofthe goodwill and compare it to the carrying value of the goodwill. If thecarrying value of goodwill exceeds its implied fair value, then the Companymust record an impairment charge equal to such difference.
We expect to assess the fair value of our reportable segments consideringboth the market and income approaches. Under the market approach, the fairvalue of the reportable segment is based on a comparison of similar publiclytraded companies. Under the income approach, the fair value of the reportablesegment is based on the present value of estimated future cash flows. Theincome approach is dependent on a number of factors including estimatesof future capacity, passenger yield, traffic, operating costs, appropriatediscount rates and other relevant factors.
We will perform the impairment test for our indefinite-lived intangibleassets by comparing the asset's fair value to its carrying value. We expectto determine the estimated fair value based upon projected discounted futurecash flows. We will recognize an impairment charge if the asset's carryingvalue exceeds its estimated fair value.
We have not performed impairment testing on amounts of goodwill or indefinite-livedintangible assets subsequent to February 1, 2006, as there have been noevents or changes that would indicate that such assets are impaired. Wewill perform annual impairment testing on goodwill and indefinite-livedintangible assets in the fourth quarter of 2006. 
**Outlook**
United has issued the following capacity guidance for the second quarterand full-year 2006:                                                      Second Quarter                     Full YearCapacity (ASM's)Mainline                                            +2.5% to 3.0%                        +2.5% to 3.0%Regional Affiliates                              +8.0% to 9.0%                        +8.0% to 9.0%Consolidated                                     +3.0% to 3.5%                        +3.0% to 3.5%Capacity increases are driven by higher aircraft utilization as a resultof the Company's resource optimization efforts.
The Company expects mainline fuel price to average $2.15 per gallonfor the second quarter and $2.06 per gallon for the full year (includingtaxes). At March 31, 2006, the Company had no fuel hedges in place.
Excluding fuel, mainline CASM is expected to be up 3 to 4 percent inthe second quarter over the same period last year.
**Forward-Looking Information**
Certain statements throughout Management's Discussion and Analysisof Financial Condition and Results of Operations and elsewhere in thisreport are forward-looking and thus reflect our current expectations andbeliefs with respect to certain current and future events and financialperformance. Such forward-looking statements are and will be subject tomany risks and uncertainties relating to our operations and business environmentthat may cause actual results to differ materially from any future resultsexpressed or implied in such forward-looking statements. Words such as"expects," "will," "plans," "anticipates," "indicates," "believes," "forecast,""guidance," "outlook" and similar expressions are intended to identifyforward-looking statements.
Additionally, forward-looking statements include statements which donot relate solely to historical facts, such as statements which identifyuncertainties or trends, discuss the possible future effects of currentknown trends or uncertainties, or which indicate that the future effectsof known trends or uncertainties cannot be predicted, guaranteed or assured.All forward-looking statements in this report are based upon informationavailable to us on the date of this report. We undertake no obligationto publicly update or revise any forward-looking statement, whether asa result of new information, future events, changed circumstances or otherwise.
Our actual results could differ materially from these forward-lookingstatements due to numerous factors including, without limitation, the following:our ability to comply with the terms of our senior secured revolving creditfacility and term loan, as well as other financing arrangements; the costsand availability of financing; our ability to execute our business plan;our ability to utilize our net operating losses; our ability to attract,motivate and/or retain key employees; our ability to attract and retaincustomers; demand for transportation in the markets in which we operate;general economic conditions (including interest rates, foreign currencyexchange rates, crude oil prices, costs of aviation fuel and refining capacityin relevant markets); our ability to cost-effectively hedge against increasesin the price of aviation fuel; the effects of any hostilities, act of waror terrorist attack; the ability of other air carriers with whom we havealliances or partnerships to provide the services contemplated by the respectivearrangements with such carriers; the costs and availability of aircraftinsurance; the costs associated with security measures and practices; laborcosts; competitive pressures on pricing (particularly from lower-cost competitors)and on demand; capacity decisions of our competitors; U.S. or foreign governmentallegislation, regulation and other actions; our ability to maintain satisfactorylabor relations;any disruptionsto operations due to any potential actions by our labor groups; weatherconditions; and other risks and uncertainties set forth under the caption"Risk Factors" in Item 1A. of United's Annual Report on Form 10-K for theyear 2005, as well as other risks and uncertainties set forth from timeto time in the reports we file with United States Securities and ExchangeCommission. Consequently, the forward-looking statements should not beregarded as representations or warranties by the Company that such matterswill be realized.  
**Item 3.Quantitative and Qualitative Disclosures AboutMarket Risk**
For information regarding our exposure to certain market risks, seeItem7A. Quantitative and Qualitative Disclosures About Market Risk in United'sAnnual Report on Form 10-K for the year 2005.
Interest Rate Risk - In the first quarter of 2006, the Company enteredinto an interest rate swap whereby it fixed the rate of interest on itscredit facility. The Company will use interest rate swap agreements toeffectively limit exposure to interest rate movements within the parametersof our interest rate hedging policy. The swap will amortize according toa pre-established schedule starting in November 2007 through its expectedmaturity date of February 2012.(In millions, except averagecontract rates)NotionalAverageEstimated AmountContract RateFair Value   (Pay)/Receive*Interest rate swap$   2,4505.14%$ 8
*Estimated fair values represent the amount the Companywould pay/receive on March 31, 2006 to terminate the contracts.
Price Risk (Aircraft Fuel) - When market conditions indicate risk reductionis achievable, the Company enters into fuel option contracts to reduceits price risk exposure to jet fuel. The option contracts are designedto provide protection against increases in the price of aircraft fuel.As market conditions change, so may the Company's hedging program.
**Item 4.  Controls and Procedures**
An evaluation was carried out under the supervision and with the participationof the Company's management, including the Chief Executive Officer ("CEO")and Chief Financial Officer ("CFO"), of the effectiveness of the Company'sdisclosure controls and procedures as of March 31, 2006.  Based onthat evaluation, the Company's management, including the CEO and CFO, hasconcluded that the Company's disclosure controls and procedures are effective.There has been no change to the Company's internal control over financialreporting that occurred during the quarter ended March 31, 2006 that hasmaterially affected or is reasonably likely to materially affect the Company'sinternal control over financial reporting, other than controls establishedto properly implement fresh-start reporting (including material changesin Mileage Plus frequent flyer accounting, and the recognition of intangibleassets and goodwill) upon emergence from bankruptcy on February 1, 2006,and for the adoption of stock-based compensation accounting under FAS123Ron January 1, 2006.  
**PART II.  OTHER INFORMATION**
**Item 1.  Legal Proceedings.**
**In re: UAL Corporation, et. al.**
As discussed above, on the Petition Date the Debtors filed voluntarypetitions to reorganize their businesses under Chapter 11 of the BankruptcyCode. On October 20, 2005, the Debtors filed the Debtor's First AmendedJoint Plan of Reorganization Pursuant to Chapter 11 of the United StatesBankruptcy Code and the Disclosure Statement. The Bankruptcy Court approvedthe Disclosure Statement on October 21, 2005.
Commencing on October 27, 2005, the Disclosure Statement, ballots forvoting to accept or reject the proposed plan of reorganization and othersolicitation documents were distributed to all classes of creditors eligibleto vote on the proposed plan of reorganization. After a hearing on confirmation,on January 20, 2006, the Bankruptcy Court confirmed the Plan of Reorganization.The Plan of Reorganization became effective and the Debtors emerged frombankruptcy protection on the Effective Date.
Numerous pre-petition claims still await resolution in the BankruptcyCourt due to the Company's objections to either the existence of liabilityor the amount of the claim. The process of determining whether liabilityexists and liquidating the amounts due is likely to continue for the remainderof 2006. Additionally, certain significant matters remain to be resolvedin the Bankruptcy Court. For details see Note 1, "Voluntary ReorganizationUnder Chapter 11 - Bankruptcy Considerations" in the Notes to ConsolidatedFinancial Statements.
**Air Cargo**
On February 14, 2006, the European Commission and the U.S. Departmentof Justice commenced an international investigation into what governmentofficials describe as a possible price fixing conspiracy relating to certainsurcharges included in tariffs for carrying air cargo. United appears tobe considered as a source of information for the investigation at thistime, not as a target. In addition to the federal grand jury investigation,United and other air cargo carriers have been named as defendants in overtwenty punitive class actions in various jurisdictions of the United Statesalleging civil damages as a result of the purported conspiracy. Penaltiesfor violating competition laws can be severe, involving both criminal andcivil liability. The Company is cooperating with the investigation whilecarrying out its own internal review of cargo pricing practices, and isnot in a position to evaluate the potential financial impact of this litigationat this time. However, a finding that the Company violated either U.S.antitrust laws or the competition laws of some other jurisdiction couldhave a material adverse impact on the Company.
**Other Legal Proceedings**
In addition to the legal proceedings described above, UAL and Unitedare parties to legal proceedings described in their respective Form 10-Kfor the period ended December 31, 2005.
UAL and United are involved in various other claims and legal actionsarising in the ordinary course of business. Additionally, from time totime, we become aware of potential non-compliance with environmental regulations,which have either been identified by the Company (through our internalenvironmental compliance auditing program) or through notice from a governmentalentity. In some instances, these matters could potentially become the subjectof an administrative or judicial proceeding and could potentially involvemonetary sanctions. We believe, after considering a number of factors,including (but not limited to) the views of legal counsel, the nature ofcontingencies to which we are subject and prior experience, that the ultimatedisposition of these contingencies will not materially affect our consolidatedfinancial position or results of operations.
**Item 6.  Exhibits.**
A list of exhibits included as part of this Form 10-Q is set forth inan Exhibit Index that immediately precedes the exhibits.  
**SIGNATURE**
Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this quarterly report on Form 10-Q for thequarter ended March 31, 2006 to be signed on its behalf by the undersignedthereunto duly authorized on the 15th day of May 2006.     UNITED AIR LINES, INC. By:  /s/ Frederic F. BraceFrederic F. BraceExecutive Vice President andChief Financial Officer (principal financial and accounting officer)**EXHIBIT INDEX***3.1Restated Certificate of Incorporation of UnitedAir Lines, Inc. (filed as Exhibit 3.1 to United's Form 8-K filed February1, 2006 and incorporated herein by reference)  *3.2Amended and Restated Bylaws of United Air Lines,Inc. (filed as Exhibit 3.2 to United's Form 8-K filed February 1, 2006and incorporated herein by reference)  *4.1Revolving Credit, Term Loan and Guaranty Agreement,dated February 1, 2006 , by and among United Air Lines, Inc., UAL Corporationand certain subsidiaries of United Air Lines, Inc. and UAL Corporationas named therein, the Lenders named therein, JP Morgan Chase Bank, et al.(filed as Exhibit 4.1 to UAL's Form 8-K filed February 1, 2006 and incorporatedherein by reference)   *4.2Indenture dated as of February 1, 2006 amongUAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and theBank of New York Trust Company, N.A. as Trustee, providing for issuanceat 6% Senior Notes due 2031 and 8% Contingent Senior Notes (filed as Exhibit4.2 to UAL's Form 8-K filed February 1, 2006 and incorporated herein byreference)  *4.3Indenture dated as of February 1, 2006 amongUAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and theBank of New York Trust Company, N.A. as Trustee, providing for issuanceat 5% Senior Convertible notes due 2021 (filed as Exhibit 4.3 to UAL'sForm 8-K filed February 1, 2006 and incorporated herein by reference)  *4.4First Supplement to Indenture dated February16, 2006 among UAL Corporation, United Air Lines, Inc. as Guarantor andthe Bank of New York Trust Company, N.A. as Trustee (filed as Exhibit 99.1to UAL's Form 8-K filed February 21, 2006 and incorporated herein by reference)  12.1Computation of Ratio of Earnings to Fixed Charges  31.1Certification of the Principal Executive OfficerPursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-OxleyAct of 2002)  31.2Certification of the Principal Financial OfficerPursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-OxleyAct of 2002)  32.1Certification of the Chief Executive OfficerPursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)  32.2Certification of the Chief Financial OfficerPursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)  
With respect to the documents incorporated by reference to this Form10-Q, United's Commission File Number is 001-11355 and UAL's CommissionFile Number is 001-06033.
* As Previously Filed

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