****UNITEDSTATES 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        SECURITIESEXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE      SECURITIES EXCHANGE ACTOF 1934
For the transition period from __________ to __________
Commission file number 33-21220*
**UNITED AIR LINES, INC.**(Exact name of registrant as specified in its charter)
**Delaware****36-2675206**(Stateor other jurisdiction of(I.R.S.Employerincorporationor organization)IdentificationNo.)  **Location:1200 East Algonquin Road, Elk Grove Township, Illinois               60007****MailingAddress:  P. O. Box 66100, Chicago, Illinois                                       60666**(Addressof principal executive offices)                                                              (Zip Code)  **Registrant'stelephone number, including area code  (847) 700-4000**
   Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes   X       No
   Indicate the number of shares outstanding of each of the issuer's classesof common stock, as of the latest practicable date.  OutstandingatClassJuly31, 2003CommonStock ($5 par value)205
*  Registrantis the wholly owned subsidiary of UAL Corporation (File 1-6033). Registrant became subject to filing periodic reports under the SecuritiesExchange Act of 1934 as a result of a public offering of securities whichbecame effective June 3, 1988 (Registration Nos. 33-21220 and 22-18246).  
United Air Lines, Inc.and Subsidiary Companies Report on Form 10-QFor the Quarter EndedJune 30, 2003
Index PARTI.FINANCIALINFORMATIONPage No.  Item1. Financial Statements  CondensedStatements of Consolidated Financial Position (Unaudited) - as of June30, 2003 and December 31, 20023  Statementsof Consolidated Operations (Unaudited) - for the three months and six monthsended June 30, 2003 and 20025  CondensedStatements of ConsolidatedCash Flows (Unaudited) -for the six months ended June 30, 2003and 20027  Notesto Consolidated FinancialStatements (Unaudited)8 Item2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations14  Item3. Quantitative and Qualitative Disclosures AboutMarket Risk22    Item4. Controls and Procedures23PARTII.OTHERINFORMATION  Item6. Exhibits and Reports on Form 8-K24 Signatures25 ExhibitIndex26     
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    June 30December 31Assets20032002   Current assets:  Cash and cash equivalents$ 968 $ 718 Restricted cash671 450 Short-term investments217 311 Receivables, net908 704 Related party receivables13 - Income tax receivables47 373 Inventories, net273 310 Prepaid expenses and other242217 3,3393,083   Operating property and equipment:  Owned19,337 19,540 Accumulated depreciation and amortization(5,568)(5,282) 13,76814,258   Capital leases2,529 2,573 Accumulated amortization(517)(494) 2,0122,079 15,78116,337   Other assets:  Long-term restricted cash- 116 Investments21 80 Intercompany receivables and loans6 - Intangibles, net383 384 Pension assets962 1,162 Aircraft lease deposits805 776 Prepaid rent128 338 Other, net882853 3,1873,709    $22,307$23,129   
See accompanying Notes to Consolidated Financial Statements.   
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    June 30December 31Liabilities and Stockholder's Equity20032002   Current liabilities:  Current portions of long-term debt and  capital lease obligations$ 240 $ - Advance ticket sales1,447 1,021 Accrued salaries, wages and benefits1,269 1,490 Accounts payable466 280 Related party accounts payable33 - Other906883 4,3613,674   Long-term debt524700   Other liabilities and deferred credits:  Deferred pension liability5,797 4,661 Postretirement benefit liability1,944 1,809 Deferred income taxes241 225 Other499539 8,4817,234   Liabilities subject to compromise14,39713,975    Commitments and contingent liabilities (Seenote)     Preferred stock committed to Supplemental ESOP-2   Stockholder's equity:  Common stock at par- - Additional capital invested1,589 1,592 ESOP capital3,987 3,986 Retained deficit(5,796)(3,756)Accumulated other comprehensive income(3,621)(2,661)Receivables from affiliates(1,615)(1,615)Other-(2) (5,456)(2,456)    $22,307$ 23,129   
See accompanying Notes to Consolidated Financial Statements.   
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Statements of Consolidated Operations (Unaudited)(In Millions)
 Three Months Ended June 30 20032002Operating revenues:  Passenger$ 2,625 $ 3,190 Cargo154 167 Other 256349 3,0353,706Operating expenses:  Salaries and related costs1,226 1,776 Curtailment charges152 - Aircraft fuel452 467 Purchased services309 353 Aircraft rent138 214 Landing fees and other rent236 254 Depreciation and amortization272 247 Cost of sales242 292 Aircraft maintenance115 151 Commissions72 105 Other 297383 3,5114,242   Loss from operations(476)(536)   Other income (expense):  Interest expense(130)(149)Interest capitalized1 7 Interest income56 31 Equity in earnings of affiliates(3)1 Reorganization items, net(398)- Government assistance300 80 Miscellaneous, net(4)(2) (178)(32)  Loss before income taxes(654)(568)Credit for income taxes-(205)   Net loss$ (654)$ (363)
See accompanying Notes to Consolidated Financial Statements.   
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Statements of Consolidated Operations (Unaudited)(In Millions)
 Six Months Ended June 30 20032002Operating revenues:  Passenger$ 5,173 $ 5,948 Cargo318 309 Other 651645 6,1426,902Operating expenses:  Salaries and related costs2,750 3,348 Curtailment charges152 - Aircraft fuel1,023 865 Purchased services644 703 Aircraft rent339 426 Landing fees and other rent475 502 Depreciation and amortization504 482 Cost of sales604 562 Aircraft maintenance232 296 Commissions146 239 Other 617722 7,4868,145   Loss from operations(1,344)(1,243)   Other income (expense):  Interest expense(265)(296)Interest capitalized2 17 Interest income71 65 Equity in earnings of affiliates(3)1 Gain on sale of investment- 46 Non-operating special charges(137)- Reorganization items, net(647)- Government assistance300 80 Miscellaneous, net(16)(16) (695)(103)   Loss before income taxes(2,039)(1,346)Credit for income taxes-(486)Net loss$(2,039)$ (860)
See accompanying Notes to Consolidated Financial Statements.   
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Cash Flows (Unaudited)(In Millions)
 Six Months Ended June 30 20032002Cash and cash equivalents at beginning   of period, excluding restrictedcash$ 718$ 1,504   Cash flows from operating activities533(67)   Cash flows from reorganizationactivities:  Reorganization items, net(647)- Transfer of Company lease certificates215 - Increase in liabilities280- Loss on disposition of property68 - Other(1)- (85)-Cash flows from investing activities:  Additions to property and equipment(55)(61)Proceeds on disposition of propertyand  equipment67 44 Proceeds on sale of investments15 137 Increase in restricted cash(105)(263)Increase in related party receivables(6)(3)Decrease in short-term investments95 327 Increase in deferred financingcosts(58)(31)Other, net(5)38 (52)188Cash flows from financing activities:  Proceeds from DIP Financing123 - Proceeds from issuance of long-termdebt- 911 Repayment of DIP Financing(59)- Repayment of long-term debt(153)(980)Principal payments under capital  lease obligations(72)(139)Dividend to parent company- (3)Decrease in short-term borrowings- (133)Aircraft lease deposits28 9 Decrease in related party debt(15)(257)Decrease in debt certificatesunder Company leases- 529 Other, net2(1) (146)(64)Increase in cash and cash equivalents25057   Cash and cash equivalents at endof period,  excluding restricted cash$ 968$ 1,561   Cash paid during the period for:  Interest (net of amounts capitalized)$ 103 $ 257    Non-cash transactions:  Long-term debt incurred in connection  with additions to equipment andother assets$ - $ 639 Net unrealized gain (loss) oninvestments$ 3 $ (16)Increase in pension intangible$ 200 $ 608 
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.("United" or the "Company") is a wholly owned subsidiary of UAL Corporation("UAL").
Interim Financial Statements
         The consolidated financialstatements included herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission. Certain informationand footnote disclosures normally included in financial statements preparedin accordance with generally accepted accounting principles have been condensedor omitted pursuant to or as permitted by such rules and regulations, althoughUnited believes that the disclosures are adequate to make the informationpresented not misleading. In management's opinion, all adjustments (whichinclude only normal recurring adjustments, reorganization items and otherspecial charges described below) necessary for a fair presentation of theresults of operations for the three- and six-month periods have been made.These financial statements should be read in conjunction with the consolidatedfinancial statements and footnotes thereto included in United's AnnualReport on Form 10-K for the year 2002.
Voluntary Reorganization Under Chapter 11
     *Bankruptcy Proceedings.*On December 9, 2002 (the "PetitionDate"), UAL, United and 26 direct and indirect wholly owned subsidiaries(collectively, the "Debtors") filed voluntary petitions for relief underChapter 11 of the United States Bankruptcy Code in the United States BankruptcyCourt for the Northern District of Illinois, Eastern Division (the "BankruptcyCourt"). The reorganization cases are being jointly administered underthe caption "In re: UAL Corporation, et al., Case No. 02-48191" (the "Chapter11 Cases"). Included in the Consolidated Financial Statements aresubsidiaries that are not party to the Chapter 11 Cases and are not Debtors.The assets and liabilities of such non-filing subsidiaries are not consideredmaterial to the Consolidated Financial Statements.
       The Debtors continue to operate their businesses as "debtors-in-possession"under the jurisdiction of the Bankruptcy Court and in accordance with theapplicable provisions of the Bankruptcy Code, the Federal Rules of BankruptcyProcedure and applicable court orders. All vendors are being paid for allgoods furnished and services provided after the Petition Date. However,under Section 362 of the Bankruptcy Code, the filing of the bankruptcypetition automatically stays most actions against a debtor, including mostactions to collect pre-petition indebtedness or to exercise control overthe property of the debtor's estate. Therefore, absent an order of theBankruptcy Court, substantially all pre-petition liabilities are subjectto settlement under a plan of reorganization to be approved by the BankruptcyCourt.
        An exception to the foregoingexists with respect to certain qualifying aircraft, aircraft engines andother aircraft-related equipment that are leased or subject to a securityinterest or conditional sale contract, which are governed by a particularprovision of the Bankruptcy Code that specifies different treatment. UnderSection 1110 of the Bankruptcy Code ("Section 1110"), the automatic staylasts for only 60 days with respect to eligible property except under twoconditions: (a) the debtor may extend the 60-day period by agreement ofthe relevant financier, with court approval; or (b) the debtor may agreeto perform all of the obligations under the applicable financing and cureany defaults thereunder as required by the Bankruptcy Code. In the absenceof either such arrangement, the financier may demand the return of theaircraft or take possession of the property and enforce any of its contractualrights or remedies to sell, lease or otherwise retain or dispose of suchequipment.
        The 60-day period under Section1110 in the Company's Chapter 11 Case expired on February 7, 2003. TheCompany has reached agreements with a significant number of aircraft financiersto extend the automatic stay. United also has made elections with respectto other aircraft to cure all existing defaults and to pay the contractrates. With respect to certain aircraft, however, United has taken no action.The applicable lessors or lenders therefore are entitled under Section1110 to make a demand before the Bankruptcy Court for the return of suchaircraft. Although the Company believes that current market conditionsfor commercial aircraft make repossession unlikely, there can be no assurancethat United's lenders and lessors will not repossess any of the applicableaircraft. Repossession of a significant number of aircraft could resultin substantial disruptions to United's operations and could have a materialadverse effect on the Company's business.
        During the second quarterof 2003, in order to adjust the size and composition of its fleet to reflectreduced operational requirements, United began rejecting certain aircraftleases and abandoning certain aircraft as part of the Section 1110 process,which included the return of such aircraft to the financiers. The Companyanticipates rejecting and abandoning additional aircraft as it continuesthrough the reorganization process.
       In order to successfully exit Chapter 11, the Debtors will need to propose,and obtain confirmation by the Bankruptcy Court of, a plan of reorganizationthat satisfies the requirements of the Bankruptcy Code. A plan of reorganizationwould resolve, among other things, the Debtors' pre-petition obligations,set forth the revised capital structure of the newly reorganized entityand provide for its corporate governance subsequent to exit from bankruptcy.On March 21, 2003, the Bankruptcy Court approved the extension to October2003 of UAL's "exclusive period" during which it is the only party permittedto file a plan of reorganization. The timing of filing a plan of reorganizationby UAL will depend on the timing and outcome of numerous ongoing mattersin the Chapter 11 Cases. UAL expects to file a plan of reorganization thatprovides for its emergence from bankruptcy, but there can be no assuranceat this time that a plan of reorganization will be confirmed by the BankruptcyCourt or that any such plan will be implemented successfully.
       As required by the Bankruptcy Code, the United States Trustee for the NorthernDistrict of Illinois has appointed an official committee of unsecured creditors(the "Creditors' Committee"). The Creditors' Committee and its legal representativeshave a right to be heard on all matters that come before the BankruptcyCourt with respect to the Debtors. There can be no assurance that the Creditors'Committee will support the Debtors' positions or the Debtors' plan of reorganizationand disagreements between the Debtors and the Creditors' Committee couldprotract the Chapter 11 Cases, could negatively impact the Debtors' abilityto operate during the Chapter 11 Cases and could delay the Debtors' emergencefrom Chapter 11.
***     **DIP Financing.*In connection with the filing of theChapter 11 Cases, the Company arranged a debtor-in-possession secured financing(the "DIP Financing").The DIPFinancing consists of two facilities, a $300 million facility providedby Bank One N.A. ("Bank One Facility") and a $1.2 billion facility providedby J.P. Morgan Chase Bank, Citicorp USA, Inc., Bank One, N.A. and The CITGroup/Business Credit, Inc. ("Club Facility"). The Company has receivedcommitments of $1.0 billion under the Club Facility following the completionof the syndication process for that facility; the balance is conditionedupon the participation of one or more additional lenders approved by theexisting participants. As of June 30, 2003, the Company had borrowed $300million under the Bank One Facility and $464 million under the Club Facility.
*     Financial Statement Presentation.*Theaccompanying consolidated financial statements have been prepared in accordancewith American Institute of Certified Public Accountants' Statement of Position90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Underthe Bankruptcy Code," and on a going-concern basis, which contemplatescontinuity of operations, realization of assets and satisfaction of liabilitiesin the ordinary course of business.
       SOP 90-7 requires that the financial statements for periods subsequentto the filing of a Chapter 11 petition distinguish transactions and eventsthat are directly associated with the reorganization from the operationsof the business. Accordingly, revenues, expenses (including professionalfees), realized gains and losses, and provisions for losses directly associatedwith the reorganization and restructuring of the business are reportedseparately in the financial statements. The Statements of ConsolidatedFinancial Position distinguish pre-petition liabilities subject tocompromise both from those pre-petition liabilities that are not subjectto compromise and from post-petition liabilities. Liabilities subject tocompromise are reported at the amounts expected to be allowed, even ifthey may be settled for lesser amounts.
       In addition, as a result of the Chapter 11 filing, the realization of assetsand satisfaction of liabilities, without substantial adjustments and/orchanges in ownership, are subject to uncertainty. While operating as debtors-in-possessionunder the protection of Chapter 11 of the Bankruptcy Code and subject toapproval of the Bankruptcy Court and the terms of the applicable DIP Financingcovenants or otherwise as permitted in the ordinary course of business,the Debtors may sell or dispose of assets (including aircraft) and liquidateor settle liabilities for some amounts other than those reflected in theconsolidated financial statements. Further, a plan of reorganization couldmaterially change the amounts and classifications in the historical consolidatedfinancial statements.
       Pursuant to the Bankruptcy Code, the Debtors have filed schedules withthe Bankruptcy Court setting forth the assets and liabilities of the Debtorsas of the Petition Date. The deadline for filing proofs of claim with theBankruptcy Court was May 12, 2003, with a limited exception for governmentalentities, which had until June 9, 2003 to file proofs of claim and Canadiancreditors, which had until June 23, 2003 to file proofs of claim. The aggregateamount of claims filed with the Bankruptcy Court far exceeds the Debtors'estimate of ultimate liability. The Debtors believe that many of theseclaims are duplicative, based upon contingencies that have not occurred,or otherwise are overstated, and are therefore invalid. Differences betweenamounts recorded by the Debtors and claims filed by creditors are beinginvestigated and resolved in connection with the Debtors' claims resolutionprocess. That process has commenced and, in light of the number of claimsasserted, will take significant time to complete. Accordingly, the ultimatenumber and allowed amounts of such claims are not presently determinable.
New Accounting Pronouncements
        In January 2003, the FinancialAccounting Standards Board ("FASB") issued Interpretation 46, "Consolidationof Variable Interest Entities" ("FIN 46"). FIN 46 requires the primarybeneficiary of a variable interest entity ("VIE") to include the assets,liabilities and results of the activities of the VIE in its consolidatedfinancial statements, as well as disclosure of information about the assetsand liabilities, and the nature, purpose and activities of consolidatedVIEs. In addition, FIN 46 requires disclosure of information about thenature, purpose and activities on unconsolidated VIEs in which the Companyholds a significant variable interest. FIN 46 is effective immediatelyfor any interests in VIEs acquired after January 31, 2003 and effectivebeginning in the third quarter of 2003 for all VIEs acquired before February1, 2003. The Company is still evaluating the impact of FIN 46 on its financialstatements.
        In May 2003, the FASB issuedStatement of Financial Accounting Standards ("SFAS") No. 150, "Accountingfor Certain Financial Instruments with Characteristics of both Liabilitiesand Equity" ("SFAS No. 150"). SFAS No. 150 establishes standards for classifyingand measuring as liabilities certain financial instruments that embodyobligations of the issuer and have characteristics of both liabilitiesand equity. SFAS No. 150 is effective for all financial instruments createdor modified after May 31, 2003 and otherwise is effective at the beginningof the first interim period beginning after June 15, 2003. The Companydoes not expect SFAS No. 150 to have a material impact on the Company'sfinancial statements upon adoption.
Termination of ESOP
        In July 2003, the Companyannounced that it was terminating its Employee Stock Ownership Plan ("ESOP"),following the publication of a regulation by the Internal Revenue Servicethat would permit the distribution of the remaining ESOP shares to planparticipants without jeopardizing United's ability to utilize its net operatingloss tax benefits.
Stock Option Accounting
        The Company accounts forstock-based employee compensation plans under Accounting Principles BoardOpinion No. 25, "Accounting for Stock Issued to Employees." No stock-basedemployee compensation cost pertaining to stock options is reflected inthe Company's Statements of Consolidated Operations, as all optionsgranted under those plans had an exercise price equal to the market valueof the underlying common stock on the date of grant.
        If compensation cost forstock-based employee compensation plans had been determined using the fairvalue recognition provisions of SFAS No. 123, "Accounting for Stock-BasedCompensation," the Company's net loss and loss per share would have insteadbeen reported as the pro forma amounts indicated below: (In millions)Three MonthsSix Months  Ended June 30Ended June 30 2003200220032002Net loss, as reported$ (654)$ (363)$(2,039)$ (860)Less: Total compensation expensedetermined under    fair value method (net of taxin 2002)(5)(4)(10)(9) $ (659)$ (367)$(2,049)$ (869)     
Income Taxes
       For 2003, the Company has a zero percent effective tax rate. Beginningin the third quarter of 2002, the Company established a valuation allowanceagainst its net deferred tax asset. As of June 30, 2003, the Company hadrecorded a valuation allowance of $1.9 billion.
       The Company has determined that it is more likely than not that the grossdeferred tax assets, net of valuation allowances at June 30, 2003, willbe realized through the reversals of existing deferred tax credits.
Restricted Cash
        At June 30, 2003, the Companyhad $671 million in restricted cash. Thecash largely represents security for worker compensation obligations, securitydeposits for airport leases and reserves with institutions that processthe Company's sales.
Liabilities Subject toCompromise
        Liabilities subject to compromise refers to liabilities incurred priorto the Petition Date. These amounts represent the Company's estimate ofknown or potential pre-petition claims to be resolved in connection withthe Chapter 11 Cases. Such claims remain subject to future adjustments.Adjustments may result from negotiations, actions of the Bankruptcy Court,rejection of executory contracts and unexpired leases, the determinationas to the value of any collateral securing claims, proofs of claim or otherevents. It is anticipated that such adjustments, if any, would be material.Payment terms for these amounts will be established in connection withthe Chapter 11 Cases.
        At June 30, 2003, the Company had liabilities subject to compromise ofapproximately $14.4 billion which consisted of the following:    (Inmillions)  Long-termdebt, including accrued interest$8,170  Aircraft-relatedaccruals and deferred gains2,768  Capitallease obligations, including accrued interest2,171  Accountspayable329 Intercompanypayables and loans277  Other 682  $14,397
United Express
         United has marketingagreements under which independent regional carriers, flying under theUnited Express name, feed passengers to United owned and operated flights.United pays these carriers on a fee-per-departure basis and includes therevenues derived from the carriers in passenger revenue, net of expenses.Amountsincluded in passenger revenues for the three and six month periods areas follows:   Netrevenues (net expenses)(inmillions)ThreeMonthsSix Months EndedJune 30EndedJune 30 2003200220032002UnitedExpress revenues (net of expenses)$(42)$(44)$(137)$(121)
         While the effect onUnited's results, taking into account only the United Express flights,is negative, the Company realizes a significant benefit (not included inthe results shown above) from the traffic provided to United's operationsas a result of these agreements.
Segment Information
         United has a globalroute network designed to transport passengers and cargo between destinationsin North America, the Pacific, the Atlantic and Latin America. These regionsconstitute United's four reportable segments.
         A reconciliation ofthe total amounts reported by reportable segments to the applicable amountsin the financial statements follows: (In Millions)Three Months Ended June 30, 2003     Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$2,114 $ 377 $ 446 $  98 $3,035 Earnings (loss) before incometaxes,     curtailment charge, government      assistance and reorganizationitems$ (237)$(121)$ (20)$ (25)$ (404)  (In Millions)Three Months Ended June 30, 2002     Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 2,419 $  647 $ 518 $ 122 $ 3,706 Earnings (loss) before income      taxes, government assistance     and gains on sales$ (426)$(124)$ (57)$ (41)$ (648) (In Millions)Six Months Ended June 30, 2003     Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$  4,119 $ 954 $  857 $ 212 $ 6,142 Earnings (loss) before incometaxes,     government assistance, gains on     sales, curtailment charge and     reorganization items$ (924)$(271) $(137) $ (71)$(1,403)  (In Millions)Six Months Ended June 30, 2002     Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 4,550 $ 1,195 $  901 $  256$ 6,902 Earnings (loss) before incometaxes,     government assistance and     gains on sales$ (937) $ (270) $(174) $ (91) $ (1,472)   Three Months EndedSix Months Ended June 30June 30(In Millions)2003200220032002Total loss for reportable segments$ (404)$ (648)$ (1,403)$ (1,472)Curtailment charge(152)- (152)- Non-operating special charges- - (137)- Reorganization items, net(398)- (647)- Government assistance300 80 300 80 Gain on sale---46     Total loss before income taxes$ (654)$ (568)$(2,039)$ (1,346)
Other Comprehensive Income
         Total comprehensiveincome (loss) for the three- and six-month periods ending June 30, 2003was $(1.6) billion and $(3.0) billion, respectively, compared to $(438)million and $(934) million for the three- and six-month periods endingJune 30, 2002, respectively. Other comprehensive income for the three monthsended June 30, 2003, consisted of a minimum pension liability adjustmentof $(964) million, compared to a minimum pension liability adjustment of$(57) million and net unrealized losses of $(18) million for the threemonths ended June 30, 2002. In addition to the minimum pension liabilityadjustments, the six months ended June 30, 2003 included net unrealizedgains of $3 million and the six months ended June 30, 2002 included netunrealized losses of $(17) million.
Reorganization Items
        In connection with the Company'sbankruptcy filing, United recognized $398 million and $647 million of reorganizationexpenses in the second quarter and first six months of 2003, respectively.These amounts consisted of the following:  (Inmillions)ThreeMonthsSix Months  EndedJune 30, 2003 Aircraftrejection costs$279 $279  Transferof lease certificates- 215  Professionalfees41 75  Severanceand employee retention44 48  Interestincome(4)(7) Other 3837  $398$647    
        Aircraft rejection costsinclude the Company's estimate of claims incurred as a result of the rejectionof certain aircraft in the second quarter as part of the bankruptcy process.
        In the first quarter of 2003,United renegotiated certain off-balance sheet leases as part of the Section1110 process. Under the terms of the revised leases, United surrenderedits investment in the junior portion of the original lease debt to theoriginal equity participant. Accordingly, the Company's investment in thecorresponding lease certificates was reduced to zero and the Company recognizeda $215 million non-cash charge in reorganization items.
Special Charges
         *Curtailment Charge.*As a result of the ratification of new labor contracts for its major employeegroups and additional furloughs resulting from productivity improvementsenabled by the revised contracts, United revalued its pension and postretirementplans for certain employee groups at various times during the second quarter.The pilot plan was revalued on April 1, 2003; the union ground and flightattendant pension and postretirement plans, as well as the management,administrative and public contact postretirement plan were revalued onMay 1, 2003; and the management, administrative and public contact non-qualifiedpension plan was revalued on June 1, 2003. The significant actuarial assumptionsused for the revaluation of the plans were unchanged from December 31,2002, except for the discount rate and weighted average salary scale. Thediscount rate was decreased from 6.75% at December 31, 2002 to 6.50% forthe April 1 revaluation, 6.25% for the May 1 revaluation and 6.00% forthe June 1 revaluation. The weighted average salary scale was decreasedfrom 4.3% to 3.3%. The revaluation of the plans resulted in special terminationand curtailment charges of $152 million in the second quarter of 2003.In addition, as a direct result of the revaluation of the pension plans,stockholders' equity and pension intangible assets were reduced by approximately$964 million and $200 million, respectively. The accumulated pension benefitobligation increased from $11.0 billion as of December 31, 2002 to $11.9billion mainly due to the lower discount rate and normal increase in vestedemployees from passage of time. The projected pension benefit obligationdecreased from $12.7 billion as of December 31, 2002 to $12.6 billion aschanges to the Company's collective bargaining agreements and plan amendmentsoffset the impact of the lower discount rates. The accumulated postretirementbenefit obligation decreased from $4.0 billion as of December 31, 2002to $3.1 billion as the plan amendments significantly offset the impactof the lower discount rate. These changes to the pension and postretirementplans also resulted in a reduction of approximately $100 million in expensein the second quarter of 2003 or approximately $550 million on an annualizedbasis.
        *Air Canada.*On April 1, 2003, Air Canada filed for protection under the Companies'Creditors Arrangement Act ("CCAA") of the Canada Business Corporation Act.During the first quarter of 2003, the Company recorded a non-operatingspecial charge of $137 million in connection with Air Canada's CCAA filing.The charge included $46 million for the impairment of the Company's investmentin Air Canada preferred stock and $91 million to record a liability forthe Company's guarantee of Air Canada debt. The Company considers thisliability to be a pre-petition obligation and accordingly, has classifiedit in liabilities subject to compromise.
        In addition, United is theequity holder on three Airbus A330 aircraft that are leased to Air Canadavia a leveraged lease transaction. The Company's net investment in theleveraged lease transaction is approximately $88 million. Although AirCanada has not indicated an intent to reject these leases, should theychoose to reject or renegotiate these leases under the provisions of theCCAA, United would most likely incur a write-off of most or all of thetransaction's value.
Reconciliation of Accruals
        In connection with specialcharges recorded in 2001, 2002 and 2003, the Company had the followingactivity relating to accruals remaining as of June 30, 2003:   Reductionin forceEarlytermination fees Balanceat December 31, 2002$ 67$ 162 Accruals39-  Payments(58)-  Balanceat June 30, 2003$ 48$ 162
Government Assistance
        On April 16, 2003, the EmergencyWartime Supplemental Appropriations Act ("Wartime Act") was signed intolaw. The legislation includes approximately $3 billion of financial aidfor U.S. air carriers, including United, as follows: $2.4 billion to compensateair carriers for expenses and forgone revenues related to aviation security,including $100 million for reinforcing cockpit doors; suspension of thepassenger and air carrier security fees from June 1, 2003 through September30, 2003; and a one-year extension of government-provided war-risk insuranceto August 2004.
        In addition, the WartimeAct requires that the total compensation of the two most highly compensatedexecutives of certain airlines (including the Company) be limited, duringthe period between April 1, 2003 and April 1, 2004, to the annual salarypaid to those officers with respect to the air carrier's fiscal year 2002.Consequently, the Company executed a contract with the government agreeingto comply with the executive compensation limits described above. Any violationof this provision will require the Company to repay the government theamount of its compensation for airline security fees described above. TheCompany does not anticipate any difficulties in complying with this provisionand believes the likelihood of repaying the government is remote. In May 2003, the Company received approximately $300 million in compensationunder the Wartime Act.
        As part of the Air TransportationSafety and System Stabilization Act of 2001 (the "Act") enacted in responseto the events of September 11, 2001, the federal government made $5.0 billionin federal grants available to the airline industry. In the first six monthsof 2002, the Company received $80 million in grants under the Act thatwas included in non-operating income.
Related Party Transactions
        United recognized the followingamounts related to transactions with UAL Loyalty Services, Inc. ("ULS")in 2003 and 2002: (inmillions)ThreeMonthsSix Months EndedJune 30EndedJune 30 2003200220032002Revenues$100 $73 $193 $160 Commissionexpense and purchased services(9)(8)(20)(32)InterestIncome11 16 21 32 
        As a result of the bankruptcyfiling, all intercompany accounts receivable were reclassified to United'sequity and all intercompany accounts payable were reclassified to liabilitiessubject to compromise as of the Petition Date.
Contingencies and Commitments
         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 United issubject and its prior experience, that the ultimate disposition of thesecontingencies is not expected to materially affect United's consolidatedfinancial position or results of operations.
         At June 30, 2003, commitmentsfor the purchase of property and equipment, principally aircraft, approximated$1.6 billion, after deducting advance payments. An estimated $0.1 billionwill be spent during the remainder of 2003, $0.3 billion in 2004 and $0.4billion in each of 2005, 2006 and 2007. The major commitments are for thepurchase of A319, A320 and B777 aircraft. The Company continues to evaluatethe contracts for these aircraft in light of its financial condition andoperational requirements.  
Item 2.  Management's Discussion and Analysis of FinancialCondition and Results of Operations
Chapter 11 Reorganization
        *Bankruptcy Proceedings.*OnDecember 9, 2002, the Debtors filed voluntary petitions for relief underChapter 11 of the United States Bankruptcy Code. For further details regardingthe Chapter 11 Cases, see "Voluntary Reorganization Under Chapter 11"in the Notes to Consolidated Financial Statements.
       The Debtors continue to operate their businesses as "debtors-in-possession"under the jurisdiction of the Bankruptcy Court and in accordance with theapplicable provisions of the Bankruptcy Code, the Federal Rules of BankruptcyProcedure and applicable court orders. All vendors are being paid for allgoods furnished and services provided after the Petition Date. However,under Section 362 of the Bankruptcy Code, the filing of the bankruptcypetition automatically stays most actions against a debtor, including mostactions to collect pre-petition indebtedness or to exercise control overthe property of the debtor's estate. Therefore, absent an order of theBankruptcy Court, substantially all pre-petition liabilities are subjectto settlement under a plan of reorganization to be approved by the BankruptcyCourt. An exception to the foregoing exists with respect to certain qualifyingaircraft, aircraft engines and other aircraft-related equipment that areleased or subject to a security interest or conditional sale contract whichare governed by Section 1110 of the Bankruptcy Code that specifies differenttreatment. For further information on Section 1110 and its impacton the Company, see "Voluntary Reorganization Under Chapter 11"in the Notes to Consolidated Financial Statements.
       In order to successfully exit Chapter 11, the Debtors will need to propose,and obtain confirmation by the Bankruptcy Court of, a plan of reorganizationthat satisfies the requirements of the Bankruptcy Code. A plan of reorganizationwould resolve, among other things, the Debtors' pre-petition obligations,set forth the revised capital structure of the newly reorganized entityand provide for its corporate governance subsequent to exit from bankruptcy.The timing of filing a plan of reorganization by the Company will dependon the timing and outcome of numerous other ongoing matters in the Chapter11 Cases. Although the Company expects to file a plan of reorganizationthat provides for its emergence from bankruptcy, there can be no assuranceat this time that a plan of reorganization will be confirmed by the BankruptcyCourt, or that any such plan will be implemented successfully.
        At this time, it is not possibleto predict accurately the effect of the Chapter 11 reorganization processon the Company's business or when it may emerge from Chapter 11. The Company's future results depend on the timely and successful confirmationand implementation of a plan of reorganization. The rights and claims ofvarious creditors and security holders will be determined by the plan aswell.  No assurance can be given as to what values, if any, will beascribed in the bankruptcy proceedings to each of these constituencies.The Company believes that its equity securities have little or no valueand it is highly likely that the equity in UAL will be canceled under anyplan of reorganization proposed by the Company. Accordingly, the Companyurges that appropriate caution be exercised with respect to existing andfuture investments in any of such securities and claims.
Results of Operations
*        Summary of Results*.The air travel business is subject to seasonal fluctuations. United's operationsare often adversely impacted by winter weather and United's first- andfourth-quarter results normally reflect reduced travel demand. Historically,operating results are better in the second and third quarters.
       For the past two years, the Companyhas seen fluctuations in unit revenue relative to the rest of the industry.Immediately following the September 11 terrorist attacks, the Company experienceda significant decline in unit revenue relative to the rest of the industry.In early 2002, year-over-year unit revenues began improving each monthfrom a 14% decline in January to a 4% decline in May, improving its positionrelative to the industry. However, unit revenue growth stalled in the thirdand fourth quarters as demand continued to be weak and yields declined.As is typical with a company in bankruptcy, United experienced under-performancein revenues following the filing of the Chapter 11 Cases in December of2002. This under-performance accelerated in the first quarter of 2003.Overall weak economic conditions, the outbreak of war in Iraq and aggressivefare competition with low-cost competitors resulted in the Company's 9%drop in passenger unit revenue in the first quarter of 2003 as comparedto the same period of 2002.
        Moving into the second quarterof 2003, the Company's revenues were negatively impacted by the outbreakof Severe Acute Respiratory Syndrome ("SARS"), as well as the continuedweak economic conditions, the war in Iraq, lingering customer concernsregarding the Company's financial stability and continued aggressive farecompetition with low-cost competitors. Thus, the Company reduced its Aprilschedule by 8% and its May schedule by another 4% as compared to what waspreviously planned, with changes concentrated in the Pacific and Atlanticregions. In addition, to improve its value proposition to its core businesscustomers, the Company increased its advertising and began promotions suchas "Fly Three, Fly Free" whereby passengers may earn a free ticket by purchasingthree tickets. As a result of these and other pricing and inventory actions,in May and June these negative trends began to reverse, as passenger unitrevenues went from a 17% year-over-year decline in April to a modest year-over-yearimprovement in June. Overall, the Company experienced a 4% decrease inpassenger unit revenue in the second quarter of 2003 as compared to thesame period of 2002. By comparison, unit revenue for the industry was flatquarter over quarter.
        United's loss from operationswas $(476) million in the second quarter of 2003, compared to $(536) millionin the second quarter of 2002. United's net loss in the second quarterof 2003 was $(654) million, compared to $(363) million in the same periodof 2002.  The prior year loss benefited from an income tax creditof $205 million. However, beginning in the third quarter of 2002, the Companyestablished a valuation allowance against its net deferred tax asset. Asa result, for 2003, United has a zero percent effective tax rate, whilecomparative amounts for 2002 are shown net of tax.
        The second quarter 2003 resultsinclude $398 million in reorganization items recorded in connection withthe Company's bankruptcy proceedings and $152 million for curtailment charges.See "Special Charges" in the Notes to Consolidated Financial Statements.
        Additionally, the Companyreceived $300 million in government assistance from the 2003 EmergencyWartime Supplemental Appropriations Act in the second quarter of 2003 and$80 million from the Air Transportation Safety and System StabilizationAct of 2001 in the second quarter of 2002.
        In the first six months of2003, United's loss from operations was $(1.3) billion, compared to $(1.2)billion in the same period of 2002. United's net loss in the first sixmonths of 2003 was $(2.0) billion, compared to $(860) million in the sameperiod of 2002.
        In addition to the itemsdescribed above for the second quarter, the 2003 loss includes $137 millionin non-operating special charges related to the Company's investment inAir Canada and an additional $249 million in reorganization items. See"Special Charges" in the Notes to Consolidated Financial Statements.In addition, the 2002 loss includes a gain of $46 million on the sale ofthe Company's remaining investment in Cendant Corporation.
        Specific factors affectingUnited's consolidated operations for the second quarter and first six monthsof 2003 are described below.
        *Second Quarter 2003Compared with Second Quarter 2002.*  Operating revenues decreased$671 million (18%) and United's revenue per available seat mile (unit revenue)decreased 4% to 9.45 cents. Passenger revenues decreased $565 million (18%)primarily due to a 7% decrease in yield to 10.53 cents. United's availableseat miles across the system decreased 14% from the second quarter of 2002;however, passenger load factor increased 2.6 points to 77.0%. The followinganalysis by market is based on information reported to the U.S. Departmentof Transportation:  Increase (Decrease) Available SeatRevenue Passenger MilesRevenue Per Revenue Miles (Capacity)(Traffic)Passenger Mile (Yield)Domestic(9%)(1%)(11%)Pacific(29%)(42%)(8%)Atlantic(17%)(14%)(10%)Latin America(19%)(6%)(17%)System(14%)(11%)(7%)
        Cargo revenues decreased$13 million (8%) due to a 20% decrease in cargo ton miles, despite a 15%increase in yield. Other operating revenues decreased $93 million (27%)as the result of a $50 million decrease in fuel sales to third partiesas well as a decrease in third-party maintenance sales.
        Operating expenses decreased$731 million (17%) and United's cost per available seat mile (unit cost)decreased 3%, from 11.32 cents to 10.93 cents. Salaries and related costsdecreased $550 million (31%) primarily as a result of new labor agreementsfor all employee groups, as well as decreases in employee headcount asa result of furloughs. During the second quarter of 2003, United recognizeda one-time benefit of $102 million in salaries and related costs for thereversal of a contractual payment to certain employees and changes in vacationaccruals as a result of new lower pay rates for all union groups that werepart of contract renegotiations. Aircraft fuel decreased $15 million (3%)as a 17% decline in consumption was offset by a 17% increase in the averagecost of fuel from 74.7 cents to 87.0 cents a gallon. Purchased servicesdecreased $44 million (12%) primarily as a result of volume-driven decreasesin GDS (global distribution systems) and credit card discount fees. Aircraftrent decreased $76 million (36%) due to the restructuring of aircraft financingsas part of the Section 1110 process in bankruptcy. Depreciation and amortizationincreased $25 million (10%) due to a $41 million loss on the sale of aB747 aircraft, which was offset by decreases to amortization expense forslots which were fully amortized in June 2002 and decreases to provisioningfor obsolescence on expendables. Cost of sales decreased $50 million (17%)primarily due to lower fuel sales to third parties. Aircraft maintenancedecreased $36 million (24%) due to decreases in engine and aircraft repairvolumes as a result of reduced flying and the rejection of aircraft leasesunder Section 1110 of the Bankruptcy Code. Commissions decreased $33 million(31%) primarily as a result of a decrease in commissionable revenues. Otherexpenses decreased $86 million (22%) due to decreases in advertising andcrew layover expenses, as well as volume-driven food and beverage costs.
        Other non-operating expenseamounted to $80 million in the second quarter of 2003, compared to $112million in the second quarter of 2002, excluding reorganization items andgovernment assistance. Interest expense decreased $19 million (13%) asthe Company has discontinued recording interest expense on all unsecuredpre-petition debt. Included in interest income was $41 million in interestincome on IRS tax refunds received in the second quarter of 2003. Excludingthe interest income on the refunds, interest income decreased $16 million(52%) due to lower investment balances and decreased interest rates.
        *Six Months 2003 Comparedwith Six Months 2002.*  Operating revenues decreased $760 million(11%) and United's revenue per available seat mile (unit revenue) decreased5% to 9.20 cents. Passenger revenues decreased $775 million (13%) due toa 6% decrease in revenue passenger miles and an 8% decrease in yield to10.35 cents. United's available seat miles across the system decreased7% over the first six months of 2002; however, passenger load factor increased0.9 points to 74.3%. The following analysis by market is based on informationreported to the U.S. Department of Transportation:  Increase (Decrease) Available SeatRevenue Passenger MilesRevenue Per Revenue Miles (Capacity)(Traffic)Passenger Mile (Yield)Domestic(4%)2%(12%)Pacific(13%)(24%)(4%)Atlantic(10%)(10%)(3%)Latin America(16%)(8%)(15%)System(7%)(6%)(8%)
        Cargo revenues increased$9 million (3%) due to a 9% decrease in cargo ton miles and a 14% increasein yield. Other operating revenues increased $6 million (1%) as a decreasein third-party maintenance sales was offset by a $41 million increase infuel sales to third parties.
        Operating expenses decreased$659 million (8%) and United's cost per available seat mile (unit cost)decreased 1%, from 11.36 cents to 11.21 cents. Salaries and related costsdecreased $598 million (18%) primarily as a result of new labor agreementsfor all employee groups, as well as decreases in employee headcount asa result of furloughs. The 2003 amount also includes a one-time benefitof $102 million for the reversal of a contractual payment to certain employeesand changes in vacation accruals as a result of new lower pay rates forall union groups that were part of contract renegotiations. Aircraft fuelincreased $158 million (18%) as a 10% decrease in consumption more thanoffset by a 31% increase in the average cost of fuel from 72.8 cents to95.3 cents a gallon. Aircraft rent decreased $87 million (20%) due to therestructuring of aircraft financings as part of the Section 1110 processin bankruptcy. Depreciation and amortization increased $22 million (5%)due to a $41 million loss on the sale of a B747 aircraft, which was offsetby decreases to amortization expense for slots which were fully amortizedin June 2002 and decreases to provisioning for obsolescence on expendables.Cost of sales increased $42 million (7%) primarily due to higher fuel salesto third parties. Aircraft maintenance decreased $64 million (22%) dueto decreases in engine and aircraft repair volumes as a result of reducedflying. Commissions decreased $93 million (39%) primarily as a result ofUnited discontinuing the payment of base commissions on all tickets issuedin the U.S. and Canada effective March 20, 2002, as well as a decreasein commissionable revenues. Other expenses decreased $105 million (15%)due to decreases in advertising and crew layover expenses, as well as volume-drivenfood and beverage costs.
        Other non-operating expenseamounted to $211 million in the first six months of 2003, compared to $229million in the first six months of 2002, excluding reorganization items,non-operatingspecial charges, government assistance and the gain on sale of the Company'sinvestment in Cendant. Interest expense decreased $31 million (10%) asthe Company has discontinued recording interest expense on all unsecuredpre-petition debt. Interest capitalized decreased $15 million (88%) asa result of lower advance payments on the acquisition of aircraft. Includedin interest income was $41 million in interest income on IRS tax refundsreceived in the second quarter of 2003. Excluding the interest income onthe refunds, interest income decreased $35 million (54%) due to lower investmentbalances and decreased interest rates.
Liquidity and Capital Resources
        United's total of cash, cashequivalents and short-term investments, including restricted cash, was$1.9 billion at June 30, 2003, compared to $1.6 billion at December 31,2002.
        Property additions, includingaircraft and aircraft spare parts, amounted to $56 million. In the firstsix months of 2003, United acquired one B757 aircraft off lease, sold oneB747 aircraft and rejected one B757, three B747 and eight B737 aircraftunder Section 1110 in the bankruptcy process.
        Financing activities includedprincipal payments under debt and capital lease obligations of $153 millionand $72 million, respectively. These amounts represent payments made underSection 1110 elections for liabilities included in liabilities subjectto compromise. During the first quarter of 2003, the Company drew down$92 million in cash under the DIP Financing.
        During the second quarterof 2003, United sold one B747 aircraft for net proceeds of $54 million.The proceeds were used to pay down the DIP Financing, enabling the Companyto draw down another $31 million under the DIP Financing and issue $2 millionin letters of credit.
        In April 2003, the Companyreceived $365 million from the Internal Revenue Service ("IRS") as a resultof the resolution of certain income tax refund claims filed with the IRS.
        The Emergency Wartime SupplementalAppropriations Act of 2003 ("Wartime Act") was enacted in April 2003 andincluded approximately $3 billion of financial aid for U.S. air carriers,including United. (See "Government Assistance" in the Notes to ConsolidatedFinancial Statements.) In May 2003, the Company received $300 millionin compensation under the Wartime Act.
        As a result of the governmentassistance and tax refunds, United's cash flow from operations during thesecond quarter of 2003 was $756 million. Excluding these amounts, United'scash flow from operations was $91 million, an improvement of $314 millionover the first quarter of 2003.
       As of June 30, 2003, the Company had $671 million in restricted cash. Thecash largely represents security for worker compensation obligations, securitydeposits for airport leases and reserves with institutions that processthe Company's sales. Prior to 2002, United met many of these obligationsthrough surety bonds or a secured letter of credit facility; however, manyof the bonds have been cancelled and the letter of credit facility expiredin August of 2002. As a result, United has been and may, in the future,be required to post additional collateral in the form of cash depositsto support these types of obligations.
        United did not make any cashcontributions to its defined benefit pension plan trusts for U.S. basedemployees in 2001, 2002 or in the first half of 2003. In lieu of makingcash contributions, the Company utilized a portion of its credit balance(the cumulative difference between prior year minimum required contributionsand actual contributions) to meet the minimum required contribution. TheCompany has a remaining credit balance that is available to be used inthe second half of 2003; however, once the credit balance is fully utilized,substantial contributions may be required.
        As of June 30, 2003, United'sdefined benefit pension plans were in compliance with all U.S. governmentfunding requirements. The Company estimates, based on current market conditionsand benefit plans, that it could be required to contribute approximately$4.2 billion to its domestic defined benefit pension plan trusts by theend of 2008. The current contribution estimate is lower than previous contributionestimates primarily due to changes in the Company's collective bargainingagreements and expected future population mix. However, future fundingrequirements are dependent upon factors such as interest rate levels, fundedstatus, regulatory requirements for funding purposes and the level andtiming of asset returns as compared with the level and timing of expectedbenefit disbursements. Significant future changes to the Company populationmix or to its pension plans could also impact future funding requirements.As a result, actual future contributions may differ materially.
        At June 30, 2003, commitmentsfor the purchase of property and equipment, principally aircraft, approximated$1.6 billion, after deducting advance payments. Of this amount, an estimated$0.1 billion is expected to be spent during the remainder of 2003. Forfurther details, see "Contingencies and Commitments" in the Notes toConsolidated Financial Statements.
Labor Agreements
        In March and April 2003,United employees represented by various unions ratified tentative agreementsbetween the Company and their unions to modify their respective collectivebargaining agreements ("CBAs"). All of these agreements became effectiveon May 1, 2003 and are six years in duration. When combined with expectedaverage annual savings of approximately $300 million to salaried and managementcosts (achieved through wage and headcount reductions and benefit changes),these agreements are expected to reduce the Company's average annual costsby approximately $2.5 billion per year versus the previous contracts (basedon the size of the airline in the first quarter 2003). In addition to reductionsin pay, all of the contracts allow for improving productivity (throughchanges to work rules) and changes to employees' medical plans (includingincreases to co-payments). The Company has developed a robust oversightprocess to ensure these significant changes are achieved in a seamlessand timely manner.
        Other work-group specificchanges are described below:
       On April 11, 2003, the Air Line Pilots Association, International ("ALPA")ratified a previously announced tentative agreement on a restructured CBA.The CBA reduces pay and benefits and improves productivity (through work-rulechanges) by an average of approximately $1.1 billion per year versus theprevious contract. As part of these changes, retirement benefits for pilotshave been reduced through a decrease in the Company's contribution to thepilot defined contribution plan and a reduction in the benefit formulafor their defined benefit plan. The agreement also provides forsignificantly enhanced flexibility with respect to regional jets and codeshare arrangements. Additionally, the agreement provides for ALPA to retaina seat on the Company's Board of Directors.
        On April 29, 2003, the flightattendants ratified a tentative agreement between the Company and the Associationof Flight Attendants, AFL-CIO ("AFA") on a restructured CBA, which is expectedto reduce United's average annual costs by approximately $300 million versusthe parties' previous CBA. As part of these changes, retirement benefitsfor flight attendants are reduced through changes in the AFA pension plan.
         On April 29, 2003,employees represented by the International Association of Machinists andAerospace Workers ("IAM") District Lodge 141 ratified an agreement betweenthe Company and the IAM on four restructured CBAs as well as on a restructuredCBA for employees of United's subsidiary Mileage Plus, Inc. The agreementsreduce average annual costs by approximately $450 million versus the parties'previous CBAs. On April 29, 2003, employees represented by IAM DistrictLodge 141M ratified agreements between the Company and the IAM on threerestructured CBAs. The agreements will reduce average annual costs by approximately$350 million versus the previous CBAs. These agreements also provide theCompany increased flexibility with respect to outsourcing and for the IAMto retain a seat on the Company's Board of Directors. In July 2003, theNational Mediation Board announced that United's mechanics and relatedemployees previously represented by the IAM voted to change their unionrepresentation to the Aircraft Mechanics Fraternal Association. This changein representation will not affect the terms or duration of the CBA agreementratified in April.
        On April 11, 2003, the Company'sdispatchers represented by the Professional Airline Flight Control Association("PAFCA") ratified a tentative agreement between PAFCA and the Companyon a restructured CBA, which is expected to reduce average annual costsby approximately $4 million versus the previous CBA. The restructured CBAalso transfers dispatchers to the management, administrative and publiccontact pension plan. On March 23, 2003, the Company's meteorologists representedby the Transport Workers Union ("TWU") ratified a tentative agreement betweenTWU and the Company on a restructured CBA which is expected to reduce averageannual costs by approximately $1 million versus the previous CBA.
        In addition, all of the agreementsprovide for various common features. These include a Company-wide successand profit-sharing program that provides the opportunity for annual payoutstied to the Company's level of profitability and performance. All the agreementsalso provide the Company with an opportunity to introduce a low-cost productoffering. As a consequence, the Company is developing plans to roll outa low-cost product offering with an estimated initial fleet size of 40aircraft (all redeployed around the Company's current fleet) focused aroundkey leisure markets.
         The Company also hasagreed to include in its plan of reorganization provisions that each relevantemployee group will receive a distribution of the equity, securities orother consideration provided to the general unsecured creditors. In addition,the Company has agreed, in all of the contracts, that any plan of reorganizationit proposes or supports will provide the relevant employee group with adistribution of the above-described equity, securities or other consideration(as compared to the total distribution provided to all employee groups)that matches the proportion of each employee groups' contribution to totalemployee cost reductions.
Facilities
       At June 30, 2003, approximately $1.7 billion in special facilities revenuebonds ("municipal bonds") originally issued on behalf of United to buildor improve airport-related facilities were outstanding. The Company leasesfacilities at airports pursuant to lease agreements where municipal bondsfunded at least some of its airport-related projects. Pursuant to the financingagreements entered into by United in connection with such issuance of municipalbonds, the Company is required to make payments in amounts sufficient topay the interest semi-annually with principal payable upon maturity.
        United is not permitted under the Bankruptcy Code to make payments on unsecuredpre-petition debt without providing notice to its creditors and receivingthe approval of the Bankruptcy Court. As United has been advised that itsmunicipal bonds are unsecured (or in certain instances, partially secured)pre-petition debt, United cannot make payments thereon without first meetingthe requirements outlined above.****Accordingly, the Company has classifiedall of its on-balance sheet municipal bonds as liabilities subject to compromise.
        Section 365 of the Bankruptcy Code requires that the Company timely performall of its post-petition obligations under unexpired leases of non-residentialreal property. Except as noted below with respect to the master lease forthe Indianapolis Maintenance Center, the Company believes that it is incompliance with all payment obligations under its lease agreements relatingto those airports where it has municipal bonds outstanding. However, theCompany has not made and does not intend to make debt service paymentsor any other payment on any of the municipal bond issuances issued on behalfof the Company and relating to domestic airport financings. As a result,under certain of the airport lease agreements, the Company may be consideredin default due to the non-payment of the debt and therefore subject tothe default provisions of the lease agreements with the airports. Possibleconsequences could include loss of the Company's status as a signatoryairline (resulting in increased rents and landing fees) and loss of theCompany's exclusive space agreements.
        Effective as of May 9, 2003,United rejected the master lease agreement with respect to the IndianapolisMaintenance Center ("IMC"), which lease includes United's obligation topay on the Indianapolis municipal bonds. United thus did not pay the semi-annualinterest payment due with respect to such bonds on May 15, 2003 and Uniteddoes not intend to make any further payments on such bonds.
       The Company has taken a number of steps to mitigate the risks associatedwith its non-payment on the municipal bonds. On February 28, 2003, Unitedfiled a Complaint of Debtor-Plaintiff for Declaratory Judgment with respectto all seven municipal bond issues relating to the facilities at the ChicagoO'Hare International Airport ("O'Hare"), seeking, among other things, adeclaration that a certain cross-default provision in the O'Hare airportlease is unenforceable. On June 20, 2003, the Bankruptcy Court dismissedthe above complaint without prejudice.
       On March 21, 2003, the Company filed four separate and additional Complaintsof Debtor-Plaintiff for Declaratory Judgment and, in connection therewith,corresponding Motions for Temporary Restraining Order with respect to themunicipal bonds issuances relating to the facilities at the Denver InternationalAirport, the New York City - John F. Kennedy International Airport, theSan Francisco International Airport, and the Los Angeles InternationalAirport, each seeking a clarification of the Company's obligations underthe applicable municipal bonds, and the protection of its rights underits underlying airport lease agreements at the applicable airport untilthe Bankruptcy Court decides the merits of each of the above complaints.On March 31, 2003, the Bankruptcy Court entered an order that requireseach of the defendants in these actions to give the Company a 15-day noticeand cure period before taking any action to terminate any rights of Unitedwith respect to leases at those airports until such time as the BankruptcyCourt enters final orders on United's declaratory judgment actions. Theabove-stated declaratory judgment actions are currently in discovery andtrial is scheduled for September 29, 2003. The Company is unableto predict what, if any, action might be taken in the future by eitherthe bondholders or the airport authorities as a result of its failure topay these obligations as contractually required. However, the Company believesthat the March 31, 2003 orders substantially mitigate the risk associatedwith any deemed default by providing the Company an opportunity to makeany required payments and thus preserve its rights under its leases.
United Express Contracts
        During June and July 2003,United reached a Memorandum of Understanding ("MOU") with several of itsUnited Express carriers, including SkyWest, Air Wisconsin, Mesa and TransStates, to operate select portions of the Company's United Express service.The MOUs are conditioned upon negotiation of final agreements and may requireapproval of the Bankruptcy Court. Failure to negotiate final agreementswith these carriers could result in disruptions to United's operationsand could have an adverse effect on the Company's business.
        Atlantic Coast Airlines,Inc. ("ACA"), United's largest United Express carrier, announced on July28, 2003, that it anticipates that its relationship with United will end,and that ACA will establish a new, independent low-fare airline based atWashington Dulles International Airport. ACA's plan to operate an independentlow-fare airline is based on its expectation that United will reject itsagreement with ACA. ACA acknowledged, however, that United has the optionunder bankruptcy rules to assume the existing agreement with ACA by agreeingto honor all terms in full. United has not determined whether to acceptor reject the ACA agreement. While it is possible that an agreement withACA can still be reached, United has a contingency plan in place to continueproviding the best service and on-time performance to United Express customerson its routes currently served by ACA. Failure to reach an agreement withACA in a timely manner could result in disruptions to United's operationsand could have an adverse effect on the Company's business.
        Certain statements throughoutManagement'sDiscussion and Analysis of Financial Condition and Results of Operations,are forward-looking and thus reflect the Company's current expectationsand beliefs with respect to certain current and future events and financialperformance. Such forward-looking statements are and will be, as the casemay be, subject to many risks and uncertainties relating to the operationsand business environments of the Company that may cause actual resultsto differ materially from any future results expressed or implied in suchforward-looking statements. Factors that could significantly affect netearnings, revenues, expenses, unit costs, fuel, load factor and capacityinclude, without limitation, the following: the Company's ability to continueas a going concern; the Company's ability to operate pursuant to the termsof the DIP Financing; the Company's ability to obtain court approval withrespect to motions in the Chapter 11 proceeding prosecuted by it from timeto time; the Company's ability to develop, prosecute, confirm and consummateone or more plans of reorganization with respect to the Chapter 11 Cases;risks associated with third parties seeking and obtaining court approvalto terminate or shorten the exclusivity period for the Company to proposeand confirm one or more plans of reorganization, for the appointment ofa Chapter 11 trustee or to convert the cases to Chapter 7 cases; the Company'sability to achieve necessary reductions in labor costs; the Company's abilityto obtain and maintain normal terms with vendors and service providers;the Company's ability to maintain contracts that are critical to its operations;the potential adverse impact of the Chapter 11 Cases on the Company's liquidityor results of operations; the costs and availability of financing; theCompany's ability to execute its business plan; the Company's ability toattract, motivate and/or retain key employees; the Company's ability toattract and retain customers; demand for transportation in the marketsin which the Company operates; general economic conditions; the effectsof any hostilities or act of war (in the Middle East or elsewhere) or anyterrorist attack; the ability of other air carriers with whom the Companyhas alliances or partnerships to provide the services contemplated by therespective arrangements with such carriers; the costs and availabilityof aircraft insurance; the costs of aviation fuel; the costs associatedwith existing or future security measures and practices; competitive pressureson pricing (particularly from lower-cost competitors); government legislationand regulation; consumer perceptions of the Company's products; weatherconditions; and other risks and uncertainties set forth from time to timein United's reports to the United States Securities and Exchange Commission.Consequently, the forward-looking statements should not be regarded asrepresentations or warranties by the Company that such matters will berealized. The Company disclaims any intent or obligation to update or reviseany of the forward-looking statements, whether in response to new information,unforeseen events, changed circumstances or otherwise. 
Item 3.Quantitative and Qualitative Disclosures About MarketRisk
For information regarding the Company's exposure to certain market risks,see Item 7A. Quantitative and Qualitative Disclosures About Market Riskin United's Annual Report on Form 10-K for the year 2002.
Interest Rate Risk -(Inmillions, except average contract rates)NotionalAverageEstimated AmountContractRateFairValue   (Pay)/Receive*Interestrate swap$ 1307.56%$ (29)
*Estimated fair values represent the amount United wouldpay/receive on June 30, 2003 to terminate the contracts. 
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 June 30, 2003.  Based onthat evaluation, the Company's management, including the CEO and CFO, hasconcluded that the Company's disclosure controls and procedures are effective.During the second quarter of 2003, there was no change in the Company'sinternal control over financial reporting that has materially affected,or is reasonably likely to materially affect, the Company's internal controlover financial reporting.  
PART II.  OTHER INFORMATION
Item 6.  Exhibitsand Reports on Form 8-K.(a)    Exhibits
        A list of exhibits includedas part of this Form 10-Q is set forth in an Exhibit Index that immediatelyprecedes such exhibits.
(b)    There were no Form 8-Ks filed in the second quarterof 2003.    SIGNATURESPursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly causedthis quarterly report on Form 10-Q for the quarter ended June 30, 2003to be signed on its behalf by the undersigned thereunto duly authorizedon the 1st day of August, 2003.  UNITED AIR LINES,INC. By:  /s/Frederic F. BraceFrederic F. BraceExecutive VicePresident andChief FinancialOfficer(principal financialofficer)  By:  /s/ M. Lynn HughittM. Lynn HughittVice President and Controller(principal accounting officer)Dated:  August 1, 2003       Exhibit Index ExhibitNo.Description    12.1Computationof 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 OfficerPursuantto 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of2002)  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 OfficerPursuantto 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)     

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