**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 June 30, 2007****OR****o**
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the transition period from
                                  
                to**


****


**Commission**
              **File Number**
            **Exact Name of Registrant as Specified in**
              **its Charter, Principal Office Address and**
              **Telephone
                Number**
            **State
                of**
              **Incorporation**
            **I.R.S. Employer**
              **Identification No**001-06033
            **UAL
                Corporation**
            Delaware
            36-2675207001-11355
            **United
                Air Lines, Inc.**
              77
                W. Wacker Drive
              Chicago,
                Illinois 60601
              (312)
                997-8000
            Delaware
            36-2675206




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.




UAL
      Corporation                                                          Yes
x**No
      o


United
      Air Lines,
      Inc.                                                   Yes
x**No
      o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




UAL
      Corporation                                                Large
      accelerated filer x       
Accelerated filer
o        
      Non-accelerated filer o


United
      Air Lines,
      Inc.                                         Large
      accelerated filer  ̈         Accelerated
      filer o         Non-accelerated
      filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).






UAL
      Corporation                                                          Yes
 ̈**No
      x


United
      Air Lines,
      Inc.                                                   Yes
 ̈**No
      x




Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Section 12, 13 or 15(d) of the Securities
      Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed
      by a court.




UAL
      Corporation                                                          Yes
x**No
      o


United
      Air Lines,
      Inc.                                                   Yes
x**No
      o




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of July 27, 2007.




UAL
                Corporation
            115,739,989 shares
                of common stock ($0.01 par value)


United
                Air Lines, Inc.
            205
                (100% owned by UAL Corporation)


There
                is no market for United Air Lines, Inc. common
                stock.













**UAL
      Corporation and Subsidiary Companies and**


**United
      Air Lines, Inc. and Subsidiary Companies**


**Report
      on Form 10-Q**


***For
      the Quarter Ended June 30, 2007***





PART I.
                FINANCIAL INFORMATIONItem
                1.
            
            Financial
                StatementsUAL
                Corporation:Condensed
                Statements of Consolidated Operations (Unaudited)
            
            
            3Condensed
                Statements of Consolidated Financial Position (Unaudited)
            
            
            5Condensed
                Statements of Consolidated Cash Flows (Unaudited)
            
            
            7United
                Air Lines, Inc.:Condensed
                Statements of Consolidated Operations (Unaudited)
            
            
            8Condensed
                Statements of Consolidated Financial Position (Unaudited)
            
            
            10Condensed
                Statements of Consolidated Cash Flows (Unaudited)
            
            
            12Combined
                Notes to Condensed Consolidated Financial Statements (Unaudited)
                (UAL
                Corporation and United Air Lines, Inc.)
            
            
            13Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            
            29Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            
            45Item
                4.
            
            Controls
                and Procedures
            
            
            46PART II.
                OTHER INFORMATIONItem
                1.
            
            Legal
                Proceedings
            
            47Item1A.
            
            Risk
                Factors
            
            48Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            49Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            49Item
                6.
            
            Exhibits
            
            49Signatures
            
            50Exhibit Index
            
            51










2





**PART I.
      FINANCIAL INFORMATION**




**ITEM
                1. FINANCIAL STATEMENTS**




**UAL
                    Corporation and Subsidiary Companies*****Condensed
                    Statements of Consolidated Operations
                    (Unaudited)*****(In
                    millions, except per share amounts)****Three
                    Months Ended June 30,****2007**
                
                
                **2006**Operating
                    revenues:Passenger
                    - United Airlines
                
                $
                3,968
                
                
                $
                3,806Passenger
                    - Regional Affiliates
                
                
                804
                
                
                
                761Cargo
                
                
                181
                
                
                
                194Other
                    operating revenues
                
                
                260
                
                
                
                3525,213
                
                
                
                5,113Operating
                    expenses:Aircraft
                    fuel
                
                
                1,206
                
                
                
                1,250Salaries
                    and related costs
                
                
                1,019
                
                
                
                1,071Regional
                    affiliates
                
                
                733
                
                
                
                715Purchased
                    services
                
                
                335
                
                
                
                321Aircraft
                    maintenance materials and outside repairs
                
                
                284
                
                
                
                257Depreciation
                    and amortization
                
                
                229
                
                
                
                218Landing
                    fees and other rent
                
                
                215
                
                
                
                225Distribution
                    expenses (Note 1)
                
                
                197
                
                
                
                208Aircraft
                    rent
                
                
                105
                
                
                
                109Cost
                    of third party sales
                
                
                77
                
                
                
                190Other
                    operating expenses
                
                
                276
                
                
                
                2894,676
                
                
                
                4,853Earnings
                    from operations
                
                
                537
                
                
                
                260Other
                    income (expense):Interest
                    expense (Note 11)
                
                
                (139
                )
                
                
                (211
                )Interest
                    income
                
                
                62
                
                
                
                67Interest
                    capitalized
                
                
                4
                
                
                
                4Miscellaneous,
                    net
                
                
                1
                
                
                
                (4
                )(72
                )
                
                
                (144
                )Earnings
                    before income taxes and equity in earningsof
                    affiliates
                
                
                465
                
                
                
                116Income
                    tax expense
                
                
                192
                
                
                
                -Earnings
                    before equity in earnings of affiliates
                
                
                273
                
                
                
                116Equity
                    in earnings of affiliates, net of tax
                
                
                1
                
                
                
                3Net
                    income
                
                $
                274
                
                
                $
                119Earnings
                    per share, basic
                
                $
                2.31
                
                
                $
                1.01Earnings
                    per share, diluted
                
                $
                1.83
                
                
                $
                0.93





See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited).*







3








**UAL
                    Corporation and Subsidiary Companies*****Condensed
                    Statements of Consolidated Operations
                    (Unaudited)*****(In
                    millions, except per share amounts)****Successor**
                
                
                **Successor**
                
                
                **Predecessor****Six
                    Months**
                
                
                **Period
                    from**
                
                
                **Period
                    from****Ended**
                
                
                **February
                    1**
                
                
                **January
                    1****June
                    30,**
                
                
                **to
                    June 30,**
                
                
                **to
                    January 31,****2007**
                
                
                **2006**
                
                
                **2006**Operating
                    revenues:Passenger
                    - United Airlines
                
                $
                7,232
                
                
                $
                5,988
                
                
                $
                1,074Passenger
                    - Regional Affiliates
                
                
                1,479
                
                
                
                1,226
                
                
                
                204Cargo
                
                
                349
                
                
                
                318
                
                
                
                56Other
                    operating revenues
                
                
                526
                
                
                
                588
                
                
                
                1249,586
                
                
                
                8,120
                
                
                
                1,458Operating
                    expenses:Aircraft
                    fuel
                
                
                2,247
                
                
                
                1,955
                
                
                
                362Salaries
                    and related costs
                
                
                2,087
                
                
                
                1,797
                
                
                
                358Regional
                    affiliates
                
                
                1,425
                
                
                
                1,183
                
                
                
                228Purchased
                    services
                
                
                636
                
                
                
                527
                
                
                
                98Aircraft
                    maintenance materials and outside repairs
                
                
                565
                
                
                
                436
                
                
                
                80Landing
                    fees and other rent
                
                
                453
                
                
                
                370
                
                
                
                75Depreciation
                    and amortization
                
                
                449
                
                
                
                366
                
                
                
                68Distribution
                    expenses (Note 1)
                
                
                385
                
                
                
                349
                
                
                
                60Aircraft
                    rent
                
                
                205
                
                
                
                184
                
                
                
                30Cost
                    of third party sales
                
                
                170
                
                
                
                318
                
                
                
                65Special
                    operating items (Note 2)
                
                
                (22
                )
                
                
                -
                
                
                
                -Other
                    operating expenses
                
                
                541
                
                
                
                494
                
                
                
                869,141
                
                
                
                7,979
                
                
                
                1,510Earnings
                    (loss) from operations
                
                
                445
                
                
                
                141
                
                
                
                (52
                )Other
                    income (expense):Interest
                    expense (Note 11)
                
                
                (345
                )
                
                
                (352
                )
                
                
                (42
                )Interest
                    income
                
                
                120
                
                
                
                95
                
                
                
                6Interest
                    capitalized
                
                
                9
                
                
                
                7
                
                
                
                -Miscellaneous,
                    net
                
                
                (1
                )
                
                
                2
                
                
                
                -(217
                )
                
                
                (248
                )
                
                
                (36
                )Earnings
                    (loss) before reorganization items, incometaxes
                    and equity in earnings of affiliates
                
                
                228
                
                
                
                (107
                )
                
                
                (88
                )Reorganization
                    items, net
                
                
                -
                
                
                
                -
                
                
                
                22,934Earnings
                    (loss) before income taxes and equity inearnings
                    of affiliates
                
                
                228
                
                
                
                (107
                )
                
                
                22,846Income
                    tax expense
                
                
                108
                
                
                
                -
                
                
                
                -Earnings
                    (loss) before equity in earnings of affiliates
                
                
                120
                
                
                
                (107
                )
                
                
                22,846Equity
                    in earnings of affiliates, net of tax
                
                
                2
                
                
                
                3
                
                
                
                5Net
                    income (loss)
                
                $
                122
                
                
                $
                (104
                )
                
                $
                22,851Earnings
                    (loss) per share, basic
                
                $
                1.00
                
                
                $
                (0.94
                )
                
                $
                196.61Earnings
                    (loss) per share, diluted
                
                $
                0.88
                
                
                $
                (0.94
                )
                
                $
                196.61





See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited).*







4





**UAL
      Corporation and Subsidiary Companies**


***Condensed
      Statements of Consolidated Financial Position (Unaudited)***


**(In
      millions, except shares)**




**June
                    30,**
                
                
                **December 31,****2007**
                
                
                **2006***Assets*Current
                    assets:Cash
                    and cash equivalents
                
                $
                1,667
                
                
                $
                3,832Short-term
                    investments
                
                
                2,582
                
                
                
                312Restricted
                    cash
                
                
                439
                
                
                
                341Receivables,
                    less allowance for doubtful accounts (2007—$30; 2006—$27)
                
                
                1,138
                
                
                
                820Prepaid
                    fuel
                
                
                414
                
                
                
                283Aircraft
                    fuel, spare parts and supplies, lessobsolescence
                    allowance (2007—$11; 2006—$6)
                
                
                210
                
                
                
                218Deferred
                    income taxes
                
                
                66
                
                
                
                122Prepaid
                    expenses and other
                
                
                400
                
                
                
                3456,916
                
                
                
                6,273Operating
                    property and equipment:Owned—Flight
                    equipment
                
                
                9,009
                
                
                
                8,958Advances
                    on flight equipment
                
                
                103
                
                
                
                103Other
                    property and equipment
                
                
                1,488
                
                
                
                1,44110,600
                
                
                
                10,502Less—accumulated
                    depreciation and amortization
                
                
                (776
                )
                
                
                (503
                )9,824
                
                
                
                9,999Capital
                    leases:Flight
                    equipment
                
                
                1,511
                
                
                
                1,511Other
                    property and equipment
                
                
                34
                
                
                
                341,545
                
                
                
                1,545Less—accumulated
                    amortization
                
                
                (127
                )
                
                
                (81
                )1,418
                
                
                
                1,46411,242
                
                
                
                11,463Other
                    assets:Intangibles,
                    less accumulated amortization (2007—$247; 2006—$169)
                
                
                2,950
                
                
                
                3,028Goodwill
                
                
                2,697
                
                
                
                2,703Aircraft
                    lease deposits
                
                
                557
                
                
                
                539Restricted
                    cash
                
                
                432
                
                
                
                506Investments
                
                
                116
                
                
                
                113Other,
                    net
                
                
                755
                
                
                
                7447,507
                
                
                
                7,633$
                25,665
                
                
                $
                25,369







See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited).*







5





**UAL
      Corporation and Subsidiary Companies**


***Condensed
      Statements of Consolidated Financial Position
      (Unaudited)***


**(In
      millions, except shares)**




**June
                    30,**
                
                **December 31,****2007**
                
                **2006***Liabilities
                    and Stockholders’ Equity*Current
                    liabilities:Advance
                    ticket sales
                
                $
                2,657
                
                
                $
                1,669Mileage
                    Plus deferred revenue
                
                
                1,269
                
                
                
                1,111Accounts
                    payable
                
                
                861
                
                
                
                667Accrued
                    salaries, wages and benefits
                
                
                818
                
                
                
                795Advanced
                    purchase of miles
                
                
                703
                
                
                
                681Long-term
                    debt maturing within one year (Note 11)
                
                
                601
                
                
                
                1,687Fuel
                    purchase commitments
                
                
                414
                
                
                
                283Accrued
                    interest
                
                
                259
                
                
                
                241Current
                    obligations under capital leases
                
                
                101
                
                
                
                110Other
                
                
                578
                
                
                
                7018,261
                
                
                
                7,945Long-term
                    debt (Note 11)
                
                
                7,210
                
                
                
                7,453Long-term
                    obligations under capital leases
                
                
                1,330
                
                
                
                1,350Other
                    liabilities and deferred credits:Mileage
                    Plus deferred revenue
                
                
                2,586
                
                
                
                2,569Postretirement
                    benefit liability
                
                
                1,959
                
                
                
                1,955Deferred
                    income taxes
                
                
                756
                
                
                
                688Deferred
                    pension liability
                
                
                133
                
                
                
                130Other
                
                
                753
                
                
                
                7706,187
                
                
                
                6,112Mandatorily
                    convertible preferred securities
                
                
                366
                
                
                
                361Commitments
                    and contingent liabilities (Note 13)Stockholders’
                    equity:Preferred
                    stock
                
                
                —
                
                
                
                —Common
                    stock at par, $0.01 par value; authorized 1,000,000,000 shares;
                    outstanding 115,595,952 and 112,280,629 shares at June 30, 2007 and
                    December 31, 2006, respectively
                
                
                1
                
                
                
                1Additional
                    capital invested
                
                
                2,106
                
                
                
                2,053Retained
                    earnings
                
                
                132
                
                
                
                16Stock
                    held in treasury, at cost (Note 4)
                
                
                (15
                )
                
                
                (4
                )Accumulated
                    other comprehensive income
                
                
                87
                
                
                
                822,311
                
                
                
                2,148$
                25,665
                
                
                $
                25,369







See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited).*







6





**UAL
      Corporation and Subsidiary Companies**


***Condensed
      Statements of Consolidated Cash Flows (Unaudited)***


**(In
      millions)**




**Successor**
                  
                  
                  **Predecessor****Six Months**
                    **Ended**
                    **June
                      30,**
                  
                  **Period from**
                    **February 1 to**
                    **June
                      30,**
                  
                  
                  **Period from**
                    **January 1 to**
                    **January 31,****2007**
                  
                  **2006**
                  
                  
                  **2006**Cash
                      flows provided (used) by operating activities:Net
                      income (loss) before reorganization items
                  
                  $
                  122
                  
                  
                  $
                  (104
                  )
                  
                  
                  $
                  (83
                  )Adjustments
                      to reconcile to net cash provided (used) by operating
                      activities—Increase
                      in advance ticket sales
                  
                  
                  988
                  
                  
                  
                  697
                  
                  
                  
                  
                  109Increase
                      in receivables
                  
                  
                  (316
                  )
                  
                  
                  (128
                  )
                  
                  
                  
                  (88
                  )Depreciation
                      and amortization
                  
                  
                  449
                  
                  
                  
                  366
                  
                  
                  
                  
                  68Mileage
                      Plus deferred revenue and advanced purchase of miles
                  
                  
                  197
                  
                  
                  
                  119
                  
                  
                  
                  
                  14Other,
                      net
                  
                  
                  220
                  
                  
                  
                  27
                  
                  
                  
                  
                  1411,660
                  
                  
                  
                  977
                  
                  
                  
                  
                  161Cash
                      flows provided (used) by reorganization activities:Reorganization
                      items, net
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  22,934Increase
                      in other liabilities
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  37Increase
                      in non-aircraft claims accrual
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  429Discharge
                      of claims and liabilities
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  (24,628
                  )Revaluation
                      of Mileage Plus frequent flyer deferred revenue
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  2,399Revaluation
                      of other assets and liabilities
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  (2,106
                  )Pension
                      curtailment, settlement and employee claims
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  912—
                  
                  
                  
                  —
                  
                  
                  
                  
                  (23
                  )Cash
                      flows provided (used) by investing activities:(Increase)
                      decrease in short-term investments
                  
                  
                  (2,270
                  )
                  
                  
                  16
                  
                  
                  
                  
                  2Additions
                      to property and equipment
                  
                  
                  (146
                  )
                  
                  
                  (129
                  )
                  
                  
                  
                  (30
                  )(Increase)
                      decrease in restricted cash
                  
                  
                  (24
                  )
                  
                  
                  254
                  
                  
                  
                  
                  (203
                  )Decrease
                      in segregated funds
                  
                  
                  —
                  
                  
                  
                  200
                  
                  
                  
                  
                  —Other,
                      net
                  
                  
                  (15
                  )
                  
                  
                  54
                  
                  
                  
                  
                  (7
                  )(2,455
                  )
                  
                  
                  395
                  
                  
                  
                  
                  (238
                  )Cash
                      flows provided (used) by financing activities:Proceeds
                      from secured notes
                  
                  
                  694
                  
                  
                  
                  —
                  
                  
                  
                  
                  —Proceeds
                      from Credit Facility
                  
                  
                  —
                  
                  
                  
                  2,961
                  
                  
                  
                  
                  —Repayment
                      of Credit Facility
                  
                  
                  (986
                  )
                  
                  
                  (161
                  )
                  
                  
                  
                  —Repayment
                      of DIP Financing
                  
                  
                  —
                  
                  
                  
                  (1,157
                  )
                  
                  
                  
                  —Repayment
                      of other long-term debt
                  
                  
                  (1,023
                  )
                  
                  
                  (456
                  )
                  
                  
                  
                  (24
                  )Principal
                      payments under capital leases
                  
                  
                  (48
                  )
                  
                  
                  (35
                  )
                  
                  
                  
                  (5
                  )Other,
                      net
                  
                  
                  (7
                  )
                  
                  
                  (61
                  )
                  
                  
                  
                  (1
                  )(1,370
                  )
                  
                  
                  1,091
                  
                  
                  
                  
                  (30
                  )Increase
                      (decrease) in cash and cash equivalents during the period
                  
                  
                  (2,165
                  )
                  
                  
                  2,463
                  
                  
                  
                  
                  (130
                  )Cash
                      and cash equivalents at beginning of the period
                  
                  
                  3,832
                  
                  
                  
                  1,631
                  
                  
                  
                  
                  1,761Cash
                      and cash equivalents at end of the period
                  
                  $
                  1,667
                  
                  
                  $
                  4,094
                  
                  
                  
                  $
                  1,631







See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited).*







7








**United
                    Air Lines, Inc. and Subsidiary Companies*****Condensed
                    Statements of Consolidated Operations
                    (Unaudited)*****(In
                    millions)****Three
                    Months Ended****June
                    30,****2007**
                
                
                **2006**Operating
                    revenues:Passenger
                    - United Airlines
                
                $
                3,968
                
                
                $
                3,806Passenger
                    - Regional Affiliates
                
                
                804
                
                
                
                761Cargo
                
                
                181
                
                
                
                194Other
                    operating revenues
                
                
                263
                
                
                
                3505,216
                
                
                
                5,111Operating
                    expenses:Aircraft
                    fuel
                
                
                1,206
                
                
                
                1,250Salaries
                    and related costs
                
                
                1,018
                
                
                
                1,070Regional
                    affiliates
                
                
                733
                
                
                
                715Purchased
                    services
                
                
                335
                
                
                
                321Aircraft
                    maintenance materials and outside repairs
                
                
                284
                
                
                
                257Depreciation
                    and amortization
                
                
                229
                
                
                
                218Landing
                    fees and other rent
                
                
                215
                
                
                
                226Distribution
                    expenses (Note 1)
                
                
                197
                
                
                
                208Aircraft
                    rent
                
                
                105
                
                
                
                110Cost
                    of third party sales
                
                
                76
                
                
                
                188Other
                    operating expenses
                
                
                276
                
                
                
                2854,674
                
                
                
                4,848Earnings
                    from operations
                
                
                542
                
                
                
                263Other
                    income (expense):Interest
                    expense (Note 11)
                
                
                (139
                )
                
                
                (222
                )Interest
                    income
                
                
                64
                
                
                
                65Interest
                    capitalized
                
                
                4
                
                
                
                4Miscellaneous,
                    net
                
                
                -
                
                
                
                (2
                )(71
                )
                
                
                (155
                )Earnings
                    before income taxes and equity in earningsof
                    affiliates
                
                
                471
                
                
                
                108Income
                    tax expense
                
                
                194
                
                
                
                -Earnings
                    before equity in earnings of affiliates
                
                
                277
                
                
                
                108Equity
                    in earnings of affiliates, net of tax
                
                
                1
                
                
                
                3Net
                    income
                
                $
                278
                
                
                $
                111





See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)*.





8





**United
      Air Lines, Inc. and Subsidiary Companies**


***Condensed
      Statements of Consolidated Operations (Unaudited)***


**(In
      millions)**





**Successor**
                
                
                **Successor**
                
                
                **Predecessor****Six
                    Months**
                
                
                **Period
                    from**
                
                
                **Period
                    from****Ended**
                
                
                **February
                    1**
                
                
                **January
                    1****June
                    30,**
                
                
                **to
                    June 30,**
                
                
                **to
                    January 31,****2007**
                
                
                **2006**
                
                
                **2006**Operating
                    revenues:Passenger
                    - United Airlines
                
                $
                7,232
                
                
                $
                5,988
                
                
                $
                1,074Passenger
                    - Regional Affiliates
                
                
                1,479
                
                
                
                1,226
                
                
                
                204Cargo
                
                
                349
                
                
                
                318
                
                
                
                56Other
                    operating revenues
                
                
                533
                
                
                
                585
                
                
                
                1209,593
                
                
                
                8,117
                
                
                
                1,454Operating
                    expenses:Aircraft
                    fuel
                
                
                2,247
                
                
                
                1,955
                
                
                
                362Salaries
                    and related costs
                
                
                2,086
                
                
                
                1,795
                
                
                
                358Regional
                    affiliates
                
                
                1,425
                
                
                
                1,183
                
                
                
                228Purchased
                    services
                
                
                636
                
                
                
                527
                
                
                
                97Aircraft
                    maintenance materials and outside repairs
                
                
                565
                
                
                
                436
                
                
                
                80Landing
                    fees and other rent
                
                
                453
                
                
                
                370
                
                
                
                75Depreciation
                    and amortization
                
                
                449
                
                
                
                366
                
                
                
                68Distribution
                    expenses (Note 1)
                
                
                385
                
                
                
                349
                
                
                
                60Aircraft
                    rent
                
                
                206
                
                
                
                185
                
                
                
                30Cost
                    of third party sales
                
                
                168
                
                
                
                314
                
                
                
                63Special
                    items (Note 2)
                
                
                (22
                )
                
                
                -
                
                
                
                -Other
                    operating expenses
                
                
                540
                
                
                
                490
                
                
                
                859,138
                
                
                
                7,970
                
                
                
                1,506Earnings
                    (loss) from operations
                
                
                455
                
                
                
                147
                
                
                
                (52
                )Other
                    income (expense):Interest
                    expense (Note 11)
                
                
                (345
                )
                
                
                (353
                )
                
                
                (42
                )Interest
                    income
                
                
                124
                
                
                
                93
                
                
                
                6Interest
                    capitalized
                
                
                9
                
                
                
                7
                
                
                
                -Miscellaneous,
                    net
                
                
                (1
                )
                
                
                (1
                )
                
                
                -(213
                )
                
                
                (254
                )
                
                
                (36
                )Earnings
                    (loss) before reorganization items, incometaxes
                    and equity in earnings of affiliates
                
                
                242
                
                
                
                (107
                )
                
                
                (88
                )Reorganization
                    items, net
                
                
                -
                
                
                
                -
                
                
                
                22,709Earnings
                    (loss) before income taxes and equity inearnings
                    of affiliates
                
                
                242
                
                
                
                (107
                )
                
                
                22,621Income
                    tax expense
                
                
                114
                
                
                
                -
                
                
                
                -Earnings
                    (loss) before equity in earnings of affiliates
                
                
                128
                
                
                
                (107
                )
                
                
                22,621Equity
                    in earnings of affiliates, net of tax
                
                
                2
                
                
                
                3
                
                
                
                5Net
                    income (loss)
                
                $
                130
                
                
                $
                (104
                )
                
                $
                22,626





See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)*.








9





**United
      Air Lines, Inc. and Subsidiary Companies**


***Condensed
      Statements of Consolidated Financial Position
      (Unaudited)***


**(In
      millions, except shares)**


**June
                                                  30,**
                                              
                                              **December
                                                  31,****2007**
                                              
                                              **2006***Assets*Current
                                                  assets:Cash
                                                  and cash equivalents
                                              
                                              $
                                              1,645
                                              
                                              $
                                              3,779Short-term
                                                  investments
                                              
                                              
                                              2,547
                                              
                                              
                                              308Restricted
                                                  cash
                                              
                                              
                                              406
                                              
                                              
                                              303Receivables,
                                                  less allowance for doubtfulaccounts
                                                  (2007 - $30; 2006 - $27)
                                              
                                              
                                              1,127
                                              
                                              
                                              814Prepaid
                                                  fuel
                                              
                                              
                                              414
                                              
                                              
                                              283Aircraft
                                                  fuel, spare parts and supplies,
                                                  lessobsolescence
                                                  allowance (2007 - $11; 2006 - $6)
                                              
                                              
                                              210
                                              
                                              
                                              218Deferred
                                                  income taxes
                                              
                                              
                                              59
                                              
                                              
                                              114Receivables
                                                  from related parties
                                              
                                              
                                              158
                                              
                                              
                                              154Prepaid
                                                  expenses and other
                                              
                                              
                                              403
                                              
                                              
                                              3486,969
                                              
                                              
                                              6,321Operating
                                                  property and equipment:Owned
                                                  -Flight
                                                  equipment
                                              
                                              
                                              9,004
                                              
                                              
                                              8,952Advances
                                                  on flight equipment
                                              
                                              
                                              91
                                              
                                              
                                              91Other
                                                  property and equipment
                                              
                                              
                                              1,488
                                              
                                              
                                              1,44110,583
                                              
                                              
                                              10,484Less
                                                  - accumulated depreciation and
                                                  amortization
                                              
                                              
                                              (776
                                              )
                                              
                                              (502
                                              )9,807
                                              
                                              
                                              9,982Capital
                                                  leases:Flight
                                                  equipment
                                              
                                              
                                              1,511
                                              
                                              
                                              1,511Other
                                                  property and equipment
                                              
                                              
                                              34
                                              
                                              
                                              341,545
                                              
                                              
                                              1,545Less
                                                  - accumulated amortization
                                              
                                              
                                              (127
                                              )
                                              
                                              (81
                                              )1,418
                                              
                                              
                                              1,46411,225
                                              
                                              
                                              11,446Other
                                                  assets:Intangibles,
                                                  less accumulated amortization(2007-$247;
                                                  2006-$169)
                                              
                                              
                                              2,950
                                              
                                              
                                              3,028Goodwill
                                              
                                              
                                              2,697
                                              
                                              
                                              2,703Aircraft
                                                  lease deposits
                                              
                                              
                                              557
                                              
                                              
                                              539Restricted
                                                  cash
                                              
                                              
                                              432
                                              
                                              
                                              506Note
                                                  receivable from affiliate
                                              
                                              
                                              -
                                              
                                              
                                              201Investments
                                              
                                              
                                              116
                                              
                                              
                                              113Other,
                                                  net
                                              
                                              
                                              742
                                              
                                              
                                              7247,494
                                              
                                              
                                              7,814$
                                              25,688
                                              
                                              $
                                              25,581





See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)*.





10





**United
      Air Lines, Inc. and Subsidiary Companies**


***Condensed
      Statements of Consolidated Financial Position
      (Unaudited)***


**(In
      millions, except shares)**


**June
                    30,**
                
                
                **December
                    31,****2007**
                
                
                **2006***Liabilities
                    and Stockholder’s Equity*Current
                    liabilities:Advance
                    ticket sales
                
                $
                2,657
                
                
                $
                1,669Mileage
                    Plus deferred revenue
                
                
                1,269
                
                
                
                1,111Accounts
                    payable
                
                
                866
                
                
                
                671Accrued
                    salaries, wages and benefits
                
                
                818
                
                
                
                795Advanced
                    purchase of miles
                
                
                703
                
                
                
                681Long-term
                    debt maturing within one year (Note 11)
                
                
                601
                
                
                
                1,687Fuel
                    purchase commitments
                
                
                414
                
                
                
                283Accrued
                    interest
                
                
                259
                
                
                
                241Current
                    obligations under capital leases
                
                
                101
                
                
                
                110Accounts
                    payable to affiliates
                
                
                5
                
                
                
                2Other
                
                
                789
                
                
                
                9208,482
                
                
                
                8,170Long-term
                    debt (Note 11)
                
                
                7,207
                
                
                
                7,449Long-term
                    obligations under capital leases
                
                
                1,330
                
                
                
                1,350Other
                    liabilities and deferred credits:Mileage
                    Plus deferred revenue
                
                
                2,586
                
                
                
                2,569Postretirement
                    benefit liability
                
                
                1,959
                
                
                
                1,955Deferred
                    income taxes
                
                
                670
                
                
                
                596Deferred
                    pension liability
                
                
                133
                
                
                
                130Other
                
                
                754
                
                
                
                7696,102
                
                
                
                6,019Parent
                    company mandatorily convertible
                  preferred
                    securities
                
                
                366
                
                
                
                361Commitments
                    and contingent liabilities (Note 13)Stockholder’s
                    equity:Common
                    stock at par, $5 par value; authorized 1,000 shares; outstanding
                    205 at both June 30, 2007 and December 31, 2006
                
                
                -
                
                
                
                -Additional
                    capital invested
                
                
                1,959
                
                
                
                2,127Retained
                    earnings
                
                
                155
                
                
                
                23Accumulated
                    other comprehensive income
                
                
                87
                
                
                
                822,201
                
                
                
                2,232$
                25,688
                
                
                $
                25,581





See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)*.





11





**United
      Air Lines, Inc. and
      Subsidiary Companies**


***Condensed
      Statements of Consolidated Cash Flows (Unaudited)***


**(In
      millions)**





**Successor**
                
                
                **Predecessor****Six
                    Months**
                  **Ended**
                  **June
                    30,**
                
                
                **Period
                    from February 1 to June 30,**
                
                
                **Period
                    from**
                  **January
                    1 to**
                  **January
                    31,****2007**
                
                
                **2006**
                
                
                **2006**Cash
                    flows provided (used) by operating activities:Net
                    income (loss) before reorganization items
                
                $
                130
                
                
                $
                (104
                )
                
                $
                (83
                )Adjustments
                    to reconcile to net cash provided (used) by operatingactivities
                    -Increase
                    in advance ticket sales
                
                
                988
                
                
                
                697
                
                
                
                109Increase
                    in receivables
                
                
                (309
                )
                
                
                (121
                )
                
                
                (98
                )Depreciation
                    and amortization
                
                
                449
                
                
                
                366
                
                
                
                68Mileage
                    Plus deferred revenue and advanced purchase of miles
                
                
                197
                
                
                
                119
                
                
                
                14Other,
                    net
                
                
                194
                
                
                
                39
                
                
                
                1531,649
                
                
                
                996
                
                
                
                163Cash
                    flows provided (used) by reorganization activities:Reorganization
                    items, net
                
                
                -
                
                
                
                -
                
                
                
                22,709Increase
                    in other liabilities
                
                
                -
                
                
                
                -
                
                
                
                38Increase
                    in non-aircraft claims accrual
                
                
                -
                
                
                
                -
                
                
                
                421Discharge
                    of claims and liabilities
                
                
                -
                
                
                
                -
                
                
                
                (24,389
                )Revaluation
                    of Mileage Plus frequent flyer deferred revenue
                
                
                -
                
                
                
                -
                
                
                
                2,399Revaluation
                    of other assets and liabilities
                
                
                -
                
                
                
                -
                
                
                
                (2,111
                )Pension
                    curtailment, settlement and employee claims
                
                
                -
                
                
                
                -
                
                
                
                912-
                
                
                
                -
                
                
                
                (21
                )Cash
                    flows provided (used) by investing activities:(Increase)
                    decrease in short-term investments
                
                
                (2,239
                )
                
                
                16
                
                
                
                2Additions
                    to property and equipment
                
                
                (146
                )
                
                
                (129
                )
                
                
                (30
                )(Increase)
                    decrease in restricted cash
                
                
                (29
                )
                
                
                256
                
                
                
                (203
                )Decrease
                    in segregated funds
                
                
                -
                
                
                
                200
                
                
                
                -Other,
                    net
                
                
                (17
                )
                
                
                -
                
                
                
                (7
                )(2,431
                )
                
                
                343
                
                
                
                (238
                )Cash
                    flows provided (used) by financing activities:Proceeds
                    from secured notes
                
                
                694
                
                
                
                -
                
                
                
                -Proceeds
                    from Credit Facility
                
                
                -
                
                
                
                2,961
                
                
                
                -Repayment
                    of Credit Facility
                
                
                (986
                )
                
                
                (161
                )
                
                
                -Repayment
                    of DIP Financing
                
                
                -
                
                
                
                (1,157
                )
                
                
                -Repayment
                    of other long-term debt
                
                
                (1,022
                )
                
                
                (459
                )
                
                
                (24
                )Principal
                    payments under capital leases
                
                
                (48
                )
                
                
                (35
                )
                
                
                (5
                )Other,
                    net
                
                
                10
                
                
                
                (58
                )
                
                
                (1
                )(1,352
                )
                
                
                1,091
                
                
                
                (30
                )Increase
                    (decrease) in cash and cash equivalents during the period
                
                
                (2,134
                )
                
                
                2,430
                
                
                
                (126
                )Cash
                    and cash equivalents at beginning of the period
                
                
                3,779
                
                
                
                1,596
                
                
                
                1,722Cash
                    and cash equivalents at end of the period
                
                $
                1,645
                
                
                $
                4,026
                
                
                $
                1,596





See
      accompanying *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)*.




















12










**UAL
      Corporation and Subsidiary Companies and**


**United
      Air Lines, Inc. and Subsidiary Companies**


***Combined
      Notes to Condensed Consolidated Financial Statements (Unaudited)***







**(1)**
            **Basis
                of Presentation**




UAL
      Corporation (together with its consolidated subsidiaries, “UAL”), is a holding
      company and its principal, wholly-owned subsidiary is United Air
      Lines, Inc. (together with its consolidated subsidiaries, “United”). We
      sometimes use the words “we,” “our,” “us,” and the “Company” in this Form 10-Q
      for disclosures that relate to both UAL and United.




This
      Quarterly Report on Form 10-Q is a combined report of UAL and United. Therefore,
      these *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)* apply to both UAL and United, unless otherwise noted. As UAL
      consolidates United, disclosures that relate to activities of United also apply
      to UAL.




***Interim
      Financial Statements.*********The UAL and United
      unaudited condensed consolidated financial statements shown here have been
      prepared as required by the Securities and Exchange Commission (the “SEC”). Some
      information and footnote disclosures normally included in financial statements
      that meet generally accepted accounting principles (“GAAP”) have been condensed
      or omitted as permitted by the SEC. UAL and United believe that the disclosures
      presented here are not misleading. The financial statements include all
      adjustments, which include only normal recurring adjustments and adjustments
      required by fresh-start reporting and reorganization items as described below,
      that are considered necessary for a fair presentation of the financial position
      and results of operations of UAL and United. These financial statements should
      be read together with the information included in UAL’s and United’s Annual
      Reports on Form 10-K for the year ended December 31, 2006 (the “2006 Annual
      Reports”).




***Mileage
      Plus Accounting.*********The following is an
      update to the accounting policy disclosures in the 2006 Annual Reports. For
      further information related to Mileage Plus accounting, refer to the 2006 Annual
      Reports and *Critical Accounting Policies* in this
      Form 10-Q.




United
      recognizes revenue for customer accounts that are cancelled after a period
      of
      inactivity as defined by the Mileage Plus program. United estimates the number
      of accounts that it expects to deactivate and ratably recognizes revenue for
      these accounts over the expiration period. In early 2007, United announced
      a
      reduction in the expiration period from 36 months to 18 months. Based on this
      program change, United reduced the period over which it recognizes revenue
      for
      deactivated accounts from 36 months to 18 months. This change provided a benefit
      to United’s operating revenues of approximately $47 million and $75 million
      for the three and six month periods ended June 30, 2007, respectively, and
      United estimates that it will provide a total benefit of approximately
      $181 million for the year ended December 31, 2007. The diluted per
      share benefit to UAL was approximately $0.31 and $0.49 for the three and six
      months ended June 30, 2007, respectively.




***Reclassifications.*********In
      the first quarter of 2007, United and UAL changed their classification of
      certain distribution-related costs, previously included in purchased services
      and commissions, to classify these costs as distribution expenses in the
*Condensed Statements of Consolidated Operations (Unaudited)*. The
      distribution expenses previously reported for 2006 were reclassified to provide
      a comparable presentation in each of the 2007 quarterly reports on
      Form 10-Q. Amounts previously reported as commissions and purchased
      services in the UAL and United 2006 quarterly reports on Form 10-Q are
      shown below:




**Predecessor**
                
                
                **Successor****2006**
                  **(In
                    millions)**
                
                
                
                **January 1 to**
                  **January 31,**
                
                
                **Period from**
                  **February 1 to**
                  **March 31,**
                
                **Three Months**
                  **Ended**
                  **June 30,**
                
                **Three Months**
                  **Ended**
                  **September 30,**
                
                **Three Months**
                  **Ended**
                  **December 31,**Commissions
                    (historical) (a)
                
                $
                24
                
                
                
                $
                51
                
                
                $
                82
                
                
                $
                91
                
                
                $
                67Purchased
                    services (historical) (b)
                
                
                36
                
                
                
                
                90
                
                
                
                126
                
                
                
                124
                
                
                
                107Distribution
                    expenses (revised)
                
                $
                60
                
                
                
                $
                141
                
                
                $
                208
                
                
                $
                215
                
                
                $
                174




(a)
            Commissions
                were previously reported as a separate expense item in the UAL and
                United
                2006 quarterly reports on Form 10-Q and the 2006
                Annual Reports.




(b)
            Consists
                of credit card transaction fees and global distribution systems (“GDS”)
                transaction expenses that were classified as components of purchased
                services in the UAL and United quarterly reports on Form 10-Q and the
                2006 Annual
                Reports. For 2007 Form 10-Q reporting purposes, the revised purchased
                services amounts for the 2006 periods are the result of decreasing
                the
                amounts previously reported in the UAL and United 2006 quarterly
                reports
                on Form 10-Q by these same
                adjustments.







13








***Fresh-Start
      Reporting.*********As a result of the adoption
      of fresh-start reporting in accordance with American Institute of Certified
      Public Accountants’ Statement of Position 90-7 “*Financial Reporting by
      Entities in Reorganization under the Bankruptcy Code*” (“SOP 90-7”),
      the financial statements prior to February 1, 2006 are not comparable with
      the financial statements for periods on or after February 1, 2006.
      SOP 90-7 requires that the financial statements for periods after a
      Chapter 11 filing separate transactions and events that are directly
      associated with the reorganization from the ongoing operations of the business.
      Bankruptcy reorganization items are classified as reorganization items, net
      in
      the *Condensed Statements of Consolidated Operations (Unaudited)*. UAL
      common and preferred securities outstanding at January 31, 2006 were
      cancelled and new securities were issued to unsecured creditors and employees.
      In addition, fresh-start reporting required that most of the Company’s’ tangible
      and intangible assets and liabilities be recorded at fair value upon its
      emergence from bankruptcy. References to “Successor ” refer to UAL or United on
      or after February 1, 2006, after giving effect to the adoption of
      fresh-start reporting. References to “Predecessor” refer to UAL or United prior
      to February 1, 2006.




**(2)**
            
            **Voluntary
                Reorganization Under
                Chapter 11**




***Bankruptcy
      Considerations.*** The following discussion provides general
      background information regarding UAL and United pending litigation related
      to
      their bankruptcy reorganization, and is not intended to be an exhaustive
      summary. Detailed information pertaining to the bankruptcy filings may be
      obtained at *www.pd-ual.com* and in the 2006 Annual Reports.




On
      December 9, 2002 (the “Petition Date”), UAL Corporation, United Air Lines,
      Inc. and 26 direct and indirect wholly-owned subsidiaries (collectively, the
      “Debtors”) filed voluntary petitions to reorganize their businesses under
      Chapter 11 of the United States Bankruptcy Code in the United States
      Bankruptcy Court for the Northern District of Illinois, Eastern Division (the
      “Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed
      the Plan of Reorganization, which became effective February 1, 2006 (the
“Effective Date”). On the Effective Date, UAL and United emerged from bankruptcy
      protection and implemented fresh-start reporting.




The
      Plan
      of Reorganization generally provided for the full payment or reinstatement
      of
      allowed administrative claims, priority claims and secured claims, and the
      distribution of new UAL equity and UAL and United debt securities to the
      Debtors’ creditors and employees in satisfaction of allowed unsecured and deemed
      claims. UAL common and preferred securities outstanding at January 31, 2006
      were cancelled. The Plan of Reorganization contemplated UAL issuing up to
      125 million shares of new UAL common stock consisting of 115 million
      shares to be issued to unsecured creditors and employees and 10 million
      shares to be issued pursuant to UAL’s share-based management and director
      compensation plans. The new UAL common stock was listed on a NASDAQ market
      and
      began trading under the symbol “UAUA” on February 2, 2006.




***Significant
      Matters Resolved in Chapter 11 Cases Since Filing the UAL and United Annual
      Reports on Form 10-K for the Fiscal Year ended December 31,
      2006.*********The following material matters
      have been resolved in the Bankruptcy Court since the filing of the 2006 Annual
      Reports:




(a)
            *Pilot
                Plan Termination Order*. In December 2004, the Pension Benefit
                Guaranty Corporation (“PBGC”) filed an involuntary termination proceeding
                against United, as plan administrator for the United Airlines Pilot
                Defined Benefit Pension Plan (the “Pilot Plan”), in the District
                Court.




In
      January 2005, the District Court granted a motion filed by United and
      referred the involuntary termination proceeding to the Bankruptcy Court. Air
      Line Pilots Association (“ALPA”) and United Retired Pilots Benefit Protection
      Association and seven retired pilots (collectively, “URPBPA”) were later granted
      leave to intervene in the involuntary termination proceeding.




After
      several months, the Bankruptcy Court conducted a trial and determined that
      the
      Pilot Plan should be involuntarily terminated under the Employee Retirement
      Income Security Act (“ERISA”) Section 4042 with a termination date of
      December 30, 2004. Subsequently, on October 28, 2005 the Bankruptcy Court
      entered an order authorizing termination of the Pilot Plan.




The
      PBGC,
      ALPA and URPBPA filed notices of appeal with the District Court. In
      February 2006, the District Court reversed and remanded the Bankruptcy
      Court’s termination order on the grounds that the matter was not a core
      proceeding in which it could issue a final order, but rather, could only issue
      proposed findings of fact and conclusions
      of law for consideration by the District Court. Upon remand and after the
      Bankruptcy Court made proposed findings of fact and conclusions of law, in
      June 2006 the District Court entered an order approving the termination of
      the Pilot Plan. ALPA, URPBPA and PBGC each filed an appeal with the Court of
      Appeals. On****October 25, 2006, the Court of Appeals
      affirmed the District Court’s order approving the termination of the Pilot Plan
      effective December 30, 2004. On November 6, 2006, ALPA filed a
      petition for rehearing in the Court of Appeals which motion has been denied.
      ALPA and URPBPA filed****petitions for writ of certiorari
      from the United States Supreme Court on the plan termination. On April 2,
      2007, the Supreme Court denied such petitions, effectively terminating these
      proceedings.







14




(b)
            *Pilot
                Plan Non-Qualified Pension Benefits—October 2005 Order.*After
                the PBGC commenced its involuntary termination proceeding and sought
                a
                December 30, 2004 termination date, United suspended payment of
                non-qualified pension benefits under the Pilot Plan pending the setting
                of
                such a termination date. In the first quarter of 2005, the Bankruptcy
                Court required United to continue paying non-qualified pension benefits
                to
                retired pilots pending the outcome of the involuntary termination
                proceeding, notwithstanding the possibility that the Pilot Plan might
                be
                terminated retroactively to December 30, 2004. Then, on
                October 6, 2005, despite its oral ruling terminating the Pilot Plan,
                the Bankruptcy Court entered an order requiring United to continue
                paying
                non-qualified pension benefits until entry of a written order. However,
                United appealed that order and placed approximately $6 million
                necessary to pay non-qualified benefits for the month of October 2005
                in a segregated account.




Following
      the entry of the Bankruptcy Court’s termination order on October 28, 2005,
      United once again ceased paying non-qualified benefits. Subsequently, during
      the
      first quarter of 2006, the District Court dismissed United’s appeal of the
      Bankruptcy Court’s October 6, 2005 order in light of its earlier decision
      reversing the Bankruptcy Court’s termination order. United filed a notice of
      appeal of the District Court’s ruling regarding the October 6, 2005 order
      to the Court of Appeals. On October 25, 2006, the Court of Appeals reversed
      the District Court’s order dismissing for lack of ripeness the Company’s appeal
      of the Bankruptcy Court’s October 6, 2005 order and remanded the case with
      instructions to reverse the Bankruptcy Court’s order compelling payment of
      non-qualified benefits for October 2005 or later months. On
      November 6, 2006, ALPA filed a petition for rehearing on the Court of
      Appeals reversal of the October 6, 2005 order, which motion has been
      denied. ALPA and URPBPA filed petitions for writ of certiorari from the Supreme
      Court. On April 2, 2007, the Supreme Court denied such petitions,
      effectively terminating these proceedings. The $6 million deposit was released
      from the segregated account in June 2007.




(c)
            *Pilot
                Plan Non-Qualified Pension Benefits—March 2006 Order*. In
                March 2006, in a separate proceeding related to the matter described
                in item (b) above, the Bankruptcy Court ruled that United was obligated
                to
                make payment of all non-qualified pension benefits for the months
                of
                November and December 2005 and January 2006. The Bankruptcy
                Court also ruled that United’s obligation to pay non-qualified pension
                benefits ceased as of January 31, 2006. United filed a notice of
                appeal of the Bankruptcy Court’s ruling to the District Court. URPBPA and
                ALPA also filed notices of appeal with respect to the Bankruptcy
                Court’s
                order, which were subsequently consolidated with United’s appeal. United
                agreed with URPBPA and ALPA to pay, into an escrow account, the disputed
                non-qualified pension benefits for the months of November and
                December 2005 and January 2006, an aggregate amount totaling
                approximately $17 million. The District Court affirmed the Bankruptcy
                Court’s ruling in September 2006. United filed a notice of appeal of
                the District Court’s ruling to the Court of Appeals. URPBPA and ALPA also
                appealed the District Court’s decision. The Company subsequently filed a
                motion to consolidate its appeal from the Bankruptcy Court’s
                October 2005 non-qualified benefits order with the three appeals from
                the Bankruptcy Court’s March 2006 non-qualified benefits order. The
                Court of Appeals denied the Company’s motion, but issued an order staying
                briefing on the March 2006 non-qualified benefits order until further
                order of the Court of Appeals. On April 19, 2007, the Court of
                Appeals reversed the March 2006 order and remanded the case with
                instructions to the District Court to enter judgment for entry of
                an order
                in United’s favor. The deadline for filing a petition for a writ of
                certiorari, July 19, 2007, has passed without such a petition being
                filed,
                which effectively brings this matter to conclusion. The $17 million
                deposit was released from the escrow account in July
                2007.




***Significant
      Matters Remaining to be Resolved in Chapter 11 Cases.***The following material matters remain to be resolved in the
      Bankruptcy Court or another court:




(a)
            *SFO
                Municipal Bond Secured Interest*. HSBC Bank Inc. (“HSBC”), as trustee
                for the 1997 municipal bonds related to San Francisco International
                Airport (“SFO”), filed a complaint against United asserting a security
                interest
                in United’s leasehold for portions of its maintenance 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 security interest,
                which
                HSBC had claimed was as much as $257 million. HSBC and United went to
                trial in April 2006 and the Bankruptcy Court rejected as a matter of
                law HSBC’s $257 million claim. HSBC subsequently alleged that it was
                entitled to $154 million, or at a minimum, approximately
                $93 million. The parties tried the case and filed post-trial briefs
                which were heard by the Bankruptcy Court. In October 2006, the
                Bankruptcy Court issued its written opinion holding that the value
                of the
                security interest is approximately $27 million. United has accrued
                this amount as its estimated obligation as of June 30, 2007. After
                the
                Bankruptcy Court denied various post-trial motions, both parties
                have
                appealed to the District Court and those appeals are
                pending.







15




(b)
            *LAX
                Municipal Bond Secured Interest*. There is pending litigation before
                the Bankruptcy Court regarding the extent to which the Los Angeles
                International Airport (“LAX”) municipal bond debt is entitled to secured
                status under Section 506(a) of the Bankruptcy Code. Trial on
                this matter occurred during April 2007 and the two parties filed
                post-trial briefs in the second quarter of 2007. United recorded
                an
                obligation of $41 million and $60 million at June 30, 2007 and
                December 31, 2006, respectively, for this
                matter.




***Claims
      Resolution Process.*********As permitted under
      the bankruptcy process, the Debtors’ creditors filed proofs of claim with the
      Bankruptcy Court. Through the claims resolution process, the Company identified
      many claims which were disallowed by the Bankruptcy Court for a number of
      reasons, such as claims that were duplicative, amended or superseded by later
      filed claims, were without merit, or were otherwise overstated. Throughout
      the
      Chapter 11 proceedings, the Company resolved many claims through settlement
      or objections ordered by the Bankruptcy Court. The Company will continue to
      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, the claimant is entitled
      to
      a distribution of new UAL common stock. Pursuant to the terms of the Plan of
      Reorganization, 115 million shares of new UAL common stock have been
      authorized to satisfy valid unsecured claims. The Bankruptcy Court confirmed
      the
      Plan of Reorganization and established January 20, 2006 as the record date
      for purposes of establishing the persons that are claimholders of record to
      receive distributions. Approximately 111 million shares of UAL common stock
      have been issued and distributed to holders of valid unsecured claims between
      February 2, 2006, the first distribution date established in the Plan of
      Reorganization, and June 30, 2007. As of June 30, 2007, approximately 45,000
      valid unsecured claims aggregating to approximately $29.1 billion in claim
      value had received those shares to partially satisfy those claims. There are
      approximately 4 million remaining shares of UAL common stock being held in
      reserve to satisfy all of the remaining disputed and undisputed unsecured claim
      values, once the remaining claim disputes are resolved. The final distributions
      may not occur until 2008 pending resolution of bankruptcy matters such as those
      discussed above.




UAL
      and
      United currently estimate that the probable range of unsecured claims to be
      ultimately allowed by the Bankruptcy Court will be between $29.3 billion
      and $29.8 billion. Differences between claim amounts filed and management’s
      estimates are being investigated and will be resolved in connection with the
      claims resolution process. However, there will be no further financial impact
      to
      the Company associated with the settlement of such unsecured claims, as the
      holders of all allowed unsecured claims will receive under the Plan of
      Reorganization only their pro rata share of the distribution of the
      115 million shares of new UAL common stock, together with the
      previously-agreed issuance of certain other securities.




With
      respect to valid administrative and priority claims, pursuant to the terms
      of
      the Plan of Reorganization these claims will be satisfied with cash. Many
      asserted administrative and priority claims still remain unpaid, and the Company
      will continue to settle claims and file objections with the Bankruptcy Court
      to
      eliminate or reduce such claims. In addition, certain disputes, the most
      significant of which are discussed in “*Significant Matters Remaining to be
      Resolved in Chapter 11 Cases,*” above, still remain with respect to the
      valuation of certain claims. The Company accrued an obligation for claims it
      believed were reasonably estimable and probable at the Effective Date. However,
      the claims resolution process is uncertain and adjustments to claims estimates
      could result in material adjustments to the Successor Company’s financial
      statements in future periods as a result of court rulings, the receipt of new
      or
      revised information or the finalization of these matters. The most significant
      item included in the adjustments made to this accrual for the six months ended
      June 30, 2007 was a favorable $22 million adjustment for the LAX and SFO
      municipal obligation litigation that is discussed above, which was recorded
      as a
      special item in the *Condensed Statements of Consolidated Operations
      (Unaudited)*of UAL and United*.*In the first six months of 2007,
      the Company also conclusively settled or revised its estimated obligations
      for
      various other matters which resulted in a net credit to income of
      $14 million. The amounts comprising the $14 million were recorded as
      credits to operating income against the various income statement expenses to
      which they relate.







16





The
      table
      below includes activity related to the administrative and priority claims and
      other bankruptcy-related claim reserves including reserves related to legal,
      professional and tax matters, among others, for the Successor Company for the
      six months ended June 30, 2007. These reserves are primarily classified in
      other
      current liabilities and other non-current liabilities in the *Condensed
      Statements of Consolidated Financial Position (Unaudited)* based on the
      expected timing of resolution of these matters.




**(In millions)**Balance
                    at December 31, 2006
                
                $
                325Accruals
                
                
                4Accrual
                    adjustments
                
                
                (40
                )Payments
                
                
                (76
                )Balance
                    at June 30, 2007
                
                $
                213







***Reorganization
      items, net.*********SOP 90-7 requires that the
      financial statements for periods after a Chapter 11 filing separate
      transactions and events that are directly associated with the reorganization
      from the ongoing operations of the business. Accordingly, all transactions
      (including, but not limited to, all professional fees, realized gains and losses
      and provisions for losses) directly associated with the reorganization and
      restructuring of the business are reported separately in the financial
      statements as reorganization items, net. For the month ended January 31,
      2006, Predecessor UAL and United recognized the following primarily non-cash
      reorganization income (expense):




**Predecessor**
                
                
                **Predecessor****(In millions)**
                **UAL**
                
                
                **United**Discharge
                  of claims and liabilities
                $
                24,628
                
                
                $
                24,389
                
                (a)Revaluation
                  of frequent flyer obligations
                
                (2,399
                )
                
                
                (2,399
                )
                (b)Revaluation
                  of other assets and liabilities
                
                2,106
                
                
                
                2,111
                
                (c)Employee-related
                  charges
                
                (898
                )
                
                
                (898
                )
                (d)Contract
                  rejection charges
                
                (429
                )
                
                
                (421
                )
                (e)Professional
                  fees
                
                (47
                )
                
                
                (47
                )Pension-related
                  charges
                
                (14
                )
                
                
                (14
                )Other
                
                (13
                )
                
                
                (12
                )$
                22,934
                
                
                $
                22,709


(a)
            The
                discharge of claims and liabilities primarily relates to those unsecured
                claims arising during the bankruptcy process, such as those arising
                from
                the termination and settlement of United’s U.S. defined benefit pension
                plans and other employee claims; aircraft-related claims, such as
                those
                arising as a result of aircraft rejections; other unsecured claims
                due to
                the rejection or modification of executory contracts, unexpired leases
                and
                regional carrier contracts; and claims associated with certain municipal
                bond obligations based upon their rejection, settlement or the estimated
                impact of the outcome of pending litigation. In accordance with the
                Plan
                of Reorganization, UAL and United discharged certain obligations
                to
                unsecured creditors in exchange for the distribution of 115 million
                shares of new UAL common stock and the issuance of certain other
                UAL
                securities.




(b)
            United
                revalued its Mileage Plus frequent flyer obligations at fair value
                as a
                result of fresh-start reporting, which resulted in a $2.4 billion
                non-cash reorganization charge.




(c)
            In
                accordance with fresh-start reporting, UAL and United recorded their
                assets at estimated fair value and liabilities at estimated fair
                value or
                the present value of amounts to be paid. This resulted in a non-cash
                reorganization gain of $2.1 billion, primarily as a result of newly
                recognized intangible assets, offset partly by reductions in the
                fair
                value of tangible property and
                equipment.




(d)
            In
                January 2006, UAL and United recorded the value of the deemed claim
                that the salaried and management group received upon confirmation
                of the
                Plan of Reorganization. The deemed claim was based upon the cost
                savings
                provided by this employee group during the bankruptcy
                process.




(e)
            Contract
                rejection charges are non-cash costs that include estimated claim
                values
                resulting from the Company’s rejection or negotiated modification of
                certain contractual obligations such as executory contracts, unexpired
                leases and regional carrier
                contracts.







17





**(3)**
            **New
                Accounting Pronouncements**




In
      June 2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement
      No. 109* (“FIN 48”), which modifies the accounting and disclosure
      associated with certain aspects of recognition and measurement related to
      accounting for income taxes. UAL and United adopted the provisions of
      FIN 48 effective January 1, 2007. See Note 7, “Income Taxes” for
      disclosures related to the adoption of FIN 48.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, *Fair Value Measurements*(“SFAS 157”), which defines
      fair value, establishes a framework for measuring fair value, and expands
      disclosure about fair value measurements. SFAS 157 does not require any new
      fair value measurements; rather it specifies valuation methods and disclosures
      to be applied when fair value measurements are required under existing or future
      accounting pronouncements. SFAS 157 is effective for UAL and United for
      their fiscal year beginning January 1, 2008, and interim periods within
      2008. UAL and United have not determined the impact, if any, that adoption
      of
      this statement will have on their consolidated financial
      statements.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, *The Fair Value Option for Financial Assets and Financial
      Liabilities Including an amendment of FASB Statement No. 115*(“SFAS 159”). This statement permits entities to choose to measure
      many financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value. The objective of SFAS 159
      is to improve financial reporting by providing entities with the opportunity
      to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. SFAS 159 also established presentation and disclosure
      requirements designed to facilitate comparisons between entities that choose
      different measurement attributes for similar types of assets and liabilities.
      This statement does not affect any existing accounting literature that requires
      certain assets and liabilities to be carried at fair value. This statement
      is
      effective for UAL and United as of January 1, 2008. UAL and United have not
      determined the impact, if any, that adoption of this statement will have on
      their consolidated financial statements.




**(4)**
            **Common
                Stockholders’ Equity (UAL
                Only)**




Changes
      in the number of shares of UAL common stock outstanding and held in treasury
      during the six month period ended June 30, 2007 were as follows:




**Six Months****Ended****UAL**
                
                **June
                    30, 2007**UAL
                    common stock outstanding at beginning of period
                
                
                112,280,629Issuance
                    of UAL common stock to creditors
                
                
                2,840,718Issuance
                    of UAL common stock to employees
                
                
                783,387Forfeiture
                    of non-vested UAL restricted stock
                
                
                (55,496
                )Treasury
                    shares acquired
                
                
                (253,286
                )UAL
                    common stock outstanding at end of period
                
                
                115,595,952Treasury
                    shares at beginning of period
                
                
                136,777Shares
                    acquired for treasury
                
                
                253,286Treasury
                    shares at end of period
                
                
                390,063







See
      Note 2, “Voluntary Reorganization Under Chapter 11—Claims Resolution
      Process” and Note 5, “Per Share Amounts” for information regarding shares
      of UAL common stock distributed in 2007 and an additional 4 million shares
      that are reserved and will be distributed periodically to employees and holders
      of previously allowed claims and disputed claims that are pending final
      resolution. All treasury shares acquired in 2007 were shares acquired for tax
      withholding obligations under UAL’s share-based compensation plans.




18


**(5)**
            **Per
                Share Amounts (UAL Only)**




In
      accordance with Statement of Financial Accounting Standards No. 128,
“*Earnings per Share”* (“SFAS 128”), UAL basic per share amounts
      were computed by dividing earnings (loss) available to common shareholders
      by
      the weighted-average number of shares of common stock outstanding. Approximately
      4 million shares of UAL common stock remaining to be issued to unsecured
      creditors and employees under the Plan of Reorganization are included in UAL outstanding
      basic shares as the necessary conditions for issuance have been satisfied.
      UAL’s
      $500 million of 6% senior notes are callable at any time at 100% of par value,
      and can be redeemed with either cash or UAL common stock at UAL’s option. These
      notes are not included in the diluted earnings per share calculation as it
      is
      UAL’s intent to redeem these notes with cash. The table below represents the
      computation of UAL basic and diluted earnings (loss) per share and the number
      of
      securities which have been excluded from the computation of diluted per share
      amounts as they have an anti-dilutive effect.




Successor
                    
                    
                    Predecessor(In
                        millions)
                    
                    Three
                        Months
                      Ended
                        June 30,
                    
                    
                    Six
                        Months Ended
                      June
                        30,
                    
                    
                    Period
                        from February 1 to
                      June
                        30,
                    
                    
                    One
                        Month
                      Ended
                      January
                        31,2007
                    
                    
                    2006
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2006**Basic
                        earnings per share:**Net
                        income (loss)
                    
                    $
                    274
                    
                    
                    $
                    119
                    
                    
                    $
                    122
                    
                    
                    $
                    (104
                    )
                    
                    $
                    22,851Preferred
                        stock dividend requirements
                    
                    
                    (2
                    )
                    
                    
                    (2
                    )
                    
                    
                    (5
                    )
                    
                    
                    (4
                    )
                    
                    
                    (1
                    )Earnings
                        (loss) available to common stockholders
                    
                    $
                    272
                    
                    
                    $
                    117
                    
                    
                    $
                    117
                    
                    
                    $
                    (108
                    )
                    
                    $
                    22,850Basic
                        weighted average shares outstanding
                    
                    
                    117.4
                    
                    
                    
                    115.1
                    
                    
                    
                    117.2
                    
                    
                    
                    115.1
                    
                    
                    
                    116.2Earnings
                        (loss) per share, basic
                    
                    $
                    2.31
                    
                    
                    $
                    1.01
                    
                    
                    $
                    1.00
                    
                    
                    $
                    (0.94
                    )
                    
                    $
                    196.61**Diluted
                        earnings per share:**Earnings
                        (loss) available to common stockholders
                    
                    $
                    272
                    
                    
                    $
                    117
                    
                    
                    $
                    117
                    
                    
                    $
                    (108
                    )
                    
                    $
                    22,850Effect
                        of 2% preferred securities
                    
                    
                    2
                    
                    
                    
                    2
                    
                    
                    
                    5
                    
                    
                    
                    -
                    
                    
                    
                    -Effect
                        of 4.5% senior limited-subordination convertible
                        notes
                    
                    
                    5
                    
                    
                    
                    -
                    
                    
                    
                    10
                    
                    
                    
                    -
                    
                    
                    
                    -Effect
                        of 5% convertible notes
                    
                    
                    1
                    
                    
                    
                    2
                    
                    
                    
                    2
                    
                    
                    
                    -
                    
                    
                    
                    -Earnings
                        (loss) available to common stockholdersincluding
                        the effect of dilutive securities
                    
                    $
                    280
                    
                    
                    $
                    121
                    
                    
                    $
                    134
                    
                    
                    $
                    (108
                    )
                    
                    $
                    22,850Basic
                        weighted average shares outstanding
                    
                    
                    117.4
                    
                    
                    
                    115.1
                    
                    
                    
                    117.2
                    
                    
                    
                    115.1
                    
                    
                    
                    116.2Effect
                        of non-vested restricted shares
                    
                    
                    1.1
                    
                    
                    
                    0.9
                    
                    
                    
                    1.0
                    
                    
                    
                    -
                    
                    
                    
                    -Effect
                        of 2% preferred securities
                    
                    
                    10.9
                    
                    
                    
                    10.8
                    
                    
                    
                    10.9
                    
                    
                    
                    -
                    
                    
                    
                    -Effect
                        of 4.5% senior limited-subordination convertible
                        notes
                    
                    
                    20.8
                    
                    
                    
                    -
                    
                    
                    
                    20.8
                    
                    
                    
                    -
                    
                    
                    
                    -Effect
                        of 5% convertible notes
                    
                    
                    3.2
                    
                    
                    
                    3.2
                    
                    
                    
                    3.2
                    
                    
                    
                    -
                    
                    
                    
                    -Diluted
                        weighted average shares outstanding
                    
                    
                    153.4
                    
                    
                    
                    130.0
                    
                    
                    
                    153.1
                    
                    
                    
                    115.1
                    
                    
                    
                    116.2Earnings
                        (loss) per share, diluted
                    
                    $
                    1.83
                    
                    
                    $
                    0.93
                    
                    
                    $
                    0.88
                    
                    
                    $
                    (0.94
                    )
                    
                    $
                    196.61*Potentially
                        dilutive shares excluded from diluted per share
                        amounts:*Stock
                        options
                    
                    
                    4.4
                    
                    
                    
                    5.4
                    
                    
                    
                    4.4
                    
                    
                    
                    5.4
                    
                    
                    
                    9.0Restricted
                        shares
                    
                    
                    0.9
                    
                    
                    
                    2.7
                    
                    
                    
                    1.0
                    
                    
                    
                    3.6
                    
                    
                    
                    -4.5%
                        senior limited-subordination convertible notes
                    
                    
                    -
                    
                    
                    
                    15.5
                    
                    
                    
                    -
                    
                    
                    
                    15.5
                    
                    
                    
                    -5%
                        convertible notes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3.2
                    
                    
                    
                    -2%
                        preferred securities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    10.7
                    
                    
                    
                    -5.3
                    
                    
                    
                    23.6
                    
                    
                    
                    5.4
                    
                    
                    
                    38.4
                    
                    
                    
                    9.0







19


**(6)**
            **Share-Based
                Compensation Plans**




Compensation
      expense associated with the UAL share-based compensation plans has been pushed
      down to United.




***Predecessor***—As
      of January 31, 2006, a total of 9 million UAL stock options were
      outstanding. Under the Plan of Reorganization, these stock options were canceled
      upon the Effective Date. No material share-based compensation expense was
      incurred as a result of these outstanding options for the month of
      January 2006.




***Successor***—As
      part of the Plan of Reorganization the Bankruptcy Court approved UAL’s
      share-based compensation plans known as the Director Equity Incentive Plan
      (“DEIP”) and the Management Equity Incentive Plan (“MEIP”) which became
      effective on February 1, 2006. A total of 944,279 and 996,536 awards were
      available for grant as of June 30, 2007 and December 31, 2006,
      respectively, under the MEIP and DEIP. UAL and United recognized share-based
      compensation
      expense of $11 million and $26 million during the three and six months
      ended June 30, 2007 and $40 million and $109 million during the three and five
      months ended June 30, 2006, respectively. The Company’s unrecognized share-based
      compensation expense was $60 million and $80 million as of
      June 30, 2007 and December 31, 2006, respectively.




The
      table
      below summarizes stock option activity pursuant to UAL’s MEIP stock options for
      the six months ended June 30, 2007:




**Options**Outstanding
                      at beginning of period
                  
                  5,064,672Granted
                  
                  128,866Exercised
                  
                  (699,153
                  )Canceled
                  
                  (106,014
                  )Outstanding
                      at end of period
                  
                  4,388,371Exercisable
                      at end of period
                  
                  1,208,375




The
      table
      below summarizes UAL’s restricted stock activity for the six months ended June
      30, 2007:




**Restricted Stock**Nonvested
                    at beginning of period
                
                2,712,787Granted
                
                84,234Vested
                
                (734,259
                )Terminated
                
                (55,496
                )Nonvested
                    at end of period
                
                2,007,266







**(7)**
            **Income
                Taxes**




UAL
      and
      United both had effective tax rates of 41% and 47% in the three and six months
      ended June 30, 2007, respectively, and zero percent for both the three and
      five
      months ended June 30, 2006. The effective tax rates were based upon forecasted
      annual income for each respective period. The most significant items impacting
      UAL’s and United’s effective tax rates were non-deductible meals and
      entertainment expense and nondeductible interest on certain of UAL’s notes.
      These increases to the effective tax rate were partially offset by a favorable
      impact from the non-taxable Medicare Part D subsidy. Predecessor UAL and
      United both had an effective tax rate of zero percent for the month ended
      January 31, 2006. As of June 30, 2007, UAL and United had a federal net
      operating loss carry forward of $6.6 billion.




The
      Company’s management assesses the realizability of its deferred tax assets, and
      records a valuation allowance for the deferred tax assets when it is more likely
      than not that a portion, or all of the deferred tax assets, will not be
      realized. The ultimate realization of deferred tax assets is dependent upon
      the
      generation of future taxable income (including the reversals of deferred tax
      liabilities) during the periods in which those temporary differences will become
      deductible. As such, UAL had a valuation allowance against its deferred tax
      assets of $2,248 million at June 30, 2007 and December 31, 2006, to
      reflect management’s assessment regarding the realizability of the deferred tax
      assets. United had a valuation allowance against its deferred tax assets of
      $2,190 million at June 30, 2007 and December 31, 2006. The Company expects
      to continue to maintain a valuation allowance on deferred tax assets until
      other
      positive evidence is sufficient to justify realization. Future reductions in
      the
      valuation allowance will be allocated to reduce goodwill and then other
      intangible assets.




The
      Company adopted the provisions of FIN 48 on January 1, 2007 and recorded a
      $16 million decrease in the liability for uncertain income tax matters
      recorded under Statement of Financial Accounting Standards No. 5,
*Accounting for Contingencies*(“SFAS 5”). In addition, UAL and United
      adjusted deferred tax assets for net operating loss carry forwards and deferred
      taxes for certain other temporary differences; these entries were offset by
      a
      net adjustment to goodwill. As a result of the adoption of FIN 48, the
      Company generated an unrecognized tax benefit of $49 million. Unrecognized
      tax benefits of $6 million will impact the Company’s effective tax rate, if
      recognized. Goodwill changed by $6 million during the six months ended
      June 30, 2007 resulting from the adoption of FIN 48.




The
      amount of unrecognized tax benefits did not materially change from
      January 1, 2007 to June 30, 2007. Any change in the amount of unrecognized
      tax benefits within the next twelve months is not expected to result in a
      significant impact on the results of operations or the financial position of
      the
      Company.




UAL
      and
      United record interest expense associated with income taxes as interest expense
      and penalties as other operating expense in the *Condensed Statements of
      Operations (Unaudited).*As of January 1, 2007, the Company had accrued
      interest of $1 million and had accrued no penalties. These amounts did not
      materially change as of June 30, 2007.







20





UAL’s
      income tax returns for tax years after 2002 remain subject to examination by
      the
      Internal Revenue Service and state taxing jurisdictions. United is included
      in
      UAL’s consolidated income tax returns.




As
      a
      result of the Company’s emergence from bankruptcy, the Company has an unrealized
      tax benefit of $802 million and $782 million at June 30, 2007 and
      December 31, 2006, respectively, resulting from an excess tax deduction of
      $2.2 billion and $2.1 billion, respectively. The excess tax deduction
      represents the difference between the total tax deduction available, which
      is
      equal to the fair value of the UAL common stock issued to certain unsecured
      creditors and employees pursuant to the Plan of Reorganization, and the amount
      of the deduction attributable to the amount expensed, which is the value of
      the
      stock determined in the Plan of Reorganization. The Company has accounted for
      the excess tax deduction by analogy to Statement of Financial Accounting
      Standards No. 123 (Revised 2004), *Share-Based Payment*, and will
      recognize this deduction when it is realized as a reduction of taxes
      payable.




**(8)**
            **Retirement
                and Postretirement Plans**




UAL
      and
      United contribute to defined contribution plans on behalf of most of their
      employees, particularly within the US. Internationally, the Company maintains
      a
      number of small pension plans covering much of its local, non-US workforce.
      The
      Company also provides certain health care benefits, primarily in the U.S.,
      to
      retirees and eligible dependents, as well as certain life insurance benefits
      to
      certain retirees, which are reflected as “Other Benefits” in the tables below.
      The Company has reserved the right, subject to collective bargaining agreements,
      to modify or terminate the health care and life insurance benefits for both
      current and future retirees.




The
      UAL
      and United net periodic benefit cost included the following
      components:




**Pension Benefits**
                
                
                **Other Benefits****Three Months**
                  **Ended**
                  **June
                    30,**
                
                
                **Three Months**
                  **Ended**
                  **June
                    30,**
                
                
                **Three Months**
                  **Ended**
                  **June
                    30,**
                
                
                **Three Months**
                  **Ended**
                  **June
                    30,****(In millions)**
                
                **2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Service
                    cost
                
                $
                3
                
                
                $
                2
                
                
                $
                9
                
                
                $
                9Interest
                    cost
                
                
                3
                
                
                
                2
                
                
                
                31
                
                
                
                32Expected
                    return on plan assets
                
                
                (3
                )
                
                
                (2
                )
                
                
                (1
                )
                
                
                (2
                )Amortization
                    of unrecognized gain
                
                
                (1
                )
                
                
                —
                
                
                
                (2
                )
                
                
                —Net
                    periodic benefit costs
                
                $
                2
                
                
                $
                2
                
                
                $
                37
                
                
                $
                39







**Pension Benefits**
                
                
                **Other Benefits****Successor**
                
                **Predecessor**
                
                
                **Successor**
                
                **Predecessor****Six Months**
                  **Ended**
                  **June
                    30,**
                
                **Period from**
                  **February 1**
                  **to**
                  **June
                    30,**
                
                **Period from**
                  **January 1 to**
                  **January 31,**
                
                
                **Six Months**
                  **Ended**
                  **June
                    30,**
                
                **Period from**
                  **February 1**
                  **to**
                  **June
                    30,**
                
                **Period from**
                  **January 1 to**
                  **January 31,****(In millions)**
                
                
                
                **2007**
                
                **2006**
                
                **2006**
                
                
                **2007**
                
                **2006**
                
                **2006**Service
                    cost
                
                $
                5
                
                
                $
                4
                
                
                $
                1
                
                
                
                $
                18
                
                
                $
                15
                
                
                $
                3Interest
                    cost
                
                
                5
                
                
                
                4
                
                
                
                1
                
                
                
                
                62
                
                
                
                53
                
                
                
                11Expected
                    return on plan assets
                
                
                (5
                )
                
                
                (4
                )
                
                
                (1
                )
                
                
                
                (2
                )
                
                
                (3
                )
                
                
                (1
                )Amortization
                    of prior service credit including transition obligation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                
                —
                
                
                
                —
                
                
                
                (13
                )Amortization
                    of unrecognized (gain) loss
                
                
                (1
                )
                
                
                —
                
                
                
                —
                
                
                
                
                (4
                )
                
                
                —
                
                
                
                8Net
                    periodic benefit costs
                
                $
                4
                
                
                $
                4
                
                
                $
                1
                
                
                
                $
                74
                
                
                $
                65
                
                
                $
                8







21


**(9)**
            **Segment
                Information**




We
      manage
      our business by two reportable segments: Mainline and United Express which
      were
      reported as segments in the 2006 Annual Reports. In 2006, in light of the
      Company’s bankruptcy-related restructuring and organizational changes,
      management reevaluated the Company’s segment reporting. As a result, management
      determined that the geographic regions and UAL Loyalty Services, LLC, which
      were
      previously reported as segments, are no longer reportable segments requiring
      disclosure under Statement of Financial Accounting Standards No. 131,
“*Disclosures about Segments of an Enterprise and Related
      Information.”*




The
      table
      below includes segment information for UAL and United for the three and six
      month periods ended June, 2007, the five month period ended June 30, 2006 and
      the one month period ended January 31, 2006. Amounts for the 2006 periods
      have been reclassified from prior period presentation to conform to the new
      Mainline and United Express segments.




**Successor**
                      
                      
                      **Predecessor****(In
                          millions)**
                      
                      **Three
                          Months Ended**
                      
                      
                      **Six
                          Months**
                        **Ended**
                      
                      
                      **Period
                          from**
                        **February
                          1 to**
                      
                      
                      **Period
                          from**
                        **January
                          1 to****June
                          30,**
                      
                      
                      **June
                          30,**
                      
                      
                      **June
                          30,**
                      
                      
                      **January
                          31,****UAL
                          segment information:**
                      
                      **2007**
                      
                      
                      **2006**
                      
                      
                      **2007**
                      
                      
                      **2006**
                      
                      
                      **2006**Revenue:Mainline
                      
                      $
                      4,409
                      
                      
                      $
                      4,352
                      
                      
                      $
                      8,107
                      
                      
                      $
                      6,894
                      
                      
                      $
                      1,254United
                          Express
                      
                      
                      804
                      
                      
                      
                      761
                      
                      
                      
                      1,479
                      
                      
                      
                      1,226
                      
                      
                      
                      204Total
                      
                      $
                      5,213
                      
                      
                      $
                      5,113
                      
                      
                      $
                      9,586
                      
                      
                      $
                      8,120
                      
                      
                      $
                      1,458Segment
                          earnings (loss):Mainline
                      
                      $
                      395
                      
                      
                      $
                      73
                      
                      
                      $
                      154
                      
                      
                      $
                      (147
                      )
                      
                      $
                      (59
                      )United
                          Express
                      
                      
                      71
                      
                      
                      
                      46
                      
                      
                      
                      54
                      
                      
                      
                      43
                      
                      
                      
                      (24
                      )Reorganization
                          items, net
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      22,934Special
                          items
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      22
                      
                      
                      
                      -
                      
                      
                      
                      -Less:
                          equity earnings (a)
                      
                      
                      (1
                      )
                      
                      
                      (3
                      )
                      
                      
                      (2
                      )
                      
                      
                      (3
                      )
                      
                      
                      (5
                      )Consolidated
                          earnings (loss) beforeincome taxes and equity in earningsof affiliates
                      
                      $
                      465
                      
                      
                      $
                      116
                      
                      
                      $
                      228
                      
                      
                      $
                      (107
                      )
                      
                      $
                      22,846**United
                          segment information:**Revenue:Mainline
                      
                      $
                      4,412
                      
                      
                      $
                      4,350
                      
                      
                      $
                      8,114
                      
                      
                      $
                      6,891
                      
                      
                      $
                      1,250United
                          Express
                      
                      
                      804
                      
                      
                      
                      761
                      
                      
                      
                      1,479
                      
                      
                      
                      1,226
                      
                      
                      
                      204Total
                      
                      $
                      5,216
                      
                      
                      $
                      5,111
                      
                      
                      $
                      9,593
                      
                      
                      $
                      8,117
                      
                      
                      $
                      1,454Segment
                          earnings (loss):Mainline
                      
                      $
                      401
                      
                      
                      $
                      65
                      
                      
                      $
                      168
                      
                      
                      $
                      (147
                      )
                      
                      $
                      (59
                      )United
                          Express
                      
                      
                      71
                      
                      
                      
                      46
                      
                      
                      
                      54
                      
                      
                      
                      43
                      
                      
                      
                      (24
                      )Reorganization
                          items, net
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      22,709Special
                          items
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      22
                      
                      
                      
                      -
                      
                      
                      
                      -Less:  equity
                          earnings (a)
                      
                      
                      (1
                      )
                      
                      
                      (3
                      )
                      
                      
                      (2
                      )
                      
                      
                      (3
                      )
                      
                      
                      (5
                      )Consolidated
                          earnings (loss) beforeincome taxes and equity in earningsof affiliates
                      
                      $
                      471
                      
                      
                      $
                      108
                      
                      
                      $
                      242
                      
                      
                      $
                      (107
                      )
                      
                      $
                      22,621


(a)
            Equity
                earnings are part of the
                Mainline segment.





**(10)**
            **Comprehensive
                Income (Loss)**





For
      the
      three month periods ended June 30, 2007 and 2006, UAL’s total comprehensive
      income was $272 million and $153 million, respectively. For the six month
      period ended June 30, 2007, the five month period ended June 30, 2006, and
      the
      one month period ended January 31, 2006, UAL’s total comprehensive income
      (loss) was $127 million, $(62) million and $22.9 billion,
      respectively. For the three month periods ended June 30, 2007 and 2006, United’s
      total comprehensive income was $275 million and $145 million, respectively.
      For the six month period ended June 30, 2007, the five month period ended June
      30, 2006, and the one month period ended January 31, 2006, United’s total
      comprehensive income (loss) was $135 million, $(62) million and $22.6
      billion, respectively.




The
      differences between net income (loss) and total comprehensive income (loss)
      are
      due to changes in the fair value of an interest rate swap that was accounted
      for
      a cash flow hedge as discussed in Note 12, “Financial Instruments and Risk
      Management.”  In addition, comprehensive income for the three and six
      months ended June 30, 2007, includes amortization of deferred net periodic
      pension costs that were initially recorded as a component of accumulated other
      comprehensive
      income upon adoption of Statement of Financial Accounting Standard No. 158,
*Employers’ Accounting for Pensions and Other Postretirement Plans*,
*an amendment of FASB Statements No. 87, 88, 106 and 132R,*for the
      year ended December 31, 2006.







22







**(11)**
            **Debt
                Obligations**




See
      the
      UAL and United 2006 Annual Reports on Form 10-K for a detailed discussion of
      their respective debt obligations. The following is a discussion of United’s
      prepayment and amendment, in February 2007, of its $3.0 billion revolving
      credit, term loan and guarantee agreement dated February 1, 2006 (the
“Credit Facility”). In addition, United issued and repaid various debt
      instruments during the second quarter of 2007, as discussed below.




*Amended
      Credit Facility*




On
      February 2, 2007, United prepaid $972 million of its Credit Facility
      debt and UAL and United entered into an amended and restated revolving credit,
      term loan and guaranty agreement (the “Amended Credit Facility”) that, among
      other things, reduced the size of the facility from $3.0 billion to $2.055
      billion, reduced the applicable interest rates, and provided for a more limited
      collateral package and a relaxation of certain restrictive covenants. There
      were
      no prepayment penalties associated with this debt retirement. In the first
      quarter of 2007, United expensed $17 million of deferred financing costs
      which were related to the portion of the Credit Facility prepaid in 2007 and
      were included in other assets in the December 31, 2006 *Statements of
      Consolidated Financial Position.*In connection with the amendment of the
      Credit Facility in 2007, United incurred financing costs of $10 million, of
      which $6 million was expensed and $4 million was capitalized. The
      financing costs associated with the Credit Facility prepayment and amendment,
      which were expensed in the first quarter of 2007, are classified as a component
      of interest expense in our *Condensed Statements of Consolidated Operations
      (Unaudited).*




The
      Amended Credit Facility was provided by a syndicate of banks and other financial
      institutions led by J.P. Morgan Securities Inc. and Citicorp Global
      Markets, Inc. (“CITI”), as joint lead arrangers and joint bookrunners:
      JPMorgan Chase Bank, N.A. (“JPMCB”) and CITI, as co-administrative agents and
      co-collateral agents, Credit Suisse Securities (USA) LLC, as syndication agent,
      and JPMCB, as paying agent. The Amended Credit Facility provides for a total
      commitment of up to $2.055 billion, comprised of two separate tranches:
      (i) a Tranche A consisting of $255 million revolving commitment
      available for Tranche A loans and standby letters of credit and (ii) a
      Tranche B consisting of a term loan commitment of $1.8 billion. The Tranche
      A
      loans mature on February 1, 2012, and the Tranche B loans mature on
      February 1, 2014.




Borrowings
      under the Amended Credit Facility bear interest at a floating rate, which,
      at
      United’s option, can be either a base rate or LIBOR, plus an applicable margin
      of 1.0% in the case of base rate loans, and 2.0% in the case of LIBOR loans.
      The
      Tranche B term loan requires regularly scheduled semi-annual payments of
      principal equal to $9 million. Interest is payable at least every three
      months. United may prepay some or all of the Tranche B loans from time to time,
      at a price equal to 100% of the principal amount prepaid plus accrued and unpaid
      interest, if any, to the date of prepayment, but without penalty or
      premium.




United’s
      obligations under the Amended Credit Facility are unconditionally guaranteed
      by
      UAL and certain of its direct and indirect domestic subsidiaries, other than
      certain immaterial subsidiaries (“Guarantors”). On the closing date for the
      Amended Credit Facility, the obligations were secured by a security interest
      in
      the following tangible and intangible assets of United and the Guarantors:
      (i) the Pacific (Narita, China and Hong Kong) and Atlantic (Heathrow)
      routes (the “Primary Routes”), (ii) primary foreign slots, primary domestic
      slots, certain gate interests in domestic airport terminals and certain
      supporting route facilities, (iii) certain spare engines, (iv) certain
      quick engine change kits, (v) certain owned real property and related
      fixtures, and (vi) certain flight simulators (the “Collateral”). After the
      closing date, and subject to certain conditions, United and the Guarantors
      may
      grant a security interest in the following assets, in substitution for certain
      Collateral (which may be released from the lien in support of the Amended Credit
      Facility upon the satisfaction of certain conditions): (a) certain
      aircraft, (b) certain spare parts, (c) certain ground handling
      equipment, and (d) accounts receivable.




The
      Amended Credit Facility contains covenants that will limit the ability of United
      and the Guarantors to, among other things, incur or guarantee additional
      indebtedness, create liens, pay dividends on or repurchase stock, make certain
      types of investments, enter into transactions with affiliates, sell assets
      or
      merge with other companies, modify corporate documents or change lines of
      business. The Amended Credit Facility also requires compliance with the
      following financial covenants: (i) a minimum ratio of EBITDAR to the sum of
      cash interest expense, aircraft rent and scheduled debt payments, (ii) a
      minimum unrestricted cash balance of $750 million, and (iii) a minimum
      ratio of market value of collateral to the sum of (a) the aggregate
      outstanding amount of the loans plus (b) the undrawn amount of outstanding
letters
      of credit, plus (c) the unreimbursed amount of drawings under such letters
      of credit and (d) the termination value of certain interest rate protection
      and hedging agreements with the Amended Credit Facility lenders and their
      affiliates, of 150% at any time, or 200% at any time following the release
      of
      Primary Routes having an appraised value in excess of $1 billion (unless the
      Primary Routes are the only collateral then pledged). Failure to comply with
      the
      Amended Credit Facility covenants could result in a default under the Amended
      Credit Facility unless United were to obtain a waiver of, or otherwise mitigate
      or cure, the default. Additionally, the Amended Credit Facility contains a
      cross-default provision with respect to any other agreement for indebtedness
      that exceeds $50 million. A default under such other indebtedness
      arrangement could result in a termination of the Amended Credit Facility and
      a
      requirement to accelerate repayment of all outstanding facility
      borrowings.







23







*EETC
      Pass Through Certificates, Series 2007-1*




On
      June 26, 2007, United and Wilmington Trust Company, as subordination agent
      and pass through trustee under three pass through trusts newly formed by United
      (the “Trustee”) entered into a note purchase agreement, dated as of
      June 26, 2007 (the “Note Purchase Agreement”). The Note Purchase Agreement
      provides for the issuance by United of equipment notes (the “Equipment Notes”)
      in the aggregate principal amount of approximately $694 million to finance
      13
      aircraft owned by United. Ten of these owned aircraft had been financed by
      pre-existing aircraft mortgages which United repaid in full (approximately
      $590
      million principal amount) with most of the proceeds of the Equipment Notes.
      The
      mortgages related to these ten aircraft had been adjusted to fair market value
      at the adoption of fresh-start reporting on February 1, 2006. The extinguishment
      of the aircraft mortgages resulted in the recognition of a $22 million gain
      for
      the unamortized premium, which was accounted for as a reduction in interest
      expense in the second quarter of 2007. The remaining three owned aircraft were
      unencumbered prior to the closing of the Enhanced Equipment Trust Certificates
      (“EETC”) transaction. This transaction combined with the July 2007 acquisition
      of three 747-400 aircraft, as described in Note 17, “Subsequent Events,” did not
      change the total number of encumbered aircraft.




The
      payment obligations of United under the Equipment Notes are fully and
      unconditionally guaranteed by UAL. The Class B and Class C certificates are
      subject to transfer restrictions. They may be sold only to qualified
      institutional buyers, as defined by Rule 144A under the Securities Act of 1933,
      as amended, for so long as they are outstanding. Pursuant to the Note Purchase
      Agreement, the Trustee for each pass through trust agreed to purchase Equipment
      Notes issued under a Trust Indenture and Mortgage (each, an “Indenture” and,
      collectively, the “Indentures”) with respect to each aircraft financing entered
      into by United and Wilmington Trust Company, as Mortgagee.




Each
      Indenture contemplated the issuance of Equipment Notes in three series: Series
      A, bearing interest at the rate of 6.636% per annum, Series B, bearing
      interest at the rate of 7.336% per annum, and Series C, bearing interest at
      the rate of six-month LIBOR plus 2.25% per annum, in the aggregate
      principal amount of approximately $694 million divided between the three series
      as follows:  $485 million in the case of Series A Equipment Notes,
      $107 million in the case of Series B Equipment Notes, and $102 million in the
      case of Series C Equipment Notes. The Equipment Notes were purchased by the
      Trustee for each pass through trust using the proceeds from the sale of Pass
      Through Certificates, Series 2007-1A, Pass Through Certificates, Series 2007-1B,
      and Pass Through Certificates, Series 2007-1C (collectively, the
“Certificates”).




Interest
      on the Equipment Notes is payable semiannually on each January 2 and
      July 2, beginning on January 2, 2008. Principal payments are scheduled
      on January 2 and July 2 in scheduled years, beginning on
      January 2, 2008. The final payments will be due on July 2, 2022, in
      the case of the Series A Equipment Notes, July 2, 2019, in the case of the
      Series B Equipment Notes, and July 2, 2014, in the case of the Series C
      Equipment Notes. Maturity of the Equipment Notes may be accelerated upon the
      occurrence of certain events of default, including failure by United to make
      payments under the applicable Indenture when due or to comply with certain
      covenants, as well as certain bankruptcy events involving United. The Equipment
      Notes issued with respect to each of the 13 aircraft are secured by a lien
      on
      each such aircraft and are cross-collateralized by the rest of the 13 aircraft
      financed pursuant to the Note Purchase Agreement.





Distributions
      on the Certificates are subject to certain subordination provisions whereby
      Morgan Stanley Senior Funding, Inc. will provide a liquidity facility for each
      of the Class A and Class B certificates. The liquidity facilities are expected
      to provide an amount sufficient to pay up to three semiannual interest payments
      on the certificates of the related pass through trust. The Class C certificates
      will not have the benefit of a liquidity facility.










24


*Denver
      Special Facilities Airport Revenue Refunding Bonds, Series
      2007A*





On
      June 28,
      2007, the City and County of Denver issued approximately $270 million of Denver
      airport refunding bonds (“Series 2007A Bonds”). The Series 2007A Bonds are
      unconditionally guaranteed by United. The Series 2007 A Bonds were issued in
      two
      tranches – approximately $170 million aggregate principal amount of 5.25%
      discount bonds and $100 million aggregate principal amount of 5.75% premium
      bonds. The weighted average yield to the 2032 maturity is approximately
      5.47%.




The
      Series 2007A Bonds were issued to refinance United’s guaranteed principal of
      $261 million, plus accrued interest and new issuance costs relating to the
      City
      and County of Denver, Colorado Special Facilities Airport Revenue Bonds (United
      Air Lines Project) Series 1992A (the “1992 Bonds”) that were issued in 1992 to
      finance certain facilities at the Denver International Airport. The 1992 Bonds
      were due in 2032 unless United elected not to extend its airport facility lease,
      in which case they were due in 2023. The Series 2007A Bonds similarly are due
      in
      2032 unless United makes a similar election not to extend its lease. The
      outstanding bonds and related guarantee are not recorded in the Company’s
*Condensed Statements of Consolidated Financial Position* at June 30,
      2007 or December 31, 2006.





**(12)**
            **Financial
                Instruments and Risk
                Management**




Instruments
      designated as cash flow hedges receive favorable accounting treatment under
      Statement of Financial Accounting Standards No. 133, *Accounting for
      Derivative Instruments and Hedging Activities* (“SFAS 133”), as long as
      the hedge is highly effective and the underlying transaction is probable. If
      both factors are present, the effective portion of the changes in fair value
      of
      these contracts is recorded in accumulated other comprehensive income (loss)
      until earnings are affected by the cash flows being hedged. Instruments
      classified as economic hedges do not qualify for hedge accounting under SFAS
      133. Under this classification all changes in the fair value of these contracts
      are recorded currently in operating income, with the offset to either current
      assets or liabilities each reporting period.




***Aircraft
      Fuel Hedges***. We have a risk management strategy to hedge a portion
      of our price risk related to projected jet fuel requirements primarily through
      collar options. The collars involve the simultaneous purchase and sale of call
      and put options with identical expiration dates.




For
      the
      one month period ended January 31, 2006, the Predecessor Company had no
      fuel hedges in place. In the three and six month periods ended June 30, 2007
      and
      the five month period ended June 30, 2006, the Successor Company entered into
      and settled various derivative positions that were classified as economic
      hedges.




In
      the
      three months ended June 30, 2007 and 2006, the Company recognized a net hedge
      gain (loss) of $17 million and $(2) million, respectively, on economic hedges
      that were classified as Mainline fuel expense in the *Condensed Statements of
      Consolidated Operations (Unaudited).* In the six months ended June 30, 2007
      and the five months ended June 30, 2006, the Company’s Mainline fuel expense
      included income of $39 million and $7 million, respectively, from net
      gains on economic hedges. The net hedge gains recorded in the three and six
      month periods ended June 30, 2007 included $14 million and $16 million,
      respectively, of unrealized mark-to-market gains for contracts settling after
      June 30, 2007.




As
      of
      June 30, 2007, the Company had hedged 27% of forecasted third quarter 2007
      fuel
      consumption primarily through heating oil three-way collars. On a
      weighted-average basis, hedge protection begins if heating oil exceeds $1.96
      per
      gallon and is capped at $2.14 per gallon. Conversely, payment obligations
      begin if heating oil, on a weighted-average basis, drops below $1.84 per
      gallon. The Company also hedged 15% of forecasted fourth quarter 2007 fuel
      consumption through heating oil three-way collars. Hedge protection on average
      begins if heating oil exceeds $2.03 per gallon and is capped at $2.22 per
      gallon. Conversely, payment obligations begin if heating oil on average drops
      below $1.85 per gallon.




***Interest
      Rate Swap***. From time to time, we may use interest rate swap
      agreements to limit our exposure to interest rate movements within the
      parameters of our interest rate hedging policy. In February 2006, United
      entered into an interest rate swap with an initial notional amount of
      $2.45 billion that would have decreased to $1.8 billion over the term
      of the swap. The swap would have expired in February 2012 and required
      United pay a fixed rate of 5.14% and receive a floating rate based on the
      three-month LIBOR. In January 2007, as a result of management’s
      reevaluation of the mix of fixed-rate and floating-rate debt in its debt
      portfolio, United terminated the swap for a payment of
      $4 million.




***Foreign
      Exchange.***During the second quarter of 2007, the Company began
      hedging a portion of its remaining 2007 foreign currency risk exposure using
      foreign currency forward contracts. As of June 30, 2007, the Company hedged
      a
      portion of its expected foreign currency cash flows in the Australian dollar,
      Canadian dollar, British pound, European Euro and Japanese yen. As of June
      30,
      2007, the notional amount of these foreign currencies hedged with the forward
      contracts in U.S, dollars terms was approximately $100 million. These contracts
      expire at various dates from July to November 2007. For the three and six months
      ended June 30, 2007, there were no material gains or losses from these
      derivative positions. As of June 30, 2007, the fair value of these contracts
      was
      less than $1 million.







25




**(13)**
            **Commitments,
                Contingent Liabilities and
                Uncertainties**




***General
      Guarantees and Indemnifications***.******In
      the normal course of business, UAL and United enter into numerous real estate
      leasing and aircraft financing arrangements that have various guarantees
      included in the contracts. These guarantees are primarily in the form of
      indemnities. In both leasing and financing transactions, the Company typically
      indemnifies the lessors, and any financing parties, against tort liabilities
      that arise out of the use, occupancy, operation or maintenance of the leased
      premises or financed aircraft. Currently, management believes that any future
      payments required under these guarantees or indemnities would be immaterial,
      as
      most tort liabilities and related indemnities are covered by insurance (subject
      to deductibles). Additionally, certain leased premises such as fueling stations
      or storage facilities include indemnities of such parties for any environmental
      liability that may arise out of or relate to the use of the leased
      premises.




***Bankruptcy
      Matters***.******See
      Note 2, “Voluntary Reorganization Under Chapter 11—Significant Matters Remaining
      to be Resolved in Chapter 11 Cases,” for a discussion of contingencies
      associated with UAL’s and United’s bankruptcy proceedings.




***Legal
      and Environmental Contingencies***.******UAL
      and United have certain contingencies resulting from litigation and claims
      (including environmental issues) incident to the ordinary course of business.
      Management believes, after considering a number of factors, including (but
      not
      limited to) the views of legal counsel, the nature of the contingencies and
      prior experience, that the ultimate resolution of these contingencies will
      not
      materially affect UAL’s or United’s consolidated financial position or results
      of operations. UAL and United record liabilities for legal and environmental
      claims when a loss is probable and reasonably estimable. These amounts are
      recorded based on management’s assessments of the likelihood of their eventual
      disposition. The amounts of these liabilities could increase or decrease in
      the
      near term, based on revisions to estimates relating to the various
      contingencies.




We
      anticipate that if ultimately found liable, our damages from claims arising
      from
      the events of September 11, 2001 could be significant; however, we believe
      that, under the Air Transportation Safety and System Stabilization Act of 2001,
      United’s liability will be limited to its insurance coverage.




***Commitments***.******At
      June 30, 2007, future commitments for the purchase of property and equipment,
      principally aircraft, approximated $2.9 billion, after deducting advance
      payments. The Company’s current commitments are primarily for the purchase of,
      in the aggregate, 42 A319 and A320 aircraft. However, United has the right
      to cancel these orders. Such action could cause the forfeiture of
      $91 million of advance payments if United does not take delivery of these
      aircraft. The Company’s current commitments would require the payment of an
      estimated $0.4 billion in 2007, $0.2 billion for the combined years of
      2008 and 2009, $0.7 billion for the combined years of 2010 and 2011 and
      $1.6 billion thereafter.




***Municipal
      Bond Guarantees*****.******UAL and United
      have entered into long-term agreements to lease certain airport and maintenance
      facilities that are financed through tax-exempt municipal bonds. These bonds
      were issued by various local municipalities to build or improve airport and
      maintenance facilities. Under these lease agreements, United is required to
      make
      rental payments in amounts sufficient to pay the maturing principal and interest
      payments on the bonds. As a result of the bankruptcy proceedings, many of the
      agreements were considered unsecured pre-petition debt. In 2006, as a result
      of
      final Bankruptcy Court decisions, certain leases were considered to be
      financings resulting in United’s guarantees being discharged in bankruptcy.
      United’s lease of certain facilities at the Denver International Airport was not
      rejected in bankruptcy; therefore, United continued to have a guarantee under
      this lease. In June 2007, United refinanced the Denver Bonds under favorable
      market conditions as discussed in Note 11, “Debt Obligations.”




***Tax
      Contingencies.*********UAL and United have
      recorded reserves for taxes and associated interest that may become payable
      in
      future years as a result of audits by tax authorities. Certain of these reserves
      are for uncertain income tax positions taken on income tax returns which are
      accounted for in accordance with FIN 48, effective January 1, 2007.
      Contingencies for taxes which are not based on income (i.e., gross receipts,
      revenues, sales taxes, etc.) are accounted for in accordance with
      SFAS 5*.*Although management believes that the positions taken on
      previously filed tax returns are reasonable, UAL and United nevertheless have
      established tax and interest reserves in recognition that various taxing
      authorities may challenge certain of the positions taken by the Company,
      potentially resulting in additional liabilities for taxes and interest. The
      Company’s tax contingency reserves are reviewed periodically and are adjusted as
      events occur that affect its estimates, such as the availability of new
      information, the lapsing of applicable statutes of limitations, the conclusion
      of tax audits, the measurement of additional estimated liability based on
      current calculations, the identification of new tax contingencies, the
      release of administrative tax guidance affecting its estimates of tax
      liabilities, or the rendering of relevant court decisions. See Note 7,
“Income Taxes,” for further information related to uncertain income tax
      positions and the adoption of FIN 48.







26




**(14)**
            **Open
                Skies Agreement**




On
      April 30, 2007, the U.S. government and the European Union (“EU”) signed a
      transatlantic aviation agreement to replace the existing bilateral arrangements
      between the U.S. Government and the 27 EU member states. The agreement is
      expected to become effective at the end of March 2008.




The
      agreement is based on the U.S. open skies model and authorizes U.S. airlines
      to
      operate between the United States and any point in the EU and beyond, free
      from
      government restrictions on capacity, frequencies and scheduling and provides
      EU
      carriers with reciprocal rights in these U.S./EU markets. The agreement also
      authorizes all U.S. and EU carriers to operate services between the United
      States and London Heathrow, thereby potentially adding new competition to
      United’s Heathrow operation, although Heathrow is currently subject to both slot
      and facility constraints which may practically limit the extent of new
      competition in the near term. This agreement does not provide for a reallocation
      of existing slots among carriers.




As
      of
      June 30, 2007 and December 31, 2006, United has recorded an indefinite-lived
      intangible asset of $255 million for its Heathrow slots, based upon its
      estimation of the fair value for those slots as of the adoption of fresh-start
      reporting on February 1, 2006. United, however, determined at fresh-start that
      its rights relating to its actual route authorities to Heathrow had a fair
      value
      of zero. The EU/U.S. open skies agreement is expected to directly impact the
      future value and expected lives of route authorities to Heathrow; however,
      there
      is no direct impact from the open skies agreement on airport slot rights,
      including those at Heathrow.  The open skies agreement is also
      expected to provide United an opportunity to secure antitrust immunity for
      certain of its Star
      Alliance®
      carrier relationships, and to provide United and other carriers with access
      to
      new markets in EU countries. Because of the diverse nature of these potential
      impacts on United’s business, the overall future impact of the agreement on
      United’s business in the EU region cannot be predicted with
      certainty.  United has concluded that, in certain circumstances, the
      open skies agreement could indirectly and adversely affect the fair value of
      its
      slot rights at Heathrow, and therefore has further concluded that the signing
      of
      the open skies agreement on April 30, 2007 constituted an indicator of
      impairment with respect to United’s Heathrow slots intangible
      asset.





During
      the second quarter of 2007, United performed an impairment review of the
      Heathrow slots intangible asset using the guidance in Statement of Financial
      Accounting Standards 142, “*Goodwill and Other Intangible Assets,”* and
      concluded that no impairment was currently indicated and that, furthermore,
      no
      change was currently required to the fresh-start assignment of an indefinite
      life to this intangible asset. United’s initial annual impairment test for its
      Heathrow slots was performed as of October 1, 2006 and no impairment was
      indicated at that time.





The
      implementation of the EU/U.S. open skies agreement, however, may result in
      a
      future determination that the Heathrow slots are impaired in whole or in part,
      or in a future determination that they should be reclassified as definite-lived
      intangible assets with amortization expense recognized thereon. Such future
      determination could result in material charges to earnings in those future
      periods.







**(15)**
            **Statement
                of Consolidated Cash Flows—Supplemental
                Disclosures**




UAL
      and
      United supplemental cash flow disclosures are as follows:




**Successor**
                
                
                **Predecessor****Six Months**
                  **Ended**
                  **June 30,**
                
                **Period from**
                  **February 1**
                  **to June
                    30,**
                
                
                **Period from**
                  **January 1 to 31,****(In millions)**
                
                **2007**
                
                **2006**
                
                
                **2006**Cash
                    paid during the period for:Interest
                    (net of amounts capitalized)
                
                $
                329
                
                
                $
                311
                
                
                
                $
                35Income
                    taxes
                
                
                —
                
                
                
                —
                
                
                
                
                —Non-cash
                    investing and financing activities:Long-term
                    debt incurred for additions to other assets
                
                $
                —
                
                
                $
                137
                
                
                
                $
                —










27


**(16)**
            **Related
                Party Transactions**




In
      the
      second quarter of 2007, UAL, United and Mileage Plus, Inc. (“MPI,” a wholly
      owned subsidiary of United), executed a note payment agreement to pay and
      thereby cancel a $200 million note payable (plus $14 million of accrued
      interest) between UAL and MPI. This transaction had no effect in the UAL
      consolidated financial statements and was treated as a forgiveness of debt
      in
      United’s financial statements, resulting in a decrease in paid in capital equal
      to the total decrease in notes and interest receivable.





**(17)**
            **Subsequent
                Events**




On
      July
      3, 2007, United, along with certain other major air carriers, entered into
      a
      stock purchase agreement related to the sale of their interests in the equity
      investment, Aeronautical Radio, Inc. (“ARINC”), to Radio Acquisition Corp., an
      affiliate of The Carlyle Group. ARINC is a provider of transportation
      communications and systems engineering. The proposed transaction is expected
      to
      close prior to October 31, 2007 and generate proceeds of approximately $130
      million and a net gain of more than $40 million. The closing of the transaction
      is subject to the satisfaction of a number of conditions, many of which are
      beyond the Company’s control, and no assurance can be given that such closing
      will occur.





In
      July
      2007, United purchased three 747-400 aircraft that had previously been financed
      by United through operating leases. The lease agreements were simultaneously
      terminated upon the closing of the acquisition. United used existing cash to
      acquire these aircraft. This transaction
      combined with the June 2007 EETC transaction, as described in Note 11, “Debt
      Obligations,” did not change the total number of encumbered
      aircraft.













28





**ITEM
              2.**
            
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**




***Overview***




UAL
      Corporation (together with its consolidated subsidiaries, “UAL”), is a holding
      company and its principal, wholly-owned subsidiary is United Air
      Lines, Inc., (together with its consolidated subsidiaries, “United”). We
      sometimes use the words “we,” “our,” “us,” and the “Company” in this Form 10-Q
      for disclosures that relate to both UAL and United. United’s operations consist
      primarily of the transportation of persons, property, and mail throughout the
      U.S. and abroad. United provides these services through full-sized jet aircraft
      (which we refer to as its “Mainline” operations), as well as smaller aircraft in
      its regional operations conducted under contract by “United Express®”
      carriers.




United
      is
      one of the largest passenger airlines in the world with more than 3,600 flights
      a day to more than 200 destinations through its Mainline and United Express
      services. United offers more than 1,550 average daily Mainline (including
      Ted(SM))
      departures to more than 120 destinations in 28 countries and two U.S.
      territories. United provides regional service, connecting primarily via United’s
      domestic hubs, through marketing relationships with United Express carriers,
      which provide more than 2,050 average daily departures to approximately 160
      destinations. United serves virtually every major market around the world,
      either directly or through its participation in the Star Alliance®, the world’s
      largest airline network.




***Bankruptcy
      Matters.*********On December 9, 2002 (the
“Petition Date”), UAL, United and 26 direct and
      indirect wholly-owned
      subsidiaries (collectively, the “Debtors”) filed voluntary petitions to
      reorganize their businesses under Chapter 11 of the United States
      Bankruptcy Code in the United States Bankruptcy Court for the Northern District
      of Illinois, Eastern Division (the “Bankruptcy Court”). On January 20,
      2006, the Bankruptcy Court confirmed the Debtors’ Second Amended Joint Plan of
      Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code
      (the “Plan of Reorganization”). The Plan of Reorganization became effective and
      the Debtors emerged from bankruptcy protection on February 1, 2006 (the
“Effective Date”). On the Effective Date, UAL and United implemented fresh-start
      reporting, which resulted in significant changes as compared to the historical
      financial statements. See Note 2, “Voluntary Reorganization Under
      Chapter 11” in *Combined Notes to Condensed Consolidated Financial
      Statements (Unaudited)* for further information regarding bankruptcy
      matters.




***Recent
      Developments.*********We believe our
      restructuring has made United competitive with its network airline peers.
      However, we seek to continuously improve the delivery of our products and
      services to our customers, reduce our costs, and increase our revenues. Some
      of
      these initiatives and other 2007 developments include the
      following:




·
            In
                June 2007, United completed the issuance of $694 million of secured
                debt
                financing. A portion of the proceeds from this transaction were used
                to
                repay certain secured notes related to a total of ten aircraft, and
                to
                finance three additional unencumbered aircraft. In June 2007, we
                also
                completed a refinancing of the original $261 million principal amount
                of
                City and County of Denver, Colorado Special Facilities Airport Revenue
                Bonds Series 1992A with $270 million in new Series 2007A bonds. In
                February 2007, United prepaid $972 million of Credit Facility
                debt and amended certain terms of the Credit Facility. The Company
                expects
                these transactions to reduce rent expense and interest expense, net
                of
                interest income, by approximately $100 million in 2008. See *Liquidity
                and Capital Resources* below and Note 11, “Debt Obligations” in
                *Combined Notes to Condensed Consolidated Financial Statements
                (Unaudited)*for further information related to these
                transactions.




·
            In
                2007, UAL’s operating cash flow improved by more than 40% as compared to
                the prior periods, increasing to $1.0 billion and $1.7 billion for
                the
                three and six months ended June 30, 2007, respectively. The improvement
                in
                cash flows was primarily due to improved results of operations and
                certain
                working capital changes, as discussed
                below.




29


·
            In
                2006, United announced a program to reduce projected 2007 expenses
                by
                $400 million. United has identified some specific programs to realize
                a portion of these savings, and continues to identify and evaluate
                other
                savings opportunities. For example, we expect to reduce costs by
                approximately $200 million through savings in such areas as
                telecommunications, airport services, catering, maintenance materials,
                aircraft ground handling
                and regional affiliates. United also expects to reduce advertising
                and
                marketing costs by as much as $60 million. The implementation of a
                new flight planning system, and reduced block time opportunities,
                are
                expected to generate approximately $40 million in savings. In
                addition, we estimate a $100 million reduction in general and
                administrative expense, which includes a reduction of salaried and
                management positions. We realized approximately $135 million of these
                cost reductions in 2006 and are on track to achieve the remaining
                $265 million in 2007.




·
            We
                continue to identify and implement continuous improvement programs,
                and
                are actively training key employees in continuous improvement strategies
                and techniques. These programs include initiatives such as optimization
                of
                aircraft and airport facilities and selected outsourcing of activities
                to
                more cost-effective service providers. We expect that these programs,
                as
                well as the aforementioned expense reduction programs, will produce
                economic benefits that will be necessary to mitigate inflationary
                cost
                pressures in other categories of operating expenses, such as airport
                usage
                fees, aircraft maintenance, and employee healthcare benefits, among
                others.




·
            United
                received final U.S. Department of Transportation (“DOT”) approval for its
                nonstop service between Washington Dulles International Airport (“Dulles”)
                and Beijing in February of 2007. This new service commenced on
                March 28, 2007. In addition, United’s new nonstop service between
                Dulles and Rome commenced on April 1,
                2007.




·
            In
                July 2007, the Company announced it applied to the DOT to begin
                daily, nonstop service from San Francisco and Los Angeles to China
                to
                address the rapidly rising, unmet demand for service to China from
                the
                West Coast. The application requests that service from San Francisco
                to
                Guangzhou commences in 2008 and from Los Angeles to Shanghai in
                2009.




·
            In
                reaction to a weaker domestic yield environment, United announced
                plans in
                May 2007 to reduce 2007 Mainline domestic capacity growth by approximately
                2.0% from previously planned levels. This reduction in planned domestic
                capacity growth enables the Company to meet increasing international
                demand and further optimize its revenue
                performance.




·
            United
                will strengthen its passenger and cargo service to the Middle East,
                one of
                the world’s most rapidly growing business regions, by adding more flights
                between Washington, D.C. and Kuwait City and by signing a code sharing
                agreement with Qatar Airways. Customer response to United’s thrice-weekly
                Kuwait service has been strong, and the Company recently announced
                an
                increase of this service to daily frequency, effective January 2,
                2008.




·
            The
                Company recently announced that it was further strengthening its
                international network by launching two new non-stop flights from
                the U.S.
                to Asia and South America. Daily, non-stop passenger and cargo service
                between Los Angeles and Hong Kong and between Washington, D.C. and
                Rio de
                Janeiro will begin October 2007.




·
            In
                April 2007, United announced it has signed a long-term contract with
                the U.S. Postal Service (“USPS”) for the carriage of domestic mail. 
                The contract began in April 2007 and terminates in
                September 2011. United has continued to carry international mail for
                the USPS after its former domestic mail contract ended in
                June 2006.




·
            United
                and Aloha Airlines (“Aloha”) announced plans to expand their existing
                cooperation agreement and strengthen their partnership in the Hawaii
                and
                Transpacific markets. The agreement, which became effective July
                3, 2007,
                capitalizes on both Aloha’s and United’s 60 years of experience in serving
                Hawaii and expands marketing, operational and financial opportunities
                for
                both carriers. Under the agreement, United receives a minority equity
                stake in Aloha that could expand over time and a seat on Aloha’s board of
                directors.




·
            As
                part of its International Premium Travel Experience initiative, the
                Company has announced its new 180olie-flat
                international business class seat. This initiative, which also includes
                a
                new first class product and new décor in economy class, offers United’s
                customers a premium cabin experience that surpasses its North American
                competitors and rivals the major global
                carriers.







30





·
            The
                U.S. government and the European Union (“EU”) recently signed a
                transatlantic aviation agreement to replace the existing bilateral
                arrangements between the U.S. Government and the 27 EU member states.
                The
                agreement will become effective at the end of March 2008. The future
                benefits of this agreement cannot be predicted due to potential increased
                competition; however, we have already taken actions to capitalize
                on
                opportunities under the new agreement, including United’s recent
                application to complete its antitrust immunity with bmi that would
                allow
                the two airlines to integrate their operations at London’s Heathrow
                airport.




***Financial
      Results.*********
      UAL and United adopted fresh-start reporting in accordance with American
      Institute of Certified Public Accountants’ Statement of Position 90-7,
*Financial Reporting by Entities in Reorganization under the Bankruptcy
      Code* (“SOP 90-7”), upon emerging from bankruptcy. Thus, the consolidated
      financial statements before February 1, 2006 reflect results based upon the
      historical cost basis of UAL and United while the post-emergence consolidated
      financial statements reflect the new basis of accounting, which incorporates
      fair value adjustments recorded from the application of SOP 90-7. Therefore,
      financial statements for the post-emergence periods are not comparable to the
      pre-emergence period financial statements. References to “Successor” refer to
      UAL or United on or after February 1, 2006, after giving effect to the
      adoption of fresh-start reporting. References to “Predecessor” refer to UAL or
      United before exiting bankruptcy on February 1, 2006.




For
      purposes of preparing year-over-year discussions of the results of operations,
      management has compared the Successor results for the three and six month
      periods ended June 30, 2007, to the combined results for the same three and
      six
      month periods of 2006. The 2006 combined six month period includes Predecessor
      results for the one month period ended January 31, 2006. The presentation of
      results for the combined six month period of 2006 are non-GAAP measures.
      However, management believes that analysis and explanation of the combined
      six
      month period of 2006 provides management and other users a useful basis of
      comparison to the six months ended June 30, 2007.




The
      air
      travel business is subject to seasonal fluctuations and, historically, the
      Company’s results of operations are better in the second and third quarters as
      compared to the first and fourth quarters of each year, since our first and
      fourth quarter results normally reflect weaker travel demand. The Company’s
      results of operations can be impacted by adverse weather, air traffic control
      delays and other factors in any period.




The
      table
      below presents certain financial statement items to provide an overview of
      UAL’s
      and United’s financial performance in the three and six month periods ended June
      30, 2007 as compared to the same periods in 2006:




Successor
                    
                    
                    Combined
                    
                    
                    Successor
                    
                    
                    PredecessorSix
                        Months
                    
                    
                    Six
                        Months
                    
                    
                    Period
                        from
                    
                    
                    Period
                        fromThree
                        Months
                    
                    
                    Ended
                    
                    
                    Ended
                    
                    
                    February
                        1 to
                    
                    
                    January
                        1 toEnded
                        June 30,
                    
                    
                    June
                        30,
                    
                    
                    June
                        30,
                    
                    
                    June
                        30,
                    
                    
                    January
                        31,(In
                        millions)
                    
                    2007
                    
                    
                    2006
                    
                    
                    2007
                    
                    
                    2006
                        (a)
                    
                    
                    2006
                    
                    
                    2006**UAL**Earnings
                        (loss) before reorganization items, incometaxes
                        and equity in earnings of affiliates
                    
                    $
                    465
                    
                    
                    $
                    116
                    
                    
                    $
                    228
                    
                    
                    $
                    (195
                    )
                    
                    $
                    (107
                    )
                    
                    $
                    (88
                    )Reorganization
                        income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    22,934
                    
                    
                    
                    -
                    
                    
                    
                    22,934Income
                        tax expense
                    
                    
                    (192
                    )
                    
                    
                    -
                    
                    
                    
                    (108
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Equity
                        in earnings of affiliates
                    
                    
                    1
                    
                    
                    
                    3
                    
                    
                    
                    2
                    
                    
                    
                    8
                    
                    
                    
                    3
                    
                    
                    
                    5UAL
                        net income (loss)
                    
                    $
                    274
                    
                    
                    $
                    119
                    
                    
                    $
                    122
                    
                    
                    $
                    22,747
                    
                    
                    $
                    (104
                    )
                    
                    $
                    22,851United
                        net income (loss)
                    
                    $
                    278
                    
                    
                    $
                    111
                    
                    
                    $
                    130
                    
                    
                    $
                    22,522
                    
                    
                    $
                    (104
                    )
                    
                    $
                    22,626




(a)
            The
                combined period includes the results for the one month period ended
                January 31, 2006 (Predecessor) and the five month period ended
                June 30, 2006 (Successor).







31





*UAL*




In
      the
      three and six month periods ended June 30, 2007, UAL’s income before
      reorganization items, income taxes and equity in earnings of affiliates improved
      by $349 million and $423 million, respectively, as compared to the same
      periods in 2006. The following items highlight some of the more significant
      variances in the 2007 period as compared to the 2006 period. For a more detailed
      discussion of these items and additional factors impacting our financial
      performance see *Results of Operations*, below.




·
            Passenger
                revenues increased by $205 million and $219 million in the three
                and six
                month periods ended June 30, 2007, respectively, as compared to the
                prior
                periods due to increases in both traffic and
                yield.




·
            In
                the first quarter of 2007, the Company reduced its accrual for bankruptcy
                litigation associated with potential security interests in its San
                Francisco International Airport (“SFO”) and Los Angeles International
                Airport (“LAX”) facility leases by a total of $22 million based on an
                updated analysis of its potential obligations. This benefit to income
                is
                classified as a special item in the *Condensed Statements of
                Consolidated Operations
                (Unaudited)*.




·
            In
                the three and six month periods ended June 30, 2007, UAL recognized
                income
                tax expense of $192 million and $108 million, respectively. Income
                tax expense was not recorded in the prior
                periods.




·
            UAL
                interest expense, net of interest income, decreased by more than
                $60
                million in both 2007 periods as compared to the year-ago periods
                primarily
                due to the prepayment and amendment of the Credit Facility in February
                2007 as discussed below.




*United*




The
      improvement in United’s results was largely consistent with that of UAL. The
      primary difference between United’s and UAL’s net income for the combined six
      months of 2006 was a $225 million variance in reorganization income that was
      primarily due to $239 million of additional UAL income from the discharge of
      certain claims and liabilities that existed at UAL, but not at
      United.




***Liquidity.*********Despite
      the $972 million debt prepayment of the Credit Facility in the first
      quarter of 2007, as of June 30, 2007, UAL had total cash, including restricted
      cash and short-term investments, of $5.1 billion, of which $5.0 billion was
      held by United. This strong cash position resulted from the Company’s
      recapitalization upon emerging from bankruptcy and strong operating cash flows
      since emerging from bankruptcy. UAL and United generated cash flow from
      operations of $1,660 million and $1,649 million, respectively, during the
      six month period ended June 30, 2007, as compared to operating cash flow of
      $1,138 million and $1,159 million, respectively, in the combined six month
      period of 2006. See *Liquidity and Capital Resources*, below, for further
      information.




***Capital
      Commitments.*********As of June 30, 2007, the
      Company’s future commitments for the purchase of property and equipment,
      principally aircraft, approximated $2.9 billion, after deducting advance
      payments. Our current commitments are primarily for the purchase of A319 and
      A320 aircraft. United has the right to cancel these orders. Such action could
      cause the forfeiture of $91 million of advance payments if United does not
      take future delivery of these aircraft. For further details, see Note 13,
“Commitments, Contingent Liabilities and Uncertainties” in *Combined Notes to
      Condensed Consolidated Financial Statements (Unaudited).*




***Contingencies.*********During
      the course of the Company’s Chapter 11 proceedings, we successfully reached
      settlements with most of our creditors and resolved most pending claims against
      the Debtors. The following discussion provides an overview of the status of
      unresolved bankruptcy matters as well as other contingencies. For further
      details on these matters, see Note 2, “Voluntary Reorganization Under
      Chapter 11—Bankruptcy Considerations” and Note 13, “Commitments,
      Contingent Liabilities and Uncertainties” in *Combined Notes to Condensed
      Consolidated Financial Statements (Unaudited).*




*Municipal
      Bond Obligations & Off-Balance Sheet Financing.* We are a party to
      numerous long-term agreements to lease certain airport and maintenance
      facilities that are financed through tax-exempt municipal bonds issued by
      various local municipalities to build or improve airport and maintenance
      facilities. United had been advised that these municipal bonds may have been
      unsecured (or in certain instances, partially secured) pre-petition debt. In
      2006,
      certain of United’s municipal bond obligations relating to LAX and SFO were
      conclusively adjudicated through the Bankruptcy Court as financings and not
      true
      leases; however, there remains pending litigation to determine the value of
      the
      security interests, if any, that the bondholders at LAX and SFO have in our
      underlying leaseholds.







32





United
      has guaranteed $270 million of the City and County of Denver, Colorado
      Special Facilities Airport Revenue Bonds (United Air Lines Project)
      Series 2007A (the “Denver Bonds”). This guarantee replaces our prior
      guarantee of $261 million of bonds issued by the City and County of Denver,
      Colorado in 1992. These bonds are callable by United. The outstanding bonds
      and
      related guarantee are not recorded in the Company’s *Condensed Statements of
      Consolidated Financial Position (Unaudited)*.




*Legal
      and Environmental.***The Company has certain contingencies resulting
      from litigation and claims (including environmental issues) incident to the
      ordinary course of business. Management believes, after considering a number
      of
      factors, including (but not limited to) the views of legal counsel, the nature
      of contingencies to which UAL and United are subject and prior experience,
      that
      the ultimate disposition of these contingencies will not materially affect
      UAL’s
      or United’s consolidated financial position or results of operations. When
      appropriate, United accrues for these matters based on its assessments of the
      likely outcomes of their eventual disposition. The amounts of these liabilities
      could increase or decrease in the near term, based on revisions to estimates
      relating to the various claims.




New
      regulations surrounding the emission of greenhouse gases (such as carbon
      dioxide) are being considered for promulgation both internationally and within
      the United States. We will be carefully evaluating the potential impact of
      such
      proposed regulations.




We
      anticipate that if ultimately found liable, our damages from claims arising
      from
      the events of September 11, 2001, could be significant; however, we believe
      that, under the Air Transportation Safety and System Stabilization Act of 2001,
      our liability will be limited to its insurance coverage.




***Results
                of Operations***




*Second
      Quarter 2007 Compared to Second Quarter 2006*




United’s
      operating revenues and operating expenses comprise nearly 100% of UAL’s revenues
      and operating expenses. Therefore, the following qualitative discussion is
      applicable to both UAL and United, unless otherwise noted. Any significant
      differences between UAL and United results are separately disclosed and
      explained.




UAL’s
      income from operations of $537 million in the three months ended June 30,
      2007 improved by $277 million as compared to the operating income of
      $260 million in the year-ago period. UAL’s net income improved by $155
      million to $274 million in the three month period ended June 30, 2007 as
      compared to net income of $119 million in the year-ago period. United had
      similar improvements in its results of operations with operating income and
      net
      income improving by $279 million and $167 million, respectively, in these same
      periods. The improvement in our results of operations was due to improved
      revenue performance, cost control initiatives, debt repayment and restructuring,
      and other factors discussed below. Net income was impacted in the 2007 periods
      as compared to the 2006 periods due to recording of income tax expense in the
      2007 periods. We did not record any income tax expense in the comparable 2006
      periods.




See
      Note 2, “Voluntary Reorganization Under Chapter 11—Reorganization
      items” in *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)* for further information on reorganization items.




33


*Operating
      Revenues.***The following table illustrates the year-over-year
      percentage change in UAL and United operating revenues:




Three
                                    Months EndedJune
                                    30,
                                
                                
                                $
                                
                                
                                %(In
                                    millions)
                                
                                2007
                                
                                
                                2006
                                
                                
                                Change
                                
                                
                                Change**UAL:**Passenger
                                    - United Airlines
                                
                                $
                                3,968
                                
                                
                                $
                                3,806
                                
                                
                                $
                                162
                                
                                
                                
                                4Passenger - Regional Affiliates
                                
                                
                                804
                                
                                
                                
                                761
                                
                                
                                
                                43
                                
                                
                                
                                6Cargo
                                
                                
                                181
                                
                                
                                
                                194
                                
                                
                                
                                (13
                                )
                                
                                
                                (7
                                )Other operating revenues
                                
                                
                                260
                                
                                
                                
                                352
                                
                                
                                
                                (92
                                )
                                
                                
                                (26
                                )$
                                5,213
                                
                                
                                $
                                5,113
                                
                                
                                $
                                100
                                
                                
                                
                                2**United:**Passenger
                                    - United Airlines
                                
                                $
                                3,968
                                
                                
                                $
                                3,806
                                
                                
                                $
                                162
                                
                                
                                
                                4Passenger
                                    - Regional Affiliates
                                
                                
                                804
                                
                                
                                
                                761
                                
                                
                                
                                43
                                
                                
                                
                                6Cargo
                                
                                
                                181
                                
                                
                                
                                194
                                
                                
                                
                                (13
                                )
                                
                                
                                (7
                                )Other
                                    operating revenues
                                
                                
                                263
                                
                                
                                
                                350
                                
                                
                                
                                (87
                                )
                                
                                
                                (25
                                )$
                                5,216
                                
                                
                                $
                                5,111
                                
                                
                                $
                                105
                                
                                
                                
                                2







The
      table
      below presents selected UAL and United passenger revenues and operating data
      from our Mainline segment, broken out by geographic region, and from our United
      Express segment, expressed as second quarter period-to-period
      changes:




**2007**
              
              **North
                  America**
              
              
              **Pacific**
              
              **Atlantic**
              
              **Latin**
              
              **Mainline**
              
              **United
                  Express**
              
              **Consolidated**Increase
                  (decrease) from 2006:Passenger
                  revenues (in millions)
              $
              (52
              )
              
              $
              89
              
              
              $
              130
              
              
              $
              (5
              )
              
              $
              162
              
              
              $
              43
              
              
              $
              205Passenger
                  revenues
              
              (2.1
              )
              %
              
              12.2
              
              %
              
              25.5
              
              %
              
              (3.3
              )
              %
              
              4.3
              
              %
              
              5.7
              
              %
              
              4.5
              
              %Available
                  seat miles (ASMs)
              
              (3.3
              )
              %
              
              0.8
              
              %
              
              9.8
              
              %
              
              (9.5
              )
              %
              
              (0.9
              )
              %
              
              7.4
              
              %
              
              (0.1
              )
              %Revenue
                  passenger miles (RPMs)
              
              (0.3
              )
              %
              
              (1.1
              )
              %
              
              9.1
              
              %
              
              (13.8
              )
              %
              
              0.3
              
              %
              
              7.2
              
              %
              
              0.9
              
              %Load
                  factor (points)
              
              2.6
              
              pts.
              
              (1.6
              )
              pts.
              
              (0.6
              )
              pts.
              
              (4.0
              )
              pts.
              
              1.0
              
              pts.
              
              (0.2
              )
              pts.
              
              0.8
              
              pts.Yield
                  (a)
              
              (1.7
              )
              %
              
              13.4
              
              %
              
              14.9
              
              %
              
              14.0
              
              %
              
              4.0
              
              %
              
              (1.4
              )
              %
              
              3.6
              
              %


(a)
            Yield
                is a measure of average price paid per passenger mile, which is calculated
                by dividing passenger revenues by RPMs. Yields for geographic regions
                exclude charter revenue and RPMs.




Mainline
      and United Express passenger revenues increased $162 million and
      $43 million, respectively, in the 2007 period as compared to the same
      period in 2006. In the second quarter of 2007, Mainline revenues benefited
      from
      a 1.0 point increase in load factor and a 4.0% increase in yield as compared
      to
      the second quarter of 2006. In the same periods, United Express load factor
      decreased by 0.2 point and yield decreased 1.4%; however, revenues still
      increased due to the 7.2% increase in traffic. Revenues for both segments
      benefited from increased Mileage Plus revenue of approximately $27 million
      and
      $6 million for Mainline and United Express, respectively, in the 2007 period
      as
      compared to 2006. A change in the Mileage Plus expiration period policy from
      36
      months to 18 months provided a benefit of $47 million in the second quarter
      of
      2007, as discussed in *Critical Accounting Policies*, below. Mileage Plus
      customer accounts are deactivated after 18 months of inactivity, effective
      December 31, 2007. We estimate the number of accounts that will eventually
      become deactivated and ratably reduce the deferred revenue balance for estimated
      deactivated accounts over the expiration period.




UAL
      cargo
      revenues decreased by approximately $13 million, or 7%, in the three month
      period ended June 30, 2007 as compared to the same period in 2006. Decreased
      traffic and yield for the Pacific region contributed to the decrease in cargo
      revenues. The traffic and yield decreases were due to increased competition
      in
      the region, primarily from capacity added by foreign carriers.  The
      termination of our former contract to carry U.S. domestic mail for the USPS
      as
      of June 30, 2006 also contributed to the decrease in cargo
      revenues.  However, since this contract termination we have continued
      to carry international mail for the USPS, and recently entered into a new
      contract to carry domestic mail, as discussed above.







34





UAL
      other
      operating revenues decreased by $92 million, or 26%, in the three month
      period ended June 30, 2007 as compared to the same period in 2006. Lower jet
      fuel sales to third parties by our subsidiary, United Aviation Fuel Corporation
      (“UAFC”) accounted for $91 million of the other revenue decrease. This
      decrease was due to several factors, including decreased UAFC sales to our
      regional affiliates; decreased sales due to our decision not to renew various
      supply agreements to other carriers; and, decreased sales of excess inventory.
      The decrease in UAFC sales had virtually no impact on our operating margin,
      because UAFC cost of sales decreased by $90 million in the three months
      ended June 30, 2007 as compared to the year-ago period.




*Operating
      Expenses.***The table below includes the year-over-year dollar and
      percentage changes in UAL and United operating expenses. Significant
      fluctuations are discussed below.




Three
                                MonthsEnded
                                June 30,
                            
                            
                            $
                            
                            
                            %(In
                                millions)
                            
                            2007
                            
                            
                            2006
                            
                            
                            Change
                            
                            
                            Change**UAL**Aircraft
                                fuel
                            
                            $
                            1,206
                            
                            
                            $
                            1,250
                            
                            
                            $
                            (44
                            )
                            
                            
                            (4
                            )Salaries
                                and related costs
                            
                            
                            1,019
                            
                            
                            
                            1,071
                            
                            
                            
                            (52
                            )
                            
                            
                            (5
                            )Regional
                                affiliates
                            
                            
                            733
                            
                            
                            
                            715
                            
                            
                            
                            18
                            
                            
                            
                            3Purchased
                                services
                            
                            
                            335
                            
                            
                            
                            321
                            
                            
                            
                            14
                            
                            
                            
                            4Aircraft
                                maintenance materials and outside repairs
                            
                            
                            284
                            
                            
                            
                            257
                            
                            
                            
                            27
                            
                            
                            
                            11Depreciation
                                and amortization
                            
                            
                            229
                            
                            
                            
                            218
                            
                            
                            
                            11
                            
                            
                            
                            5Landing
                                fees and other rent
                            
                            
                            215
                            
                            
                            
                            225
                            
                            
                            
                            (10
                            )
                            
                            
                            (4
                            )Distribution
                                expenses
                            
                            
                            197
                            
                            
                            
                            208
                            
                            
                            
                            (11
                            )
                            
                            
                            (5
                            )Aircraft
                                rent
                            
                            
                            105
                            
                            
                            
                            109
                            
                            
                            
                            (4
                            )
                            
                            
                            (4
                            )Cost
                                of third party sales
                            
                            
                            77
                            
                            
                            
                            190
                            
                            
                            
                            (113
                            )
                            
                            
                            (59
                            )Other
                                operating expenses
                            
                            
                            276
                            
                            
                            
                            289
                            
                            
                            
                            (13
                            )
                            
                            
                            (4
                            )$
                            4,676
                            
                            
                            $
                            4,853
                            
                            
                            $
                            (177
                            )
                            
                            
                            (4
                            )**United**Aircraft
                                fuel
                            
                            $
                            1,206
                            
                            
                            $
                            1,250
                            
                            
                            $
                            (44
                            )
                            
                            
                            (4
                            )Salaries
                                and related costs
                            
                            
                            1,018
                            
                            
                            
                            1,070
                            
                            
                            
                            (52
                            )
                            
                            
                            (5
                            )Regional
                                affiliates
                            
                            
                            733
                            
                            
                            
                            715
                            
                            
                            
                            18
                            
                            
                            
                            3Purchased
                                services
                            
                            
                            335
                            
                            
                            
                            321
                            
                            
                            
                            14
                            
                            
                            
                            4Aircraft
                                maintenance materials and outside repairs
                            
                            
                            284
                            
                            
                            
                            257
                            
                            
                            
                            27
                            
                            
                            
                            11Depreciation
                                and amortization
                            
                            
                            229
                            
                            
                            
                            218
                            
                            
                            
                            11
                            
                            
                            
                            5Landing
                                fees and other rent
                            
                            
                            215
                            
                            
                            
                            226
                            
                            
                            
                            (11
                            )
                            
                            
                            (5
                            )Distribution
                                expenses
                            
                            
                            197
                            
                            
                            
                            208
                            
                            
                            
                            (11
                            )
                            
                            
                            (5
                            )Aircraft
                                rent
                            
                            
                            105
                            
                            
                            
                            110
                            
                            
                            
                            (5
                            )
                            
                            
                            (5
                            )Cost
                                of third party sales
                            
                            
                            76
                            
                            
                            
                            188
                            
                            
                            
                            (112
                            )
                            
                            
                            (60
                            )Other
                                operating expenses
                            
                            
                            276
                            
                            
                            
                            285
                            
                            
                            
                            (9
                            )
                            
                            
                            (3
                            )$
                            4,674
                            
                            
                            $
                            4,848
                            
                            
                            $
                            (174
                            )
                            
                            
                            (4
                            )




As
      discussed in Note 1, “Basis of Presentation” in *Combined Notes to
      Condensed Consolidated Financial Statements (Unaudited),*distribution
      expenses include commissions, global distribution systems (“GDS”) and credit
      card transaction fees. Prior period information has been reclassified to conform
      to the current period presentation. Previously, GDS and credit card transaction
      fees were classified as components of purchased services and commissions
      were reported as a separate expense item in the UAL and United quarterly reports
      on Form 10-Q for the quarterly period ended June 30, 2006.







35





Aircraft
      fuel decreased $44 million, or 4%, in the three month period ended June 30,
      2007 as compared to the same period in 2006. This net fuel variance was due
      to a
      4% decrease in the average price per gallon of jet fuel from $2.16 per gallon
      in
      the second quarter of 2006 to $2.08 per gallon in the second quarter of 2007.
      This resulted from favorable market conditions and from a $19 million
      increase in net hedge gains of $17 million in the 2007 period, as compared
      to a net hedge loss of $2 million in the 2006 period.




UAL
      salaries and related costs decreased $52 million, or 5%, in the second
      quarter of 2007 as compared to the year-ago period. This variance was largely
      due to a reduction in share-based compensation expense, which was
      $40 million in the 2006 period, but only $11 million in the 2007
      period. Less compensation expense was recognized in the 2007 period, as compared
      to the prior period, for awards that were granted in
      2006.  Share-based compensation expense was lower in the second
      quarter of 2007 as compared to the 2006 quarter due to the large number of
      grants made in early 2006 in connection with the Company’s emergence from
      bankruptcy. Also benefiting salaries and related costs in the 2007 period as
      compared to the same period in 2006 was the absence of the $22 million severance
      charge incurred during the second quarter of 2006.




Regional
      affiliate expense increased $18 million, or 3%, during the second quarter
      of 2007 as compared to the same period last year. Regional affiliate expense
      increased primarily due to an increase in capacity, which increased 7% in the
      second quarter of 2007 as compared to the prior period. Our regional affiliate
      operating margin was $71 million in the 2007 period as compared to
      $46 million in the 2006 period. This improvement is due to the
      restructuring of lower-cost regional carrier capacity agreements, the
      replacement of some 50-seat regional jets with 70-seat regional jets and
      regional carrier network optimization. All of these improvements were put in
      place throughout 2006; however, we are still realizing some year-over-year
      benefits in 2007. The average price of regional affiliates fuel decreased by
      2%;
      however, consumption increased 4% resulting in a $5 million increase in
      fuel costs during the 2007 period as compared to the 2006 period; such fuel
      costs are classified as Regional affiliate expense.




For
      the
      three months ended June 30, 2007, aircraft maintenance materials and outside
      repairs expense increased $27 million, or 11%, year-over-year primarily due
      to inflationary increases related to our V2500 engine maintenance contract
      and
      the cost of component parts.




UAL
      landing fees and other rent decreased $10 million, or 4%, in the second
      quarter of 2007 as compared to the year-ago period due to a reduction in the
      amount of facilities rented based upon our ongoing efforts to optimize our
      rented facilities with our operational needs.




UAL
      distribution expenses, which include commissions, GDS fees and credit card
      fees
      decreased 5% from the 2006 period to $197 million for the quarter ended
      June 30, 2007.This decrease was due to cost savings realized as the
      Company continues to drive reductions across the full spectrum of costs of
      sale.
      Impact areas included renegotiation of contracts with various channel providers,
      rationalization of commission plans and programs, and continued emphasis on
      movement of volumes toward lower cost channels including online
      channels.




The
      decrease in UAL cost of sales of $113 million in the 2007 period as
      compared to the 2006 period was primarily due to lower UAFC third party fuel
      sales and third-party maintenance work as described in the discussion of revenue
      variances above. The decrease in cost of sales is consistent with the
      $92 million decrease in UAL other revenues for the same
      periods.




36


*Other
      income (expense).*The following table illustrates the year-over-year dollar
      and percentage changes in UAL and United other income (expense).





Three
                                    Months EndedJune
                                    30,
                                
                                
                                Favorable/
                                
                                
                                %(In
                                    millions)
                                
                                2007
                                
                                
                                2006
                                
                                
                                (Unfavorable)
                                
                                
                                Change**UAL**Interest
                                    expense
                                
                                $
                                (139
                                )
                                
                                $
                                (211
                                )
                                
                                $
                                72
                                
                                
                                
                                34Interest
                                    income
                                
                                
                                62
                                
                                
                                
                                67
                                
                                
                                
                                (5
                                )
                                
                                
                                (7
                                )Interest
                                    capitalized
                                
                                
                                4
                                
                                
                                
                                4
                                
                                
                                
                                -
                                
                                
                                
                                -Miscellaneous,
                                    net
                                
                                
                                1
                                
                                
                                
                                (4
                                )
                                
                                
                                5
                                
                                
                                
                                -$
                                (72
                                )
                                
                                $
                                (144
                                )
                                
                                $
                                72
                                
                                
                                
                                50**United**Interest
                                    expense
                                
                                $
                                (139
                                )
                                
                                $
                                (222
                                )
                                
                                $
                                83
                                
                                
                                
                                37Interest
                                    income
                                
                                
                                64
                                
                                
                                
                                65
                                
                                
                                
                                (1
                                )
                                
                                
                                (2
                                )Interest
                                    capitalized
                                
                                
                                4
                                
                                
                                
                                4
                                
                                
                                
                                -
                                
                                
                                
                                -Miscellaneous,
                                    net
                                
                                
                                -
                                
                                
                                
                                (2
                                )
                                
                                
                                2
                                
                                
                                
                                -$
                                (71
                                )
                                
                                $
                                (155
                                )
                                
                                $
                                84
                                
                                
                                
                                54





UAL
      interest expense decreased $72 million, or 34%, in the quarter ended June
      30, 2007 as compared to the year-ago period. The 2007 period was favorably
      impacted by the prepayment and amendment of the Credit Facility, which lowered
      United’s interest rate on these obligations and decreased outstanding debt by
      $972 million. Repayments of scheduled debt obligations in the second half of
      2006 and in 2007 also reduced interest expense in the 2007 period as compared
      to
      the 2006 period. The refinancing of certain aircraft in 2007 provided an
      additional benefit of $22 million to interest expense due to the recognition
      of
      a gain on the extinguishment of certain aircraft mortgages. See *Liquidity
      and Capital Resources* below, for further details related to this
      transaction.




*Income
      Taxes.***UAL and United recorded income tax expense for the second
      quarter ended June 30, 2007 based on an estimated effective tax rate of 41%.
      Income tax expense was not recorded in the same period of 2006. See Note 7,
      “Income Taxes” in *Combined Notes to Condensed Consolidated Financial
      Statements (Unaudited),* for factors impacting the effective tax rate
      recorded in the 2007 period.




*First
      Six Months of 2007 Compared to First Six Months of 2006*




UAL’s
      earnings from operations of $445 million in the six months ended June 30,
      2007 improved by $356 million as compared to earnings from operations of
      $89 million in the combined six months ended June 30, 2006. UAL’s net
      income was $122 million in the six month period ended June 30, 2007 as
      compared to net income of $22.7 billion in the combined six month period
      ended June 30, 2006. The  most significant variance is reorganization
      income of $22.9 billion that was recorded in the 2006 period. Except for
      reorganization items, earnings improved in 2007 due to the items discussed
      in
      the second quarter *Results of Operations,* above, and additional factors
      discussed below.




United’s
      improvement in earnings from operations of $360 million was consistent with
      UAL’s results. United’s net income was $130 million in the six month period
      ended June 30, 2007 as compared to net income of $22.5 billion in the
      combined six month period ended June 30, 2006, with the difference in net income
      primarily due to  reorganization income that was recorded in the 2006
      period.




See
      Note 2, “Voluntary Reorganization Under Chapter 11—Reorganization
      items” in *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)* for further information on reorganization items.




37


***Operating****Revenues.*****The following table illustrates the year-over-year
      percentage change in UAL and United operating revenues:


Successor
                                                                  
                                                                  
                                                                  Combined
                                                                  
                                                                  
                                                                  Successor
                                                                  
                                                                  
                                                                  PredecessorSix
                                                                  
                                                                  
                                                                  SixMonths
                                                                  
                                                                  
                                                                  Months
                                                                  
                                                                  
                                                                  Period
                                                                      from
                                                                  
                                                                  
                                                                  Period
                                                                      fromEnded
                                                                  
                                                                  
                                                                  Ended
                                                                  
                                                                  
                                                                  February
                                                                        1 to
                                                                  
                                                                  
                                                                  January
                                                                      1 toJune
                                                                      30,
                                                                  
                                                                  
                                                                  June
                                                                      30,
                                                                  
                                                                  
                                                                  June
                                                                        30,
                                                                  
                                                                  
                                                                  January
                                                                      31,
                                                                  
                                                                  
                                                                  $
                                                                  
                                                                  %(In
                                                                      millions)
                                                                  
                                                                  
                                                                  2007
                                                                  
                                                                  
                                                                  2006
                                                                        (a)
                                                                  
                                                                  
                                                                  2006
                                                                  
                                                                  
                                                                  2006
                                                                  
                                                                  
                                                                  Change
                                                                  
                                                                  Change**UAL:**Passenger
                                                                      - United Airlines
                                                                  
                                                                  $
                                                                  7,232
                                                                  
                                                                  
                                                                  $
                                                                  7,062
                                                                  
                                                                  
                                                                  $
                                                                  5,988
                                                                  
                                                                  
                                                                  $
                                                                  1,074
                                                                  
                                                                  
                                                                  $
                                                                  170
                                                                  
                                                                  2Passenger
                                                                      - Regional
                                                                      Affiliates
                                                                  
                                                                  
                                                                  1,479
                                                                  
                                                                  
                                                                  
                                                                  1,430
                                                                  
                                                                  
                                                                  
                                                                  1,226
                                                                  
                                                                  
                                                                  
                                                                  204
                                                                  
                                                                  
                                                                  
                                                                  49
                                                                  
                                                                  3Cargo
                                                                  
                                                                  
                                                                  349
                                                                  
                                                                  
                                                                  
                                                                  374
                                                                  
                                                                  
                                                                  
                                                                  318
                                                                  
                                                                  
                                                                  
                                                                  56
                                                                  
                                                                  
                                                                  
                                                                  (25
                                                                  )
                                                                  (7
                                                                  )Other
                                                                      operating revenues
                                                                  
                                                                  
                                                                  526
                                                                  
                                                                  
                                                                  
                                                                  712
                                                                  
                                                                  
                                                                  
                                                                  588
                                                                  
                                                                  
                                                                  
                                                                  124
                                                                  
                                                                  
                                                                  
                                                                  (186
                                                                  )
                                                                  (26
                                                                  )$
                                                                  9,586
                                                                  
                                                                  
                                                                  $
                                                                  9,578
                                                                  
                                                                  
                                                                  $
                                                                  8,120
                                                                  
                                                                  
                                                                  $
                                                                  1,458
                                                                  
                                                                  
                                                                  $
                                                                  8
                                                                  
                                                                  -**United:**Passenger
                                                                      - United Airlines
                                                                  
                                                                  $
                                                                  7,232
                                                                  
                                                                  
                                                                  $
                                                                  7,062
                                                                  
                                                                  
                                                                  $
                                                                  5,988
                                                                  
                                                                  
                                                                  $
                                                                  1,074
                                                                  
                                                                  
                                                                  $
                                                                  170
                                                                  
                                                                  2Passenger
                                                                      - Regional
                                                                      Affiliates
                                                                  
                                                                  
                                                                  1,479
                                                                  
                                                                  
                                                                  
                                                                  1,430
                                                                  
                                                                  
                                                                  
                                                                  1,226
                                                                  
                                                                  
                                                                  
                                                                  204
                                                                  
                                                                  
                                                                  
                                                                  49
                                                                  
                                                                  3Cargo
                                                                  
                                                                  
                                                                  349
                                                                  
                                                                  
                                                                  
                                                                  374
                                                                  
                                                                  
                                                                  
                                                                  318
                                                                  
                                                                  
                                                                  
                                                                  56
                                                                  
                                                                  
                                                                  
                                                                  (25
                                                                  )
                                                                  (7
                                                                  )Other
                                                                      operating revenues
                                                                  
                                                                  
                                                                  533
                                                                  
                                                                  
                                                                  
                                                                  705
                                                                  
                                                                  
                                                                  
                                                                  585
                                                                  
                                                                  
                                                                  
                                                                  120
                                                                  
                                                                  
                                                                  
                                                                  (172
                                                                  )
                                                                  (24
                                                                  )$
                                                                  9,593
                                                                  
                                                                  
                                                                  $
                                                                  9,571
                                                                  
                                                                  
                                                                  $
                                                                  8,117
                                                                  
                                                                  
                                                                  $
                                                                  1,454
                                                                  
                                                                  
                                                                  $
                                                                  22
                                                                  
                                                                  -


(a)
            The
                combined period includes the results for the one month period ended
                January 31, 2006 (Predecessor) and the five month period ended
                June 30, 2006 (Successor).




The
      table
      below presents selected UAL and United passenger revenues and operating data
      from our Mainline segment, broken out by geographic region, and from our United
      Express segment, expressed as period-to-period changes:


**2007**
              
              **North
                  America**
              
              **Pacific**
              
              **Atlantic**
              
              **Latin**
              
              **Mainline**
              
              **United
                  Express**
              
              **Consolidated**Increase
                  (decrease) from 2006: (a)Passenger
                  revenues (in millions)
              $
              (137
              )
              
              $
              121
              
              
              $
              192
              
              
              $
              (6
              )
              
              $
              170
              
              
              $
              49
              
              
              $
              219Passenger
                  revenues
              
              (3.0
              )
              %
              
              8.7
              
              %
              
              21.3
              
              %
              
              (2.1
              )
              %
              
              2.4
              
              %
              
              3.4
              
              %
              
              2.6
              
              %Available
                  seat miles (ASMs)
              
              (1.7
              )
              %
              
              0.8
              
              %
              
              7.9
              
              %
              
              (12.5
              )
              %
              
              (0.4
              )
              %
              
              6.3
              
              %
              
              0.3
              
              %Revenue
                  passenger miles (RPMs)
              
              0.1
              
              %
              
              -
              
              %
              
              8.3
              
              %
              
              (12.5
              )
              %
              
              0.6
              
              %
              
              6.3
              
              %
              
              1.1
              
              %Load
                  factor (points)
              
              1.5
              
              pts.
              
              (0.7
              )
              pts.
              
              0.4
              
              pts.
              
              -
              
              pts.
              
              0.8
              
              pts.
              
              -
              
              pts.
              
              0.7
              
              pts.Yield
                  (b)
              
              (3.1
              )
              %
              
              8.9
              
              %
              
              12.2
              
              %
              
              11.8
              
              %
              
              1.8
              
              %
              
              (2.8
              )
              %
              
              1.4
              
              %


(a)
            Variances
                are from the combined 2006 period that includes the results for the
                one
                month period ended January 31, 2006 (Predecessor) and the five month
                period ended June 30, 2006
                (Successor).




(b)
            Yield
                is a measure of average price paid per passenger mile, which is calculated
                by dividing passenger revenues by RPMs. Yields for geographic regions
                exclude charter revenue and RPMs.




Mainline
      and United Express passenger revenues increased by $170 million and
      $49 million, respectively, in the 2007 period as compared to the same
      period in 2006. In the first six months of 2007, Mainline revenues benefited
      from a 0.8 point increase in load factor and a 1.8% increase in yield as
      compared to the first six months of 2006. In the same periods, United Express
      load factor was flat and yield decreased 2.8%. However, United Express traffic
      increased 6.3%, which was the primary driver of the increase in revenue.
      Revenues and yields for both segments were negatively impacted by the accounting
      for deferred revenue under our Mileage Plus program and to a lesser extent,
      severe storms in first quarter of 2007 that decreased total passenger revenue
      by
      an estimated $32 million. Mileage Plus revenue was approximately
      $60 million lower in the 2007 period due to an increase in outstanding
      mileage credits due to various promotional programs and one additional month
      of
      the application of the deferred revenue model of accounting for Mileage Plus
      in
      2007, as this accounting policy was initially applied as of February 1,
      2006. Partially offsetting these negative Mileage Plus impacts was a benefit
      due
      to a change in the Mileage Plus expiration period policy from 36 months to
      18
      months as discussed in *Critical Accounting Policies*, below. Mileage
      Plus customer accounts are deactivated after 18 months of inactivity, effective
      December 31, 2007. We estimate the number of accounts that will eventually
      become deactivated and ratably reduces the deferred revenue balance for
      estimated deactivated accounts over the expiration period.







38







Cargo
      revenues decreased by $25 million, or 7%, in the six month period ended June
      30,
      2007 as compared to the same period in 2006. This decrease was partly due to
      the
      termination of our former contract to carry U.S. domestic mail for the USPS
      as
      of June 30, 2006. However, since this contract termination we have
      continued to carry international mail for the USPS, and recently entered into
      a
      new contract to carry domestic mail as discussed above. Decreased traffic and
      yield for the Pacific region also contributed to the decrease in cargo revenues.
      The traffic and yield decreases were due to increased competition in the region,
      primarily from capacity added by foreign carriers.




UAL
      other
      operating revenues decreased by $186 million, or 26%, in the six month
      period ended June 30, 2007 as compared to the same period in 2006. Lower jet
      fuel sales to third parties by UAFC accounted for $172 million of the other
      revenue decrease, which was due to the factors described in the second quarter
      *Results of Operations* above, and had no material impact on the
      Company’s operating margin, because UAFC cost of sales decreased by
      $172 million in the first six months of 2007 as compared to the year-ago
      period.




***Operating
      Expenses.***The table below includes the year-over-year dollar
      and percentage changes in UAL and United operating expenses. Significant
      fluctuations are discussed below.




Successor
                                      
                                      
                                      Combined
                                      
                                      
                                      Successor
                                      
                                      
                                      PredecessorSix
                                          Months
                                      
                                      
                                      Six
                                          Months
                                      
                                      
                                      Period
                                          from
                                      
                                      
                                      Period
                                          fromEnded
                                      
                                      
                                      Ended
                                      
                                      
                                      February
                                          1 to
                                      
                                      
                                      January
                                          1 toJune
                                          30,
                                      
                                      
                                      June
                                          30,
                                      
                                      
                                      June
                                          30,
                                      
                                      
                                      January
                                          31,
                                      
                                      
                                      $
                                      
                                      
                                      %(In
                                          millions)
                                      
                                      2007
                                      
                                      
                                      2006
                                          (a)
                                      
                                      
                                      2006
                                      
                                      
                                      2006
                                      
                                      
                                      Change
                                      
                                      
                                      Change**UAL**Aircraft
                                          fuel
                                      
                                      $
                                      2,247
                                      
                                      
                                      $
                                      2,317
                                      
                                      
                                      $
                                      1,955
                                      
                                      
                                      $
                                      362
                                      
                                      
                                      $
                                      (70
                                      )
                                      
                                      
                                      (3
                                      )Salaries
                                          and related costs
                                      
                                      
                                      2,087
                                      
                                      
                                      
                                      2,155
                                      
                                      
                                      
                                      1,797
                                      
                                      
                                      
                                      358
                                      
                                      
                                      
                                      (68
                                      )
                                      
                                      
                                      (3
                                      )Regional
                                          affiliates
                                      
                                      
                                      1,425
                                      
                                      
                                      
                                      1,411
                                      
                                      
                                      
                                      1,183
                                      
                                      
                                      
                                      228
                                      
                                      
                                      
                                      14
                                      
                                      
                                      
                                      1Purchased
                                          services
                                      
                                      
                                      636
                                      
                                      
                                      
                                      625
                                      
                                      
                                      
                                      527
                                      
                                      
                                      
                                      98
                                      
                                      
                                      
                                      11
                                      
                                      
                                      
                                      2Aircraft
                                          maintenance materials and    outside
                                          repairs
                                      
                                      
                                      565
                                      
                                      
                                      
                                      516
                                      
                                      
                                      
                                      436
                                      
                                      
                                      
                                      80
                                      
                                      
                                      
                                      49
                                      
                                      
                                      
                                      9Landing
                                          fees and other rent
                                      
                                      
                                      453
                                      
                                      
                                      
                                      445
                                      
                                      
                                      
                                      370
                                      
                                      
                                      
                                      75
                                      
                                      
                                      
                                      8
                                      
                                      
                                      
                                      2Depreciation
                                          and amortization
                                      
                                      
                                      449
                                      
                                      
                                      
                                      434
                                      
                                      
                                      
                                      366
                                      
                                      
                                      
                                      68
                                      
                                      
                                      
                                      15
                                      
                                      
                                      
                                      3Distribution
                                          expenses
                                      
                                      
                                      385
                                      
                                      
                                      
                                      409
                                      
                                      
                                      
                                      349
                                      
                                      
                                      
                                      60
                                      
                                      
                                      
                                      (24
                                      )
                                      
                                      
                                      (6
                                      )Aircraft
                                          rent
                                      
                                      
                                      205
                                      
                                      
                                      
                                      214
                                      
                                      
                                      
                                      184
                                      
                                      
                                      
                                      30
                                      
                                      
                                      
                                      (9
                                      )
                                      
                                      
                                      (4
                                      )Cost
                                          of third party sales
                                      
                                      
                                      170
                                      
                                      
                                      
                                      383
                                      
                                      
                                      
                                      318
                                      
                                      
                                      
                                      65
                                      
                                      
                                      
                                      (213
                                      )
                                      
                                      
                                      (56
                                      )Special
                                          operating items
                                      
                                      
                                      (22
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (22
                                      )
                                      
                                      
                                      -Other
                                          operating expenses
                                      
                                      
                                      541
                                      
                                      
                                      
                                      580
                                      
                                      
                                      
                                      494
                                      
                                      
                                      
                                      86
                                      
                                      
                                      
                                      (39
                                      )
                                      
                                      
                                      (7
                                      )$
                                      9,141
                                      
                                      
                                      $
                                      9,489
                                      
                                      
                                      $
                                      7,979
                                      
                                      
                                      $
                                      1,510
                                      
                                      
                                      $
                                      (348
                                      )
                                      
                                      
                                      (4
                                      )**United**Aircraft
                                          fuel
                                      
                                      $
                                      2,247
                                      
                                      
                                      $
                                      2,317
                                      
                                      
                                      $
                                      1,955
                                      
                                      
                                      $
                                      362
                                      
                                      
                                      $
                                      (70
                                      )
                                      
                                      
                                      (3
                                      )Salaries
                                          and related costs
                                      
                                      
                                      2,086
                                      
                                      
                                      
                                      2,153
                                      
                                      
                                      
                                      1,795
                                      
                                      
                                      
                                      358
                                      
                                      
                                      
                                      (67
                                      )
                                      
                                      
                                      (3
                                      )Regional
                                          affiliates
                                      
                                      
                                      1,425
                                      
                                      
                                      
                                      1,411
                                      
                                      
                                      
                                      1,183
                                      
                                      
                                      
                                      228
                                      
                                      
                                      
                                      14
                                      
                                      
                                      
                                      1Purchased
                                          services
                                      
                                      
                                      636
                                      
                                      
                                      
                                      624
                                      
                                      
                                      
                                      527
                                      
                                      
                                      
                                      97
                                      
                                      
                                      
                                      12
                                      
                                      
                                      
                                      2Aircraft
                                          maintenance materials and    outside
                                          repairs
                                      
                                      
                                      565
                                      
                                      
                                      
                                      516
                                      
                                      
                                      
                                      436
                                      
                                      
                                      
                                      80
                                      
                                      
                                      
                                      49
                                      
                                      
                                      
                                      9Landing
                                          fees and other rent
                                      
                                      
                                      453
                                      
                                      
                                      
                                      445
                                      
                                      
                                      
                                      370
                                      
                                      
                                      
                                      75
                                      
                                      
                                      
                                      8
                                      
                                      
                                      
                                      2Depreciation
                                          and amortization
                                      
                                      
                                      449
                                      
                                      
                                      
                                      434
                                      
                                      
                                      
                                      366
                                      
                                      
                                      
                                      68
                                      
                                      
                                      
                                      15
                                      
                                      
                                      
                                      3Distribution
                                          expenses
                                      
                                      
                                      385
                                      
                                      
                                      
                                      409
                                      
                                      
                                      
                                      349
                                      
                                      
                                      
                                      60
                                      
                                      
                                      
                                      (24
                                      )
                                      
                                      
                                      (6
                                      )Aircraft
                                          rent
                                      
                                      
                                      206
                                      
                                      
                                      
                                      215
                                      
                                      
                                      
                                      185
                                      
                                      
                                      
                                      30
                                      
                                      
                                      
                                      (9
                                      )
                                      
                                      
                                      (4
                                      )Cost
                                          of third party sales
                                      
                                      
                                      168
                                      
                                      
                                      
                                      377
                                      
                                      
                                      
                                      314
                                      
                                      
                                      
                                      63
                                      
                                      
                                      
                                      (209
                                      )
                                      
                                      
                                      (55
                                      )Special
                                          operating items
                                      
                                      
                                      (22
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (22
                                      )
                                      
                                      
                                      -Other
                                          operating expenses
                                      
                                      
                                      540
                                      
                                      
                                      
                                      575
                                      
                                      
                                      
                                      490
                                      
                                      
                                      
                                      85
                                      
                                      
                                      
                                      (35
                                      )
                                      
                                      
                                      (6
                                      )$
                                      9,138
                                      
                                      
                                      $
                                      9,476
                                      
                                      
                                      $
                                      7,970
                                      
                                      
                                      $
                                      1,506
                                      
                                      
                                      $
                                      (338
                                      )
                                      
                                      
                                      (4
                                      )




(a)
            The
                combined period includes the results for the one month ended
                January 31, 2006 (Predecessor) and the five months ended June
                30, 2006 (Successor).




39


Aircraft
      fuel decreased $70 million, or 3%, in the six month period ended June 30,
      2007 as compared to the same period in 2006. This net fuel variance was due
      to a
      3% decrease in the average price per gallon of jet fuel from $2.06 per gallon
      in
      the first six months of 2006 to $1.99 per gallon in the first six months of
      2007, resulting from favorable market conditions, and a $32 million
      increase in net hedge gains that were $39 million in the 2007 period as
      compared to $7 million in the 2006 period.




UAL
      salaries and related costs decreased $68 million, or 3%, in the first six
      months of 2007 as compared to the year-ago period. This benefit was largely
      due
      to a reduction in share-based compensation expense which was $109 million
      in the 2006 period, but only $26 million in the 2007 period. Less
      compensation expense was recognized in the 2007 period as compared to the 2006
      period for awards that were granted in 2006. Immediate recognition of 100%
      of
      the cost of awards granted to retirement-eligible employees, on the grant date,
      accounts for a significant amount of this decrease. There were no significant
      grants in the 2007 period as compared to the 2006 period, which included a
      large
      number of grants associated with our emergence from bankruptcy. Also benefiting
      the 2007 period was the absence of the $22 million severance charge incurred
      in
      2006. Partially offsetting the benefit of decreased share-based compensation
      expense was a slight increase in salaries and health care benefits as a result
      of inflationary pressures.




Regional
      affiliate expense increased $14 million, or 1%, during the first six months
      of 2007 as compared to the same period last year. Regional affiliate capacity
      increased 6% for the same periods. Our regional affiliate operating income
      was
      $54 million in the 2007 period as compared to $19 million in the 2006
      period. This improvement is due to the restructuring of lower-cost regional
      carrier capacity agreements, the replacement of some 50-seat regional jets
      with
      70-seat regional jets and regional carrier network optimization. All of these
      improvements were put in place throughout 2006; however, we are still realizing
      some year-over-year benefits in 2007. The average price of regional affiliates
      fuel decreased by 1% and consumption increased 2%. The net impact of these
      changes was a $4 million increase in fuel cost in the 2007 period as compared
      to
      the 2006 period.




For
      the six months ended June 30, 2007, aircraft maintenance materials and outside
      repairs expense increased $49 million, or 9%, year-over-year primarily due
      toinflationary increases related to our V2500 engine maintenance
      contract and the cost of component parts, as well as the impact of changes
      in
      airframe and engine volumes.




Landing
      fees and other rent increased $8 million, or 2%, in the six months ended
      June 30, 2007 as compared to the year-ago period. In 2006, we received an
      $8 million credit from one of our airports upon completion of an audit of
      expenses for multiple years. Landing fees and other rent were relatively flat
      in
      the 2007 period due to our ongoing efforts to optimize our rented facilities
      with our operational needs.




Distribution
      expenses, which include commissions, GDS fees and credit card fees decreased
      6%
      from the 2006 period to $385 million for the six months ended June 30,
      2007.This decrease was due to cost savings realized as the Company
      continues to drive reductions across the full spectrum of costs of
      sale.  Impact areas included renegotiation of contracts with various
      channel providers, rationalization of commission plans and programs, and
      continued emphasis on movement of volumes toward lower cost channels including
      online channels.




The
      decrease in UAL cost of sales of $213 million in the 2007 period as
      compared to the 2006 period was primarily due to lower UAFC third party fuel
      sales as described in the discussion of revenue variances above. The decrease
      in
      cost of sales is consistent with the $186 million decrease in UAL other
      revenues for the same periods.







40





UAL
      and
      United special items of $22 million include the benefit of a reduction in
      recorded accruals for pending bankruptcy litigation related to our SFO and
      LAX
      municipal bond obligations. See Note 2, “Voluntary Reorganization Under
      Chapter 11” in *Combined Notes to the Condensed Consolidated Financial
      Statements (Unaudited)*for further information on these pending
      matters.




UAL
      other
      operating expense decreased $39 million, or 7%, in the first six months of
      2007, as compared to the first six months of 2006. This decrease was primarily
      due to a $26 million reduction in advertising expenditures.




***Other
      income
      (expense).***The following table illustrates the
      year-over-year dollar and percentage changes in UAL and United other income
      (expense).




Successor
                                          
                                          
                                          Combined
                                          
                                          
                                          Successor
                                          
                                          
                                          PredecessorSix
                                          
                                          
                                          SixMonths
                                          
                                          
                                          Months
                                          
                                          
                                          Period
                                              from
                                          
                                          
                                          Period
                                              fromEnded
                                          
                                          
                                          Ended
                                          
                                          
                                          February
                                              1 to
                                          
                                          
                                          January
                                              1 toJune
                                              30,
                                          
                                          
                                          June
                                              30,
                                          
                                          
                                          June
                                              30,
                                          
                                          
                                          January
                                              31,
                                          
                                          
                                          Favorable/
                                          
                                          
                                          %(In
                                              millions)
                                          
                                          2007
                                          
                                          
                                          2006
                                              (a)
                                          
                                          
                                          2006
                                          
                                          
                                          2006
                                          
                                          
                                          (Unfavorable)
                                          
                                          
                                          Change**UAL**Interest
                                              expense
                                          
                                          $
                                          (345
                                          )
                                          
                                          $
                                          (394
                                          )
                                          
                                          $
                                          (352
                                          )
                                          
                                          $
                                          (42
                                          )
                                          
                                          $
                                          49
                                          
                                          
                                          
                                          12Interest
                                              income
                                          
                                          
                                          120
                                          
                                          
                                          
                                          101
                                          
                                          
                                          
                                          95
                                          
                                          
                                          
                                          6
                                          
                                          
                                          
                                          19
                                          
                                          
                                          
                                          19Interest
                                              capitalized
                                          
                                          
                                          9
                                          
                                          
                                          
                                          7
                                          
                                          
                                          
                                          7
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          29Miscellaneous,
                                              net
                                          
                                          
                                          (1
                                          )
                                          
                                          
                                          2
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3
                                          )
                                          
                                          
                                          -$
                                          (217
                                          )
                                          
                                          $
                                          (284
                                          )
                                          
                                          $
                                          (248
                                          )
                                          
                                          $
                                          (36
                                          )
                                          
                                          $
                                          67
                                          
                                          
                                          
                                          24**United**Interest
                                              expense
                                          
                                          $
                                          (345
                                          )
                                          
                                          $
                                          (395
                                          )
                                          
                                          $
                                          (353
                                          )
                                          
                                          $
                                          (42
                                          )
                                          
                                          $
                                          50
                                          
                                          
                                          
                                          13Interest
                                              income
                                          
                                          
                                          124
                                          
                                          
                                          
                                          99
                                          
                                          
                                          
                                          93
                                          
                                          
                                          
                                          6
                                          
                                          
                                          
                                          25
                                          
                                          
                                          
                                          25Interest
                                              capitalized
                                          
                                          
                                          9
                                          
                                          
                                          
                                          7
                                          
                                          
                                          
                                          7
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          29Miscellaneous,
                                              net
                                          
                                          
                                          (1
                                          )
                                          
                                          
                                          (1
                                          )
                                          
                                          
                                          (1
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -$
                                          (213
                                          )
                                          
                                          $
                                          (290
                                          )
                                          
                                          $
                                          (254
                                          )
                                          
                                          $
                                          (36
                                          )
                                          
                                          $
                                          77
                                          
                                          
                                          
                                          27




(a)
            The
                combined period includes the results for the one month period ended
                January 31, 2006 (Predecessor) and the five month period ended
                June 30, 2006 (Successor).




UAL
      interest expense decreased $49 million, or 12%, in the six months ended
      June 30, 2007 as compared to the year-ago period. The 2007 period was favorably
      impacted by the amendment and prepayment of the Credit Facility, which lowered
      United’s interest rate on these obligations and reduced the total obligations
      outstanding by $972 million. Repayments of scheduled maturities of debt
      obligations also reduced interest expense. The 2007 period also included a
      $22
      million reduction in interest expense due to the recognition of a gain on debt
      extinguishment. These benefits were offset by interest expense of
      $17 million for previously capitalized debt issuance costs that were
      associated with the prepaid portion of the Credit Facility, and $6 million
      for financing costs in connection with the February amendment of the Credit
      Facility.




UAL
      interest income increased $19 million year-over-year reflecting a higher
      average cash balance in 2007, as well as higher rates of return on certain
      investments; interest income also increased due to the classification of
      $6 million of interest income as reorganization items in the
      January 2006 predecessor period in accordance with SOP 90-7.




*Income
      Taxes.***UAL and United recorded income tax expense of $108 million
      and $114 million (an effective tax rate of 47%), respectively, for the six
      month
      period ended June 30, 2007. See Note 7, “Income Taxes” in *Combined Notes to
      the Condensed Consolidated Financial Statements (Unaudited)*for further
      discussion of permanent items impacting the effective tax rates. Income taxes
      were not recorded in the same period of 2006.







41


***Liquidity
      and Capital Resources***




The
      following table provides a summary of UAL’s and United’s cash position at
      December 31, 2006 and June 30, 2007, and net cash provided (used) by operating,
      financing and investing activities for the six month periods ended June 30,
      2007
      and 2006.




UAL
                        
                        
                        United(In
                            millions)
                        
                        As
                            of June 30, 2007
                        
                        
                        As
                            of
                          December
                            31, 2006
                        
                        
                        As
                            of June 30, 2007
                        
                        
                        As
                            of December 31, 2006Cash,
                            short-term investments & restricted cash
                        
                        $
                        5,120
                        
                        
                        $
                        4,991
                        
                        
                        $
                        5,030
                        
                        
                        $
                        4,896Restricted
                            cash included in total cash
                        
                        
                        871
                        
                        
                        
                        847
                        
                        
                        
                        838
                        
                        
                        
                        809**UAL**
                        
                        Six
                            Months Ended June 30, 2007
                        
                        
                        Combined Six
                            Months Ended
                          June
                            30, 2006
                        
                        
                        Period
                            from February 1 to June 30, 2006
                        
                        
                        Period
                            from January 1 to January 31, 2006Net
                            cash provided by operating activities
                        
                        $
                        1,660
                        
                        
                        $
                        1,138
                        
                        
                        $
                        977
                        
                        
                        $
                        161Net
                            cash provided (used) by investing activities
                        
                        
                        (2,455
                        )
                        
                        
                        157
                        
                        
                        
                        395
                        
                        
                        
                        (238
                        )Net
                            cash provided (used) by financing activities
                        
                        
                        (1,370
                        )
                        
                        
                        1,061
                        
                        
                        
                        1,091
                        
                        
                        
                        (30
                        )**United**Net
                            cash provided by operating activities
                        
                        $
                        1,649
                        
                        
                        $
                        1,159
                        
                        
                        $
                        996
                        
                        
                        $
                        163Net
                            cash provided (used) by investing activities
                        
                        
                        (2,431
                        )
                        
                        
                        105
                        
                        
                        
                        343
                        
                        
                        
                        (238
                        )Net
                            cash provided (used) by financing activities
                        
                        
                        (1,352
                        )
                        
                        
                        1,061
                        
                        
                        
                        1,091
                        
                        
                        
                        (30
                        )




(a)
            The
                combined period includes the results for the one month period ended
                January 31, 2006 (Predecessor) and the five month period ended
                June 30, 2006 (Successor).




*Liquidity.*******The
      Company’s significant cash position represents a source of liquidity. The change
      in cash from December 31, 2006 to June 30, 2007 is explained below. Restricted
      cash primarily represents cash collateral to secure workers’ compensation
      obligations, security deposits for airport leases and reserves with institutions
      that process our credit card ticket sales. We may be required to post
      significant additional cash collateral to meet such obligations in the
      future.




*Operating
      Activities.***UAL’s and United’s net income before
      reorganization items improved by $309 million and $317 million,
      respectively, in the first six months of 2007, as compared to the first six
      months of 2006. These amounts include the impact of non-cash income tax expense
      of $108 million for UAL and $114 million for United in 2007. Cash from
      operations improved due to the Company’s improved performance in 2007, as
      discussed above in *Results of Operations*. In addition, cash generated
      from operations increased due to changes in working capital. Significant
      year-over-year changes in UAL and United working capital items included deferred
      revenue and advance ticket sales of $64 million and $182 million,
      respectively, which increased primarily due to increased ticket sales in advance
      of the summer travel season.




*Investing
      Activities.***UAL and United’s cash used for restricted funds
      was $24 million and $29 million, respectively, in the 2007 period as compared
      to
      $251 million and $253 million that was provided by a decrease in the
      segregated and restricted funds for UAL and United, respectively, in the year
      ago period. The significant cash generated from restricted accounts in the
      2006
      period was due to our improved financial position upon our emergence from
      bankruptcy. Net purchases of short-term investments used cash of $2.3 billion
      and $2.2 billion for UAL and United, respectively, in the 2007 period as
      compared to cash provided of $18 million for both UAL and United in the
      year-ago period. This change was due to normal cash management activities as
      our
      short-term investments are part of our overall cash management policy. Capital
      expenditures for both UAL and United were $146 million and
      $159 million in the 2007 and 2006 periods,
      respectively.







42




During
      the six month periods ended June 30, 2007 and 2006, the Company did not sell
      or
      acquire any aircraft. However in 2007, three owned and unencumbered aircraft
      were financed as part of the secured Enhanced
      Equipment
      Trust Certificates (“EETC”)financing described below.




In
      2006,
      UAL generated $52 million more cash from investing activities as compared to
      United primarily due to proceeds from the sale of MyPoints, a direct subsidiary
      of UAL.




*Financing
      Activities.*** Cash used by financing activities for both UAL and
      United was $1.4 billion in the six month period ended June 30, 2007, as compared
      to $1.1 billion of cash provided by financing activities during the first
      six months of 2006. In 2007, cash of approximately $2.1 billion was used to
      prepay approximately $1.0 billion of Credit Facility obligations and to
      make other debt and capital lease payments. A combination of the proceeds from
      United’s initial Credit Facility upon exiting bankruptcy and significant cash
      generated from operations in 2006 provided us with a larger than optimal cash
      balance.




In
      June
      2007, the Company completed financing transactions totaling approximately $964
      million which included the $694 million EETC secured financing and the $270
      million Denver Airport financing. A portion of the proceeds of the $694 million
      EETC transaction was used to payoff $590 million of debt obligations that were
      secured by ten previously mortgaged, owned aircraft and to finance three
      previously unencumbered owned aircraft. The proceeds of  the Denver
      Airport bonds were used to refinance the existing $261 million of Denver Series
      1992A bonds. See Note 11, “Debt Obligations” in *Combined Notes to Condensed
      Consolidated Financial Statements (Unaudited)* for further details regarding
      these transactions.




In
      February 2007 United amended certain terms of its Credit Facility,
      resulting in a reduction in the amount of the Amended Credit Facility from
      $3.0 billion to $2.055 billion, consisting of a $1.8 billion term
      loan commitment and a $255 million revolving commitment. At United’s
      option, interest payments are based on either a base rate, as defined in the
      Amended Credit Facility, or LIBOR plus 2%. This applicable margin on LIBOR
      rate
      loans is a significant reduction of 1.75% from the original terms of the Credit
      Facility. The Amended Credit Facility also unencumbers a significant amount
      of
      assets that had been pledged as collateral under the original Credit Facility.
      At June 30, 2007, $174 million was available for loans or standby letters
      of credit under the Amended Credit Facility. See Note 11, “Debt
      Obligations” in *Combined Notes to Condensed Consolidated Financial
      Statements (Unaudited)* for further information related to the Amended
      Credit Facility.




In
      January 2007, United paid $4 million to terminate the interest rate
      swap that had been used to hedge a portion of the future interest payments
      under
      the original Credit Facility term loan of $2.45 billion. See Note 12,
“Financial Instruments and Risk Management” in *Combined Notes to Condensed
      Consolidated Financial Statements (Unaudited)* for further information
      related to this swap agreement.




During
      the combined six months of 2006, we generated proceeds of $3.0 billion from
      United’s new credit facility but used approximately $1.8 billion of these
      proceeds to repay the $1.2 billion debtor-in-possession credit facility and
      make other scheduled and revolving payments under long-term debt and capital
      lease agreements.




***Critical
                Accounting Policies***




For
      complete information regarding UAL’s and United’s critical accounting policies,
      see “Critical Accounting Policies” in *Management’s Discussion and Analysis
      of Financial Condition and Results of Operation*s in the 2006 Annual
      Reports.




43


*Frequent
      Flyer Accounting.* Management’s estimate of the expected breakage of miles
      as of the fresh-start date, and for recognition of breakage post-emergence,
      requires significant management judgment. In 2006, United’s policy for the
      cancellation of miles was to deactivate Mileage Plus customer accounts for
      which
      there was no activity for 36 months. Accordingly, United recognized revenue
      from
      breakage of miles by amortizing such estimated breakage over the 36 month
      expiration period. In early 2007, United announced a reduction in the expiration
      period from 36 months to 18 months effective December 31, 2007.
      Accordingly, in 2007 United began to recognize revenue from breakage of miles
      by
      amortizing such estimated breakage over the 18 month expiration period.
      Management considers historical patterns of account breakage to be a useful
      indicator when estimating future breakage. Future program redemption
      opportunities can significantly alter customer behavior from historical patterns
      with respect to inactive accounts. Such changes may result in material changes
      to the deferred revenue balance, as well as recognized revenues from the
      program. A hypothetical 1% change in United’s breakage rate, estimated to be
      approximately 15% annually as of June 30, 2007, has an effect of approximately
      $19 million on the liability. At December 31, 2006, a hypothetical 1%
      change in United’s breakage rate, which was estimated at 14% annually, would
      have had an impact of approximately $18 million on the liability. The
      change in the expiration policy for inactive customer accounts provided a
      revenue benefit of approximately $47 million and $75 million in the three
      and six months periods ended June 30, 2007, respectively, and is expected to
      provide a benefit of approximately $181 million for the full year
      2007.




At
      June
      30, 2007, the outstanding number of miles in the Mileage Plus liability was
      approximately 523 billion. United currently estimates that approximately
      446 billion of these miles will ultimately be redeemed and, accordingly,
      has recorded deferred revenue of $3.8 billion. A hypothetical 1% change in
      the weighted-average ticket value or the outstanding number of miles would
      have
      approximately a $44 million impact on the liability.




*Goodwill
      and Intangible Assets.***In accordance with Statement of Financial
      Accounting Standards No. 142, “*Goodwill and Other Intangible Assets”*(“SFAS 142”), UAL and United apply a fair value-based impairment test to
      the book value of goodwill and indefinite-lived intangible assets on an annual
      basis and, if events or circumstances indicate that an impairment loss may
      have
      been incurred, on an interim basis. An impairment charge could have a material
      adverse effect on UAL’s or United’s financial position and results of operations
      in the period of recognition.




As
      of
      June 30, 2007 and December 31, 2006, United has recorded an indefinite-lived
      intangible asset of $255 million for its Heathrow slots, based upon its
      estimation of the fair value for those slots as of the adoption of fresh-start
      reporting on February 1, 2006. United, however, determined at fresh-start that
      its rights relating to its actual route authorities to Heathrow had a fair
      value
      of zero. The EU/U.S. open skies agreement is expected to directly impact the
      future value and expected lives of route authorities to Heathrow; however,
      there
      is no direct impact from the open skies agreement on airport slot rights,
      including those at Heathrow.  The open skies agreement is also
      expected to provide United an opportunity to secure antitrust immunity for
      certain of its Star Alliance carrier relationships, and to provide United and
      other carriers with access to new markets in EU countries. Because of the
      diverse nature of these potential impacts on United’s business, the overall
      future impact of the agreement on United’s business in the EU region cannot be
      predicted with certainty.  United has concluded that, in certain
      circumstances, the open skies agreement could indirectly and adversely affect
      the fair value of its slot rights at Heathrow, and therefore has further
      concluded that the signing of the open skies agreement on April 30, 2007
      constituted an indicator of impairment with respect to United’s Heathrow slots
      intangible asset.





During
      the second quarter of 2007, United performed an impairment review of the
      Heathrow slots intangible asset using the guidance in SFAS 142 and concluded
      that no impairment was currently indicated and that, furthermore, no change
      was
      currently required to the fresh-start assignment of an indefinite life to this
      intangible asset. The methodology use to estimate fair value is described in
      the
      UAL and United 2006 Annual Reports.  United’s initial annual
      impairment test for its Heathrow slots was performed as of October 1, 2006
      and
      no impairment was indicated at that time.





The
      implementation of the EU/U.S. open skies agreement, however, may result in
      a
      future determination that the Heathrow slots are impaired in whole or in part,
      or in a future determination that they should be reclassified as definite-lived
      intangible assets with amortization expense recognized thereon. Such future
      determination could result in material charges to earnings in those future
      periods.





44


***Forward-Looking
                  Information***




Certain
      statements throughout *Management’s Discussion and Analysis of Financial
      Condition and Results of Operations* and elsewhere in this report are
      forward-looking and thus reflect our current expectations and beliefs with
      respect to certain current and future events and financial performance. Such
      forward-looking statements are and will be subject to many risks and
      uncertainties relating to our operations and business environment that may
      cause
      actual results to differ materially from any future results expressed 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 identify forward-looking
      statements.




Additionally,
      forward-looking statements include statements which do not relate solely to
      historical facts, such as statements which identify uncertainties or trends,
      discuss the possible future effects of current known trends or uncertainties,
      or
      which indicate that the future effects of known trends or uncertainties cannot
      be predicted, guaranteed or assured. All forward-looking statements in this
      report are based upon information available to us on the date of this report.
      We
      undertake no obligation to publicly update or revise any forward-looking
      statement, whether as a result of new information, future events, changed
      circumstances or otherwise.




Our
      actual
      results could differ materially from these forward-looking statements due to
      numerous factors including, without limitation, the following: our ability
      to
      comply with the terms of our Amended Credit Facility and other financing
      arrangements; the costs and availability of financing; our ability to execute
      our business plan; our ability to realize benefits from our resource
      optimization efforts and cost reduction initiative programs; our ability to
      utilize our net operating losses; our ability to attract, motivate and/or retain
      key employees; our ability to attract and retain customers; demand for
      transportation in the markets in which we operate; general economic conditions
      (including interest rates, foreign currency exchange rates, crude oil prices,
      costs of aviation fuel and refining capacity in relevant markets); our ability
      to cost-effectively hedge against increases in the price of aviation fuel;
      the
      effects of any hostilities, act of war or terrorist attack; the ability of
      other
      air carriers with whom we have alliances or partnerships to provide the services
      contemplated by the respective arrangements with such carriers; the costs and
      availability of aircraft insurance; the costs associated with security measures
      and practices; labor costs; competitive pressures on pricing and on demand;
      capacity decisions of United and/or our competitors; U.S. or foreign
      governmental legislation, regulation and other actions (including open skies
      agreements); our ability to maintain satisfactory labor relations; any
      disruptions to operations due to any potential actions by our labor groups;
      weather conditions; and other risks and uncertainties set forth under the
      caption “Risk Factors” in Item 1A. of the UAL and United Annual Reports on
      Form 10-K for the year ended December 31, 2006, as well as other risks
      and uncertainties set forth from time to time in the reports we file with United
      States Securities and Exchange Commission. Consequently, forward-looking
      statements should not be regarded as representations or warranties by UAL or
      United that such matters will be realized.




**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




The
      discussion below describes changes in our market risks since December 31,
      2006. For additional information regarding our exposure to certain market risks,
      see *Item 7A. Quantitative and Qualitative Disclosures About Market Risk*in the 2006 Annual Reports.




*Interest
      Rate Risk—*In the first quarter of 2006, United entered into an interest
      rate swap whereby it fixed the rate of interest on $2.45 billion notional
      value of floating-rate debt at 5.14% plus a fixed credit margin. The swap had
      a
      fair value of negative $12 million at December 31, 2006. In
      January 2007, United terminated the swap. The termination value of the swap
      was negative $4 million. As discussed in Note 11, “Debt Obligations”
in *Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited),* United prepaid $972 million of its debt obligations in
      February 2007 which reduced the amount of United’s debt obligations that
      are sensitive to interest rate fluctuations.




*Commodity
      Price Risk (Jet Fuel)—*When market conditions indicate risk reduction is
      achievable, United may use commodity option contracts or other derivative
      instruments to reduce its price risk exposure to jet fuel. The derivative
      instruments are designed to provide protection against increases in the price
      of
      aircraft fuel. United may change its hedging program based on changes in market
      conditions. At June 30, 2007, the fair value of United’s fuel-related
      derivatives was a positive $16 million, as compared to a negative
      $2 million at December 31, 2006.




*Foreign
      Exchange Risk**—*The Company previously disclosed in its 2006 Annual
      Reports it has exposure to changes in certain foreign currency exchange rates
      and as of December 31, 2006, the Company did not have any foreign currency
      derivative instruments. The following is an update to that disclosure as during
      the second quarter of 2007 the Company began using foreign currency forward
      contracts to hedge a portion of its exposure to changes in foreign currency
      exchange rates. As of June 30, 2007, the Company hedged a portion of its
      expected foreign currency cash flows in the Australian dollar, Canadian dollar,
      British pound, European Euro and Japanese yen. As of June 30, 2007, the notional
      amount of these foreign currencies hedged with the forward contracts in U.S,
      dollars terms was approximately $100 million. These contracts expire at various
      dates from July to November 2007. For the three and six months ended June 30,
      2007, there were no material gains or losses from these derivative positions.
      As
      of June 30, 2007, the fair value of these contracts was less than $1
      million.




45


**ITEM
                4.**
            **CONTROLS
                AND PROCEDURES**




This
      section should be read in conjunction with Item 9A., “Controls and
      Procedures” included the respective UAL and United Annual Reports on Form 10-K
      for the year ended December 31, 2006.




UAL
      and
      United each maintain controls and procedures that are designed to ensure that
      information required to be disclosed in the reports UAL and United each file
      with the Securities and Exchange Commission (“SEC”) is recorded, processed,
      summarized, and reported, within the time periods specified by the SEC’s
      rules and forms, and is accumulated and communicated to management
      including the Chief Executive Officer and Chief Financial Officer as appropriate
      to allow timely decisions regarding required disclosure. The management of
      UAL
      and United, including each company’s Chief Executive Officer and Chief Financial
      Officer, performed an evaluation to conclude with reasonable assurance that
      its
      disclosure controls and procedures were designed and operating effectively
      to
      report the information each company is required to disclose in the reports
      they
      file with the SEC on a timely basis. Based on that evaluation, the Chief
      Executive Officer and Chief Financial Officer of both UAL and United have
      concluded that as of June 30, 2007, the  disclosure controls and
      procedures of both UAL and United were not effective due to a material weakness
      related to the operation of each company’s internal control over financial
      reporting with respect to the accounting and disclosure for income taxes, as
      previously disclosed in *Item 9A, Controls and Procedures* in the
      2006 Annual Reports. Additional review, evaluation and oversight have been
      undertaken to ensure both UAL’s and United’s unaudited condensed consolidated
      financial statements were prepared in accordance with generally accepted
      accounting principles and, as a result, both UAL and United have concluded
      that
      their consolidated financial statements in this Form 10-Q fairly present,
      in all material respects, their financial position, results of operations and
      cash flows for the periods presented.




There
      were no changes to either UAL’s or United’s internal control over financial
      reporting that occurred during the quarter ended June 30, 2007 that have
      materially affected or are reasonably likely to materially affect either
      company’s internal control over financial reporting (as defined in Exchange Act
      Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
      1934)*.*




*Internal
                  Controls Surrounding Accounting for Income
                  Taxes*




As
      discussed in the 2006 Annual Reports, the management of UAL and United concluded
      that while each company had appropriately designed control procedures for income
      tax accounting and disclosures, high staff turnover caused UAL and United to
      poorly execute the controls for evaluating and recording current and deferred
      income tax provision and related deferred tax balances. In response to the
      material weakness, the management of UAL and United is implementing a
      remediation plan that includes enhancing staff resources and skill sets,
      upgrading the tax technology infrastructure and optimizing workflow and
      processes. During the first six months of 2007, the Company hired a significant
      number of experienced tax professionals and implemented plans designed to
      materially reduce staff turnover.












46





**PART II.
      OTHER INFORMATION**




**ITEM
                1.**
            **LEGAL
                PROCEEDINGS.**




In
      addition to the legal proceedings described below, UAL and United are parties
      to
      other legal proceedings as described in their respective Annual Reports on
      Form 10-K for the year ended December 31, 2006 (the “2006 Annual
      Reports”).




***In
      re: UAL Corporation, et. al.***




As
      discussed above, on the Petition Date the Debtors filed voluntary petitions
      to
      reorganize their businesses under Chapter 11 of the Bankruptcy Code. On
      October 20, 2005, the Debtors filed the Debtor’s First Amended Joint Plan
      of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code
      and the Disclosure Statement. The Bankruptcy Court approved the Disclosure
      Statement on October 21, 2005.




Commencing
      on October 27, 2005, the Disclosure Statement, ballots for voting to accept
      or reject the proposed plan of reorganization and other solicitation documents
      were distributed to all classes of creditors eligible to 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 from bankruptcy
      protection on the Effective Date.




Numerous
      pre-petition claims still await resolution in the Bankruptcy Court due to the
      Company’s objections to either the existence of liability or the amount of the
      claim. The process of determining whether liability exists and liquidating
      the
      amounts due is likely to continue through 2007, and possibly longer.
      Additionally, certain significant matters remain to be resolved in the
      Bankruptcy Court. For details see Note 2, “Voluntary Reorganization Under
      Chapter 11,” in *Combined Notes to Condensed Consolidated Financial
      Statements (Unaudited).*




***Air
      Cargo/Passenger Surcharge Investigations***




In
      February 2006, the European Commission and the U.S. Department of Justice
      commenced an international investigation into what government officials describe
      as a possible price fixing conspiracy relating to certain surcharges included
      in
      tariffs for carrying air cargo. In June 2006, United received a subpoena
      from the U.S. Department of Justice requesting information related to certain
      passenger pricing practices and surcharges applicable to international passenger
      routes. We are cooperating fully. United is considered a source of information
      for the investigation, not a target. Separately, United received additional
      information requests regarding these cargo pricing matters from the competition
      authorities of Brazil in March 2007, the European Union in April and June 2007,
      and from the Australian Competition and Consumer Commission in June 2007. In
      addition to the U.S. federal grand jury investigation, United and other air
      cargo carriers have been named as defendants in over ninety class action
      lawsuits alleging civil damages as a result of the purported air cargo pricing
      conspiracy. Those lawsuits have been consolidated for pretrial activities in
      the
      United States Federal Court for the Eastern District of New York. United has
      entered into an agreement with the majority of the private plaintiffs to dismiss
      United from the class action lawsuits in return for an agreement to cooperate
      with the plaintiffs’ factual investigation. More than fifty additional putative
      class actions have also been filed alleging violations of the antitrust laws
      with respect to passenger pricing practices. Those lawsuits have been
      consolidated for pretrial activities in the United States Federal Court for
      the
      Northern District of California (“Federal Court”). United has entered into a
      settlement agreement with a number of the plaintiffs in the passenger pricing
      cases to dismiss United from the class action lawsuits in return for an
      agreement to cooperate with the plaintiffs’ factual investigation. The
      settlement agreement is subject to review and approval by the Federal Court.
      Penalties for violating competition laws can be severe, involving both criminal
      and civil liability. We are cooperating with the grand jury investigations
      while
      carrying out our own internal review of our pricing practices, and are not
      in a
      position to evaluate the potential financial impact of this litigation at this
      time. However, a finding that we violated either U.S. antitrust laws or the
      competition laws of some other jurisdiction could have a material adverse impact
      on our results of operations or financial condition.









47


**ITEM
                1A.**
            **RISK
                FACTORS.**




See
      Part
      I, Item 1A., “Risk Factors,” of the 2006 Annual Reports for a detailed
      discussion of the risk factors affecting UAL and United. The information below
      provides updates to the previously disclosed risk factors and should be read
      in
      conjunction with the risk factors and information disclosed in the 2006 Annual
      Reports.




***Extensive
      government regulation could increase the Company’s operating costs and restrict
      its ability to conduct its business.***




Airlines
      are subject to extensive regulatory and legal compliance requirements that
      result in significant costs. In addition to the enactment of the Aviation
      Security Act, laws, regulations, taxes and airport rates and charges have been
      proposed from time to time that could significantly increase the cost of airline
      operations or reduce airline revenue. The Federal Aviation Authority (“FAA”)
      from time to time also issues directives and other regulations relating to
      the
      maintenance and operation of aircraft that require significant expenditures
      by
      United. The Company expects to continue incurring material expenses to comply
      with the regulations of the FAA and other agencies.




United
      operates under a certificate of public convenience and necessity issued by
      the
      DOT. If the DOT altered, amended, modified, suspended or revoked our
      certificate, it could have a material adverse effect on the Company’s business.
      The FAA can also limit United’s airport access by limiting the number of
      departure and arrival slots at “high density traffic airports” and local airport
      authorities may have the ability to control access to certain facilities or
      the
      cost of access to such facilities, which could have an adverse effect on the
      Company’s business.




Many
      aspects of United’s operations are also subject to increasingly stringent
      federal, state and local laws protecting the environment. Future regulatory
      developments in the U.S. and abroad could adversely affect operations and
      increase operating costs in the airline industry. For example, potential future
      actions that may be taken by the U.S. government, foreign governments, or the
      International Civil Aviation Organization to limit the emission of greenhouse
      gases by the aviation industry are uncertain at this time, but the impact to
      the
      Company and its industry would likely be adverse and could be
      significant.




The
      ability of United States carriers to operate international routes is subject
      to
      change because the applicable arrangements between the United States and foreign
      governments may be amended from time to time, or because appropriate slots
      or
      facilities may not be made available. United currently operates on a number
      of
      international routes under government arrangements that limit the number of
      carriers, capacity, or the number of carriers allowed access to particular
      airports. If an open skies policy were to be adopted for any of these routes,
      such an event could have a material adverse impact on the Company’s financial
      position and results of operations and could result in the impairment of
      material amounts of related intangible assets. Recently, the United States
      and
      the European Union entered into an “open skies” agreement that will become
      effective at the end of March 2008. See Note 14, “Open Skies Agreement,” in
*Combined Notes to Condensed Consolidated Financial Statements
      (Unaudited)*.




Further,
      the Company’s operations in foreign countries are subject to various laws and
      regulations in those countries. The Company cannot provide any assurance that
      current laws and regulations, or laws or regulations enacted in the future,
      will
      not adversely affect its financial condition or results of
      operations.




48


**ITEM
                2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS**




The
      following table presents repurchases of UAL common stock made in the second
      quarter of fiscal year 2007:




**Period**
                    
                    **Total number**
                      **of shares**
                      **purchased(a)**
                    
                    **Average price**
                      **paid**
                      **per share**
                    
                    **Total number of**
                      **shares purchased as**
                      **part of publicly**
                      **announced**
                      **plans**
                      **or programs**
                    
                    **Maximum number of**
                      **shares (or approximate**
                      **dollar value) of shares**
                      **that may yet be**
                      **purchased under the**
                      **plans or programs**04/01/07
                        - 04/30/07
                    
                    
                    3,491
                    
                    $
                    38.15
                    
                    
                    —
                    
                    (b)05/01/07
                        - 05/31/07
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    (b)06/01/07
                        - 06/30/07
                    
                    
                    1,177
                    
                    
                    40.89
                    
                    
                    —
                    
                    (b)Total
                    
                    
                    4,668
                    
                    
                    38.84
                    
                    
                    —
                    
                    (b)




(a)
            Shares
                withheld from employees to satisfy certain tax obligations due upon
                the
                vesting of restricted stock.




(b)
            The
                MEIP provides for the withholding of shares to satisfy tax obligations
                due
                upon the vesting of restricted stock. The MEIP does not specify a
                maximum
                number of shares that may be
                repurchased.




**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**




The
      Annual Meeting of Stockholders of UAL Corporation was held on May 10, 2007.
      The
      election of directors was the only matter voted upon at the meeting. The
      following director nominees were elected:




**Directors
                Elected by Holders of Common Stock:**Nominee
            Votes
                For
            Votes
                WithheldRichard
                J. Almeida
            89,788,880
            
            9,901,332Mary
                K. Bush
            92,749,545
            
            6,940,666W.
                James Farrell
            90,093,853
            
            9,596,359Walter
                Isaacson
            90,240,678
            
            9,449,534Robert
                D. Krebs
            90,183,727
            
            9,506,485Robert
                S. Miller
            88,782,103
            
            10,908,109James
                J. O’Connor
            89,182,715
            
            10,507,497Glenn
                F. Tilton
            88,503,766
            
            11,186,445David
                J. Vitale
            89,334,295
            
            10,355,916John
                H. Walker
            88,851,935
            
            10,838,277**Director
                Elected by Class Pilot MEC Junior Preferred
                Stock:**Nominee
            Votes
                For
            Votes
                WithheldMark
                A. Bathurst
            1
            
            0**Director
                Elected by Class IAM Junior Preferred Stock:**Nominee
            Votes
                For
            Votes
                WithheldStephen
                R. Canale
            1
            
            0







**ITEM
                6.**
            **EXHIBITS.**




A
      list of
      exhibits included as part of this Form 10-Q is set forth in an
      Exhibit Index that immediately precedes the exhibits.







49





**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, each registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized. The signature for each undersigned company shall be deemed
      to
      relate only to matters having reference to such company or its
      subsidiaries.







UAL
                CORPORATION(Registrant)Date:  July
                30, 2007
            By:  /s/
                Frederic F. BraceFrederic
                F. BraceExecutive
                Vice President andChief
                Financial Officer(principal
                financial andaccounting
                officer)

















UNITED
                AIR LINES, INC.(Registrant)Date:  July
                30, 2007
            By:  /s/
                Frederic F. BraceFrederic
                F. BraceExecutive
                Vice President andChief
                Financial Officer(principal
                financial officer)Date:  July
                30, 2007
            By:  /s/
                David M. WingDavid
                M. WingVice
                President and Controller(principal
                accounting officer)














50





***EXHIBIT
      INDEX***




The
      documents listed below are being filed on behalf of UAL and United as
      indicated.




Registrant†10.1
            UAL
              United
            Amendment
                No. 2 dated June 4, 2007 to the Peter D. McDonald Secular Trust Agreement
                dated September 29, 200612.1
            UAL
            UAL’s
                Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings
                to
                Fixed Charges and Preferred Stock Dividend Requirements12.2
            United
            United’s
                Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings
                to
                Fixed Charges and Preferred Stock Dividend Requirements31.1
            UAL
            Certification
                of the Principal Executive Officer Pursuant to 15 U.S.C. 78m(a) or
                78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) of
                UAL31.2
            UAL
            Certification
                of the Principal Financial Officer Pursuant to 15 U.S.C. 78m(a) or
                78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) of
                UAL31.3
            United
            Certification
                of the Principal Executive Officer Pursuant to 15 U.S.C. 78m(a) or
                78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) of
                United31.4
            United
            Certification
                of the Principal Financial Officer Pursuant to 15 U.S.C. 78m(a) or
                78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) of
                United32.1
            UAL
            Certification
                of the Chief Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002)32.2
            United
            Certification
                of the Chief Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002)





†           Indicates
      management contract or compensatory plan or arrangement








51