****UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION****Washington,D.C.  20549**
**FORM 10-Q**
(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE           SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE           SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 33-21220*
**UNITED AIR LINES, INC.**(Exact name of registrant as specified in its charter)
   **Delaware****36-2675206**(Stateor other jurisdiction of(I.R.S.Employerincorporationor organization)IdentificationNo.)  **Location:1200 East Algonquin Road, Elk Grove Township, Illinois               60007****MailingAddress:  P. O. Box 66100, Chicago, Illinois                                       60666**(Addressof principal executive offices)                                                              (Zip Code)  **Registrant'stelephone number, including area code  (847) 700-4000**
   Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes   X       No
   Indicate the number of shares outstanding of each of the issuer's classesof common stock, as of the latest practicable date.  OutstandingatClassJune30, 2004CommonStock ($5 par value)205
*  Registrantis the wholly owned subsidiary of UAL Corporation (File 1-6033). Registrant became subject to filing periodic reports under the SecuritiesExchange Act of 1934 as a result of a public offering of securities whichbecame effective June 3, 1988 (Registration Nos. 33-21220 and 22-18246).  
United Air Lines, Inc.and Subsidiary Companies Report on Form 10-QFor the Quarter EndedJune 30, 2004
Index PARTI.FINANCIALINFORMATIONPage No.    Item 1. Financial Statements  CondensedStatements of Consolidated Financial Position (Unaudited) - as of June30, 2004 and December 31, 20033  Statementsof Consolidated Operations (Unaudited) - for the three months and six monthsended June 30, 2004 and 20035  CondensedStatements of ConsolidatedCash Flows (Unaudited) -for the six months ended June 30, 2004and 20037  Notesto Consolidated FinancialStatements (Unaudited)8 Item2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations20  Item3. Quantitative and Qualitative Disclosures AboutMarket Risk30    Item4. Controls and Procedures31PARTII.OTHERINFORMATION  Item1. Legal Proceeding32    Item6. Exhibits and Reports on Form 8-K32 Signatures34 ExhibitIndex35   
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    June 30December 31Assets20042003   Current assets:  Cash and cash equivalents$ 780 $ 1,163 Restricted cash814 657 Short-term investments7 52 Receivables, net1,064 837 Deferred income taxes43 26 Inventories, net222 264 Prepaid expenses and other428421 3,3583,420   Operating property and equipment:  Owned17,860 17,953 Accumulated depreciation and amortization(5,377)(5,108) 12,48312,845   Capital leases2,721 2,721 Accumulated amortization(605)(555) 2,1162,166 14,59915,011   Other assets:  Investments45 47 Intangibles, net380 382 Pension assets904 904 Aircraft lease deposits481 679 Prepaid rent77 79 Other, net802663 2,6892,754    $20,646$21,185   
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    June 30December 31Liabilities and Stockholder's Equity20042003   Current liabilities:  Current portions of long-term debt and  capital lease obligations$ 460 $ 689 Advance ticket sales1,851 1,330 Accrued salaries, wages and benefits1,921 2,292 Accounts payable556 492 Related party accounts payable302 211 Other1,078968 6,1685,982Long-term debt172-Long-term obligations under capital leases154163   Other liabilities and deferred credits:  Deferred pension liability4,988 4,747 Postretirement benefit liability1,999 1,924 Deferred income taxes166 150 Other232288 7,3857,109   Liabilities subject to compromise13,76614,084Commitments and contingent liabilities (Seenote)     Stockholder's equity:  Common stock at par- - Additional capital invested1,603 1,603 ESOP capital3,9883,988 Retained deficit(7,685)(6,839)Accumulated other comprehensive loss(3,290)(3,290)Receivables from affiliates(1,615)(1,615) (6,999)(6,153)    $ 20,646$ 21,185   
See accompanying Notes to Consolidated Financial Statements.   
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Statements of Consolidated Operations (Unaudited)(In Millions)
 Three Months Ended June 30 20042003Operating revenues:  Passenger - United Airlines$ 3,242 $ 2,625Passenger - Regional Affiliates358 - Cargo167 154 Other 196256 3,9633,035Operating expenses:  Salaries and related costs1,201 1,378 Aircraft fuel693 452 Commissions92 72 Purchased services370 309 Aircraft rent135 138 Landing fees and other rent241 236 Depreciation and amortization215 272 Regional affiliates456 - Cost of sales136 242 Aircraft maintenance193 115 Other 288297 4,0203,511   Loss from operations(57)(476)   Other income (expense):  Interest expense(121)(147)Interest capitalized1 1 Interest income16 56 Equity in losses of affiliates1 (3)Reorganization items, net(147)(398)Government assistance - 300 Miscellaneous, net413  (246)(178)   Loss before income taxes(303)(654)Credit for income taxes--   Net loss$ (303)$ (654)   
See accompanying Notes to Consolidated Financial Statements.    
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Statements of Consolidated Operations (Unaudited)(In Millions)
 Six Months Ended June 30 20042003Operating revenues:  Passenger - United Airlines$ 6,175 $ 5,173 Passenger - Regional Affiliates651 - Cargo315 318 Other 448651 7,5896,142Operating expenses:  Salaries and related costs2,442 2,902 Aircraft fuel1,296 1,023 Commissions185 146 Purchased services722 644 Aircraft rent273 339 Landing fees and other rent472 475 Depreciation and amortization443 504 Regional affiliates830 - Cost of sales323 604 Aircraft maintenance378 232 Other 585617 7,9497,486   Loss from operations(360)(1,344)   Other income (expense):  Interest expense(244)(294)Interest capitalized1 2 Interest income38 71 Equity in losses of affiliates(2)(3)Non-operating special charges- (137)Reorganization items, net(277)(647)Government assistance - 300Miscellaneous, net(2)13  (486)(695)   Loss before income taxes(846)(2,039)Credit for income taxes--   Net loss$ (846)$(2,039)   
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Cash Flows (Unaudited)(In Millions)
 Six Months Ended June 30 20042003Cash and cash equivalents at beginning   of period, excluding restrictedcash$ 1,163$ 718   Cash flows from operating activities358533   Cash flows from reorganizationactivities:  Reorganization items, net(277)(647)Transfer of Company lease certificates- 215 Increase in liabilities197 280 Loss on disposition of property- 68 Other- (1) (80)(85)Cash flows from investing activities:  Additions to property and equipment(149)(55)Proceeds on disposition of propertyand  equipment13 67 Proceeds on sale of investments- 15 Increase in restricted cash(156)(105)Decrease in short-term investments45 95 Increase in deferred financingcosts(10)(58)Other, net(48)(11) (305)(52)Cash flows from financing activities:  Proceeds from DIP Financing10 123 Repayment of DIP Financing(241)(59)Repayment of long-term debt(89)(153)Principal payments under capital  lease obligations(185)(72)Aircraft lease deposits, net160 28 Other, net(11)(13) (356)(146)   Increase (decrease) in cash andcash equivalents(383)250   Cash and cash equivalents at endof period,  excluding restricted cash$ 780$ 968   Cash paid during the period for:  Interest (net of amounts capitalized)$ 293 $ 103    Non-cash transactions:  Increase (decrease) in long-termdebt incurred in  connection with additions to otherassets $ 172 $ - Net unrealized gain (loss) oninvestments- 3 Increase (decrease) in pensionassets$ - $ (200)
See accompanying Notes to Consolidated Financial Statements.     
United Air Lines, Inc. and Subsidiary CompaniesNotes to Consolidated Financial Statements (Unaudited)
The Company
        United Air Lines, Inc. ("United,""we," "our" or the "Company") is a wholly owned subsidiary of UAL Corporation("UAL").
Interim Financial Statements
        We prepared the consolidatedfinancial statements shown here as required by the Securities and ExchangeCommission ("SEC"). Some information and footnote disclosures normallyincluded in financial statements that meet generally accepted accountingprinciples have been condensed or omitted as permitted by the SEC. We believethat the disclosures presented here are not misleading. The financial statementsinclude all adjustments (which include only normal recurring adjustments,reorganization items and other special charges described below) that areconsidered necessary for a fair presentation of our financial positionand operating results. Certain prior year financial statement items havebeen reclassified to conform to the current year's presentation. Thesefinancial statements should be read together with the information includedin our most recent Annual Report on Form 10-K for the year 2003.
Voluntary Reorganization Under Chapter 11
        *Bankruptcy Proceedings.*OnDecember 9, 2002 (the "Petition Date"), UAL, United and 26 direct and indirectwholly owned subsidiaries filed voluntary petitions to reorganize theirbusinesses under Chapter 11 of the United States Bankruptcy Code in theUnited States Bankruptcy Court for the Northern District of Illinois, EasternDivision (the "Bankruptcy Court"). The Bankruptcy Court is jointly administeringthese cases as "In re: UAL Corporation, et al., Case No. 02-48191." Theconsolidated financial statements shown here include certain subsidiariesthat did not file to reorganize under Chapter 11. The assets and liabilitiesof these subsidiaries are not considered material to theConsolidatedFinancial Statements.
        As required by the BankruptcyCode, the United States Trustee for the Northern District of Illinois hasappointed an official committee of unsecured creditors (the "Creditors'Committee"). The Creditors' Committee and its legal representatives havea right to be heard on all matters that come before the Bankruptcy Courtconcerning our reorganization. There can be no assurance that the Creditors'Committee will support our positions or our plan of reorganization, andany disagreements between the Creditors' Committee and us could protractthe Chapter 11 process, hinder our ability to operate during the Chapter11 process, and delay our emergence from Chapter 11.
        With the exception of ournon-filing subsidiaries, we continue to operate our businesses as "debtors-in-possession"under the jurisdiction of the Bankruptcy Court and in accordance with theapplicable provisions of the Bankruptcy Code, the Federal Rules of BankruptcyProcedure and applicable court orders. In general, as debtors-in-possession,we are authorized under Chapter 11 to continue to operate as an ongoingbusiness, but may not engage in transactions outside the ordinary courseof business without the prior approval of the Bankruptcy Court.
        All vendors are being paidfor all goods furnished and services provided after the Petition Date inthe ordinary course of business. However, under Section 362 of the BankruptcyCode, actions to collect most of our pre-petition liabilities are automaticallystayed (except for liabilities relating to certain qualifying aircraft,aircraft engines and other aircraft-related equipment that are leased orsubject to a security interest or conditional sale contract). Under Section1110 of the Bankruptcy Code, actions to collect such aircraft-related pre-petitionliabilities are automatically stayed for 60 days only (our automatic stayended on February 7, 2003), except under two conditions: (a) the debtormay extend the 60-day period by agreement with the relevant financier andwith court approval; or (b) the debtor may agree to perform all of theobligations under the applicable financing and cure any defaults as requiredunder the Bankruptcy Code. If neither of these conditions is met, the financiermay demand the return of the aircraft or take possession of the propertyand enforce any of its contractual rights or remedies to sell, lease orotherwise retain or dispose of such equipment.
        We have negotiated with lessorsand lenders to restructure existing financings to reduce aircraft ownershipcosts to better reflect current market rates, and we have reached agreementsin principle with respect to a substantial majority of our financed aircraft.However, in light of the final decision received from the Air TransportationStabilization Board ("ATSB") regarding our loan application and the needfor further cost reductions, we are re-examining these agreements and believeit likely that we will need to renegotiate one or more of them. Althoughwe expect to be successful with respect to any such efforts, to the extentwe are unable to restructure any financings we believe are unaffordableunder the modified business plan, we may face the possibility that oneor more financiers may seek to repossess their aircraft. Likewise, thereis no assurance that those agreements in principle which are not restructuredwill be successfully converted to final contracts. To the extent we areunable to finalize those agreements there can be no assurance that we willbe able to reach new agreements at comparable economics or that financierswill not repossess aircraft. The repossession of a significant number ofaircraft could result in a material adverse affect on our financial andoperational performance.
        We have also rejected orabandoned certain surplus aircraft to adjust our fleet size and compositionto more closely match market demand. In addition, as part of on-going negotiationswith financiers, we have converted many long-term financing arrangementsinto short-term operating leases and, in several instances, re-acquiredpreviously rejected aircraft as circumstances warranted.
        Under Section 365 of theBankruptcy Code, we may assume, assume and assign, or reject certain executorycontracts and unexpired leases, including leases of real property, subjectto the approval of the Bankruptcy Court and certain other conditions. OurSection 365 rights to assume, assume and assign, or reject unexpired leasesof non-residential real estate expire on the earlier of the date of terminationof our exclusive period to file a plan of reorganization (currently, August30, 2004) or the date of the conclusion of a disclosure statement hearingin connection with a proposed plan of reorganization.
        In general, if we rejectan executory contract, unexpired lease or aircraft, it is treated as apre-petition breach of the lease or contract in question and, subject tocertain exceptions, relieves us of performing any future obligations butentitles the lessor or contract counterparty to a pre-petition generalunsecured claim for damages caused by such deemed breach and accordingly,the counterparty may file a claim against us for such damages. As a result,liabilities subject to compromise are likely to increase in the future,as a result of damage claims created by our rejection of various aircraft,executory contracts and unexpired leases. Generally, if we assume an aircraftfinancing agreement, executory contract or unexpired lease we are requiredto cure most existing defaults under such contract or lease. We expectthat the assumption of certain executory contracts and unexpired leasesmay convert liabilities currently shown as subject to compromise to liabilitiesnot subject to compromise.
        To successfully exit Chapter11, we must obtain confirmation by the Bankruptcy Court of a plan of reorganization.A plan of reorganization would, among other things, resolve our pre-petitionobligations and other liabilities subject to compromise and establish ourcorporate governance subsequent to exit from bankruptcy. The plan of reorganizationwould also address the terms and conditions of exit financing as part ofour revised capital structure. While there can be no assurance that wecan obtain the necessary financing to exit from bankruptcy, we currentlybelieve that UAL's presently outstanding equity securities will have novalue and expect that those securities will be canceled under any new proposedplan of reorganization. For this reason, we urge that caution be exercisedwith respect to existing and future investments in any UAL equity security.The rights and claims of various creditors and security holders will alsobe determined by the plan. At this time, it is not possible to predictaccurately the effect of the Chapter 11 reorganization process on our business,nor can we make any predictions concerning how certain claims will be valuedin UAL's bankruptcy case.
        We are currently operatingunder an "exclusive period" which expires August 30, 2004, during whichwe are the only party permitted to file a plan of reorganization. The decisionas to when we will file a plan of reorganization depends on the timingand outcome of numerous ongoing matters in the Chapter 11 process. We expectto file a plan of reorganization that provides for UAL's emergence frombankruptcy, but there can be no assurance that the Bankruptcy Court willconfirm a plan of reorganization or that any such plan will be implementedsuccessfully.
***       **DIP Financing.*****Inconnection with UAL's Chapter 11 case, the Company arranged a debtor-in-possessionsecured financing ("DIP Financing"). The initial DIP Financing consistedof two facilities, a $300 million facility provided by Bank One N.A. ("BankOne Facility") and a $1.2 billion facility provided by J.P. Morgan ChaseBank, Citicorp USA, Inc., Bank One, N.A., and The CIT Group/Business Credit,Inc. ("Club Facility"). As of June 30, 2004, we had $60 million in outstandingborrowings under the Bank One Facility (which was repaid on July 1, 2004)and $395 million under the Club Facility, which included $23 million inletters of credit issued under the Club Facility.
        In May 2004, we reached anagreement to modify terms of the Club Facility. The Club Facility currentlyconsists of a revolving credit and letter of credit facility of $200 millionand a term loan of $300 million, maturing on December 31, 2004. We havethe option of borrowing under the Club Facility at an interest rate ofthe prime rate plus 4.5% or LIBOR plus 5.5% (with a LIBOR floor of 3%).
        Subsequently, we have reachedagreement to modify certain terms of the existing Club Facility. The ClubFacility will consist of a revolving credit and letter of credit facilityof $200 million and a term loan of $800 million, which matures on June30, 2005. The interest rates did not change from the May 2004 agreement.These amendments to our Club Facility are subject to the approval of theBankruptcy Court which we anticipate seeking in August.
         The proposed termsof the amended Club Facility include covenants that require us to satisfyongoing monthly financial requirements as determined by reference to EBITDAR(earnings before interest, income taxes, depreciation, amortization andaircraft rents) thresholds and that limit capital expenditures. In addition,we are required to maintain a minimum unrestricted cash balance of $600million. The proposed terms of the amended Club Facility also contain financialcovenants that do not permit us to make payments inconsistent with ourbusiness plan, unless the lenders otherwise consent based on a modifiedbusiness plan. As a result, we currently do not expect to make any contributionsto our pension plans before our exit from bankruptcy.
*        Financial StatementPresentation.*We have prepared the accompanying consolidated financialstatements in accordance with American Institute of Certified Public Accountants'Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entitiesin Reorganization Under the Bankruptcy Code," and on a going-concern basis,which assumes continuity of operations, realization of assets and satisfactionof liabilities in the ordinary course of business.
        SOP 90-7 requires that thefinancial statements separate transactions and events that are directlyassociated with the restructuring from the ongoing operations of the business.Accordingly, all transactions (including, but not limited to, all professionalfees, realized gains and losses, and provisions for losses) directly relatedto the reorganization and restructuring of the business are reported separatelyin the financial statements. The Statements of Consolidated FinancialPosition distinguishes pre-petition liabilities subject to compromiseboth from those that are not subject to compromise as well as from allpost-petition liabilities. Liabilities subject to compromise are reportedat the amounts expected to be allowed by the Bankruptcy Court, even ifthey may be settled for lesser amounts.
        In addition, as a resultof UAL's Chapter 11 case, the realization of assets and the satisfactionof liabilities (without substantial adjustments and/or changes in ownership)are subject to uncertainty. While operating as debtors-in-possession underthe protection of Chapter 11 and subject to approval of the BankruptcyCourt and the terms of the applicable DIP Financing covenants, or otherwiseas permitted in the ordinary course of business, we may sell or disposeof assets (including aircraft) and liquidate or settle liabilities forsome amounts other than those reflected in the consolidated financial statements.Further, our plan of reorganization could materially change the amountsand classifications in the historical consolidated financial statements.
        Pursuant to the BankruptcyCode, we have filed schedules with the Bankruptcy Court identifying ourassets and liabilities as of the Petition Date, while our creditors havebeen able to file proofs of claim with the Bankruptcy Court. The totalamount of claims filed with the Bankruptcy Court far exceeds our estimateof ultimate liability. We believe that many of these claims are invalidbecause they are duplicative, are based upon contingencies that have notoccurred, or are otherwise overstated. Differences in amount between claimsfiled by creditors and liabilities shown in our records are being investigatedand resolved in connection with our claims resolution process. That processhas commenced and, in light of the number of claims asserted, will takesignificant time to complete. For this reason, the ultimate number andallowed amounts of such claims cannot yet be determined.
New Accounting Pronouncements
        On December 8, 2003, theMedicare Prescription Drug, Improvement and Modernization Act of 2003 (the"Medicare Act") was enacted to provide a prescription drug benefit as wellas a federal subsidy to sponsors of certain retiree health care benefitplans. As allowed by Financial Accounting Standards Board Staff PositionNo. 106-1 ("FSP 106-1"), we elected to reflect the effects of the MedicareAct on our accumulated postretirement benefit obligation ("APBO") and netperiodic postretirement benefit cost for 2003. The Medicare subsidy resultedin a decrease in the APBO of approximately $280 million but was immaterialto our 2003 financial results.
        On May 19, 2004, the FinancialAccounting Standards Board ("FASB") issued FASB Staff Position No. 106-2("FSP 106-2") which supersedes FSP 106-1 and provides specific guidanceon accounting for the subsidy. The issuance of FSP 106-2 did not significantlychange our original estimates of the APBO. On a proforma basis, it decreasedour annual postretirement expense by approximately $30 million.
Stock Option Accounting
        We account for stock-basedemployee compensation plans under Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to Employees." We have not incurred anystock-based employee compensation cost for stock options, as all optionsgranted under the plans had an exercise price equal to the market valueof the underlying common stock on the date of grant.
        If compensation cost forstock-based employee compensation plans had been determined using the fairvalue recognition provisions of Statement of Financial Accounting Standards("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company'snet loss would have been reported as the pro forma amounts shown below: (In millions, except per share)Three MonthsSix Months Ended June 30Ended June 30 2004200320042003Net loss, as reported$ (303)$ (654)$ (846)$ (2,039)Less: Total compensation expensedetermined under    fair value method(3)(5)(5)(10) $ (306)$ (659)$ (851)$ (2,049)     
Income Taxes
        Beginning in the third quarterof 2002, we established a valuation allowance against our net deferredtax asset. Thus, United has a zero percent effective tax rate for both2003 and 2004. As of June 30, 2004, our valuation allowance totaled $2.6billion. Further, we have determined that it is more likely than not thatour gross deferred tax assets, net of valuation allowances at June 30,2004, will be realized through the reversals of existing deferred tax credits.
Retirement and Postretirement Plans
        In December 2003, the FASBrevised SFAS No. 132, "Employers' Disclosures about Pensions and OtherPostretirement Benefits", ("SFAS No. 132") effective for all interim periodsfollowing December 15, 2003. SFAS No. 132 revises employers' disclosuresabout pension plans and other postretirement benefit plans including disclosuresmade in interim periods. While it does not change the measurement or recognitionof those plans, it requires additional interim disclosures as detailedbelow.
        Our net periodic benefitcost included the following components for the three months and six monthsended June 30: (In millions)Pension BenefitsOther Benefits Three Months Ended June 30 20042003 20042003 Service cost$ 62$ 70  $ 16 $ 21  Interest cost 197 193  42 56  Expected return on plan assets(175)(170) (3)(2) Amortization of prior servicecost      including transition obligation/(asset)20 22  (26)(14) Curtailment charge- 125  - 13  Special termination benefit- 10  - 4  Recognized actuarial (gain)/loss2317 2326 Net periodic benefit costs$ 127$ 267 $ 52$ 104  (In millions)Pension BenefitsOther Benefits Six Months Ended June 30 20042003 20042003 Service cost$ 120 $ 169  $ 27 $ 51  Interest cost395 468  92 136  Expected return on plan assets(355)(412) (5)(5) Amortization of prior servicecost      including transition obligation/(asset)40 53  (51)(34) Curtailment charge- 125  - 13  Special termination benefit- 10  - 4  Recognized actuarial (gain)/loss5042 5162 Net periodic benefit costs$ 250$ 455 $ 114$ 227 
        In accordance with Section1114 of the Bankruptcy Code, we reached agreements with the authorizedrepresentatives of our retirees to modify the medical and certain lifebenefits that we provide to our approximately 35,000 retired employeeswho retired before July 1, 2003. On June 14, 2004, the Bankruptcy Courtapproved the consensual modifications of retiree medical and life benefits.As a result of the modifications to retiree medical benefits, we revaluedour postretirement plans as of June 1, 2004. The significant actuarialassumptions used for the revaluation of the plans were unchanged from December31, 2003 except for the discount rate which was increased from 6.25% to6.50%. These changes have been reflected in the above disclosures and resultin a decrease to our APBO of $970 million and a reduction in expense of$110 million on an annualized basis. In addition, we expect that theseagreements will deliver cash savings to the Company of more than $300 millionthrough 2010.
        After giving considerationto temporary funding relief provided by the Pension Funding Equity Actof April 2004, our minimum required contribution to our pension plan trustsis approximately $700 million in 2004. Of this total, we contributed $17million and $110 million, during the first and second quarters of 2004respectively, to our plans. However, we did not make the $72 million quarterlyminimum funding contribution that was due on July 15, 2004.
        The proposed terms of theamended Club Facility (for details see "DIP Financing" in the notes above)contains financial covenants that do not permit us to make payments inconsistentwith our business plan, unless the lenders otherwise consent based on amodified business plan. As a result, we do not expect to make any pensioncontributions before our exit from bankruptcy.
Restricted Cash
        At June 30, 2004, Unitedhad $814 million in restricted cash, primarily representing security forworker compensation obligations, security deposits for airport leases andreserves with institutions that process the Company's sales.
Liabilities Subject to Compromise
        Liabilities subject to compromiserefers to obligations which will be accounted for under a plan of reorganization,including claims incurred prior to the Petition Date. They result fromknown or potential claims to be resolved through the Chapter 11 process,and remain subject to future adjustments arising from negotiated settlements,actions of the Bankruptcy Court, rejection of executory contracts and unexpiredleases, the determination as to the value of any collateral securing claims,proofs of claim or other events. To date, such adjustments, as reflectedin reorganization expense, have been material and we anticipate that futureadjustments will be material as well. Payment terms for these amounts willbe established in connection with the Chapter 11 process.
        At June 30, 2004, we hadliabilities subject to compromise of $13.8 billion consisting of:  (In millions)  Long-term debt, including accruedinterest$ 7,406  Aircraft-related accruals anddeferred gains3,321  Capital lease obligations, includingaccrued interest1,765  Accounts payable295  Intercompany loans and payables256  Other 723  $ 13,766
Long-term Debt
        During the second quarterof 2004, we renegotiated the financing arrangement for certain non-operatingaircraft which we provide to a third party under an operating lease. Asa consequence, long-term debt and other assets increased $172 million.The payment streams under the lease arrangement are included in "OtherRevenues".
United Express
        United has marketing agreementsunder which independent regional carriers, flying under the United Express("UAX") name, feed passengers to other United-branded flights. During thesecond half of 2003, we reached new or substantially revised agreementswith several UAX carriers Air Wisconsin Airlines Corporation, Mesa AirGroup, SkyWest Airlines and Trans States Airlines.
        Historically, we paid ourUAX partner carriers on a fee-per-departure basis and included the revenuesderived from them in passenger revenue, net of expenses. However, the long-termagreements with these UAX carriers change the previous fee-per-departurearrangement to a fixed rate and capital reimbursement arrangement.
        We have changed our classificationof UAX revenues and expenses for UAX carriers Air Wisconsin Airlines Corporation,Mesa Air Group, SkyWest Airlines and TransStates Airlines to record revenuesand expenses related to these UAX carriers at gross, rather than net. Theserevenues and expenses are presented as "Regional Affiliates" on the financialstatements.
        On April 2, 2004, we agreedto end our UAX relationship with Atlantic Coast Airlines ("ACA") and enteredinto a formal transition agreement providing for an orderly transitionto UAX flying and ground handling. The transition of UAX flying and groundhandling began in June 2004 and will be completed in August. The revenuesand expenses related to ACA continue to be included net in passenger revenues.
        Amounts included in passengerrevenues (which represent only the ACA relationship in 2004, and all UAXcarriers in the prior year) were:  Net revenues (net expenses)Net revenues (net expenses)(In millions)Three MonthsSix Months Ended June 30Ended June 30 2004200320042003United Express revenues$ 147 $ 366 $ 294 $ 672 United Express expenses(149)(408)(325)(809)Net amount in passenger revenues$ (2)$ (42)$ (31)$ (137)
Segment Information
        United has a global routenetwork designed to transport passengers and cargo between destinationsin North America, the Pacific, the Atlantic and Latin America. These regionsconstitute United's four reportable segments. For internal management anddecision-making purposes, we have allocated expenses and revenues (as incorporatedin our consolidated financial statements) to these segments as follows: (In millions)ThreeMonths Ended June 30, 2004  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 2,698 $ 659 $ 506 $ 100 $ 3,963 Earnings (loss) before     reorganization items$ (185)$ 15 $ 21 $ (7)$ (156) (In millions)ThreeMonths Ended June 30, 2003  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$2,114 $377 $ 446 $  98 $3,035 Earnings (loss) before     special charges,     government assistance      and reorganization items$(238)$(121)$(20)$(25)$(404) (In millions)SixMonths Ended June 30, 2004  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 5,120 $ 1,283 $ 967 $ 219 $ 7,589 Earnings (loss) before     special charges and     reorganization items$ (545)$ (3)$ (7)$ (14)$ (569) (In millions)SixMonths Ended June 30, 2003  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$4,119 $ 954 $ 857 $ 212 $6,142 Earnings (loss) before     special charges,     government assistance      and reorganization items$(924)$(271)$(137)$(71)$(1,403)  Three Months EndedSix Months Ended June 30June 30(In millions)2004200320042003Total loss for reportable segments$ (156)$(404)$ (569)$(1,403)Curtailment charge- (152)- (152)Special charges- - - (137)Reorganization items, net(147)(398)(277)(647)Government assistance-300-300Total loss before income taxes $(303)$(654)$ (846)$(2,039)
Other Comprehensive Income Total comprehensive income(loss):Three Months EndedSix Months Ended June 30June 30(In millions)2004200320042003Net loss$ (303)$ (654)$ (846)$ (2,039)Pension liability adjustment- (964)- (964)Unrealized gains (losses) -(1)-3Total comprehensive loss$ (303)$ (1,619)$ (846)$ (3,000)
        See "Special Charges" notebelow for details regarding the pension liability adjustment.
Reorganization Items
        We recognized the followingamounts for reorganization expenses in connection with our Chapter 11 filings:   Three MonthsSix Months  Ended June 30Ended June 30 (In millions)2004200320042003 Aircraft rejection charges$ 103 $ 279 $ 224 $ 279  Transfer of lease certificates- - - 215  Professional fees49 4183 75  Severance and employee retention- 447 48  Interest income(1)(4)(5)(7) Other (4)38(32)37  $ 147$ 398$ 277$ 647      
        Aircraft rejection chargesinclude our estimate of claims resulting from United's rejection of certainaircraft financing obligations (and return of the associated aircraft)as part of the bankruptcy process.
        In the first quarter of 2003,we renegotiated certain off-balance sheet leases as part of the Section1110 process. Under the terms of the revised leases, we surrendered ourinvestment in the junior portion of the original lease debt to the originalequity participant. As a result, our investment in the corresponding leasecertificates was reduced to zero, resulting in a $215 million non-cashcharge in reorganization items.
Special Charges
        *Air Canada.*On April 1, 2003, Air Canada filed for protection under the Companies'Creditors Arrangement Act ("CCAA") of the Canada Business Corporation Act.During the first quarter of 2003, the Company recorded a non-operatingspecial charge of $137 million in connection with Air Canada's CCAA filing.The charge included $46 million for the impairment of our investment inAir Canada preferred stock and $91 million to record a liability resultingfrom our guarantee of Air Canada debt. We consider this liability to bea pre-petition obligation and accordingly, have classified it in liabilitiessubject to compromise.
         *Curtailment Charge.*During the second quarter of 2003, we revalued our pension and postretirementplans for certain employee groups as a result of the ratification of newlabor contracts for our major employee groups and additional employee furloughs.The significant actuarial assumptions used for the revaluation of the planswere unchanged from December 31, 2002, except for the discount rate andweighted average salary scale. The revaluation of the plans resulted inspecial termination and curtailment charges of $152 million in the secondquarter of 2003. In addition, as a direct result of the revaluation ofthe pension plans, stockholders' equity and pension intangible assets werereduced by approximately $964 million and $200 million, respectively. Thesechanges to the pension and postretirement plans also reduced expenses byapproximately $100 million in the second quarter of 2003 or approximately$550 million on an annualized basis.
*        Government Assistance*.In May 2003, we received approximately $300 million in compensation underthe Emergency Wartime Supplemental Appropriations Act ("Wartime Act") whichwas signed into law on April 16, 2003. The legislation included approximately$3 billion of financial aid for U.S. air carriers as follows: $2.4 billionto compensate air carriers for expenses and forgone revenues related toaviation security, including $100 million for reinforcing cockpit doors;suspension of the passenger and air carrier security fees from June 1,2003 through September 30, 2003; and a one-year extension of government-providedwar-risk insurance to August 2004.
        The Wartime Act also requiredthat the total compensation of the two most highly compensated executivesof certain airlines be limited, during the period between April 1, 2003and April 1, 2004, to the annual salary paid to those officers with respectto the air carrier's fiscal year 2002. Consequently, we executed a contractwith the government agreeing to comply with the executive compensationlimits described above or to repay the government the amount of its compensationfor airline security fees described above. We have complied with the executivecompensation limits provision and thus do not believe that we are requiredto repay the government.
Reconciliation of Accruals
        In the period following September11, 2001, we recorded an accrual of $162 million to reflect our estimateof the early termination fees associated with certain contracts. This obligationhas yet to be resolved, and therefore continues to be included in liabilitiessubject to compromise in its entirety.
Related Party Transactions
        United recognized the followingamounts related to transactions with UAL Loyalty Services, Inc. ("ULS"): (inmillions)ThreeMonthsSix Months EndedJune 30EndedJune 30 2004200320042003Revenues$109 $100 $191 $193 Commissionexpense and purchased services(12)(9)(25)(20)Interestincome12 11 24 21 
Aircraft Fuel Hedging
        Aircraft fuel represented17% and 16%, respectively, of our total operating expenses for the threemonths and six months ended June 30, 2004.
        During the second quarterof 2004, we began hedging a portion of our price risk related to anticipatedfuture jet fuel requirements primarily through a collar option strategy.The collars, which have been designated as cash flow hedges, involve thepurchase of fuel call options with the simultaneous sale of fuel put optionswith identical expiration dates. These contracts are recorded at fair valuewith the changes in fair value, to the extent they are effective, recordedin other comprehensive income until the underlying hedged fuel is consumed.The fair value is determined by the use of standard option value modelsusing assumptions regarding commodity derived from prices observed in underlyingmarkets. To date, the impact of these hedge transactions has been immaterialto our financial statements.
        Currently, we have hedgedapproximately 30% of our remaining 2004 projected fuel requirements atan average price of $0.99 to $1.16 per gallon and anticipate continuingto hedge future fuel purchases for 2004 and 2005 as circumstances and marketconditions allow.
Commitments and Contingencies
        United has certain contingenciesresulting from litigation and claims (including environmental issues) encounteredin the ordinary course of business. Management believes, after consideringa number of factors, including (but not limited to) the views of legalcounsel, the nature of contingencies to which we are subject and priorexperience, that the ultimate disposition of these contingencies will notmaterially affect the Company's consolidated financial position or resultsof operations.
        We record liabilities forlegal and environmental claims against us in accordance with generallyaccepted accounting principles. These amounts are recorded based on ourassessments of the likelihood of their eventual settlements. The amountsof these liabilities could increase or decrease in the near term, basedon revisions to estimates relating to the various claims. In addition,as a result of the bankruptcy filing, as of the Petition Date, virtuallyall pending litigation is stayed, and absent further order of the BankruptcyCourt, no party, subject to certain exceptions, may take any action, againsubject to certain exceptions, to recover on pre-petition claims againstus. Accordingly, we have classified certain of these liabilities as liabilitiessubject to compromise.
        The Company denies liabilityand will vigorously contest the allegations made against it in litigationarising from the events of September 11, 2001. However, in the event thatliability were to be assessed after a full trial on the merits, it is likelythat any damages awarded would be significant. Nevertheless, we believethat, under federal law, our actual liability will be limited to our insurancecoverage.
        At June 30, 2004, commitmentsfor the purchase of property and equipment, principally aircraft, approximated$1.6 billion, after deducting advance payments. Our current commitmentswould require the payment of an estimated $0.1 billion for the remainderof 2004, $0.4 billion in each of 2005 and 2006, $0.5 billion in 2007 and$0.2 billion in 2008 and thereafter, primarily for the purchase of A319,A320 and B777 aircraft. It is likely that the amount and timing of theseobligations will change, and could potentially be eliminated in their entirety.Additionally, the disposition of advance payments to the manufacturersof $161 million is subject to the ultimate outcome of these discussions.
Item 2.  Management's Discussion and Analysis of FinancialCondition and Results of Operations
Chapter 11 Reorganization
        On December 9, 2002, UAL,United and 26 of its subsidiaries filed voluntary petitions to reorganizetheir businesses under Chapter 11 of the United States Bankruptcy Code.For further details regarding the Chapter 11 Cases, see "Voluntary ReorganizationUnder Chapter 11" in the Notes to Consolidated Financial Statements.In addition, specific information pertaining to our bankruptcy filing maybe obtained through the website www.pd-ual.com.
        In light of the decisionby the Air Transportation Stabilization Board ("ATSB") (delivered June28, 2004) to deny our updated application for a federal loan guarantee,we believe that further restructuring, including additional cost reductionsand efficiency improvements, will be required for us to obtain exit financing.We are currently in the process of gathering feedback from the capitalmarkets to determine the levels of cash flows, coverage ratios, and othercomparable financial metrics which must be delivered by our business planto attract exit financing without an ATSB loan guarantee. Emergence fromChapter 11 depends upon, among other things, securing exit financing andestablishing a viable post-exit capital structure, as well as the successfulconfirmation and implementation of a plan of reorganization. At this time,it is premature to speculate on the length of time these efforts will takeand, consequently, when we anticipate emerging from bankruptcy.
***       **DIP Financing.*****OnJuly 21, we received commitments for $1 billion (which represents a $500million increase from the existing arrangement), with a maturity date ofJune 30, 2005 that will take the form of an amendment to our current ClubFacility. This DIP Financing will be underwritten by J.P.Morgan Chase Bank, Citicorp USA, Inc., The CIT Group/Business Credit, Inc.and GE Capital. Extending the current Club Facility's maturity will provideus with liquidity throughout the seasonally slow fall and winter seasonsas well as with the additional time we need to complete our restructuringefforts in a systematic and measured way and formulate a modified businessplan. See "DIP Financing" in the Notes to Consolidated FinancialStatements.
*        Pensions.*Ourprojected minimum pension funding obligations over the 2004 to 2008 timeperiod remains unchanged at approximately $4.1 billion, despite the temporarypension funding relief provided by the Pension Funding Equity Act of 2004.To best manage our resources and preserve our options going forward aswe work to secure exit financing, we did not make the $72 million quarterlyminimum funding contribution that was due on July 15, 2004. In addition,on July 23, 2004, we announced that we had agreed to amend our Club Facility.The proposed terms of the amended Club Facility (for details see "DIP Financing"above) contain financial covenants that do not permit us to make paymentsinconsistent with our business plan, including our pension contributions,unless the lenders otherwise consent based on a modified business plan.As a result, we do not expect to make any pension contributions beforeour exit from bankruptcy. Such payments would diminish the Company's liquidityand reduce flexibility, thus impairing our ability to attract exit financing.In and of itself, this decision does not affect the benefits currentlybeing paid under these plans.
          In response tothis announcement, on July 26, 2004, we received a letter from the PensionBenefit Guaranty Corporation ("PBGC") requesting that we provide a detailedexplanation of how our business plan will enable us to meet these obligationsor if we intend to terminate any of our defined benefit pension plans.We plan to work closely with the PBGC and other stakeholders on these issues.
        However, our long-term businessplan must have cash flow and liquidity levels that the capital marketsare willing to finance. Because existing pension plan contributions wouldremain a huge financial burden after exit, it is incumbent on us to studyall possible options and to determine whether we can sustain this burdenand still attract exit financing. At present, no decisions have been madeand much work and analysis needs to be completed.
        On July 29, 2004, the InternationalAssociation of Machinists and Aerospace Workers filed a complaint in theUnited States District Court for the Northern District of Illinois alleginga breach of fiduciary duty by our chairman, president and chief executiveofficer and certain other officers in connection with the Company's decisionnot to make the July 2004 pension plan contribution and the amendment toits Club Facility. For further information see "Legal Proceedings" in PartII, Item 1 of this Form 10-Q.
*        Section 1110 AircraftRestructuring.* We have negotiated with lessors and lenders to restructureexisting financings to reduce aircraft ownership costs to better reflectcurrent market rates, and we have reached agreements in principle withrespect to a substantial majority of our financed aircraft. However, inlight of the ATSB's final decision regarding our loan application and theneed for further cost reductions, we are re-examining these agreementsand believe it is likely that we will need to renegotiate one or more ofthem. Although we expect to be successful with respect to any such efforts,to the extent we are unable to restructure any financings we believe areunaffordable under the modified business plan, we may face the possibilitythat one or more financiers may seek to repossess their aircraft. Likewise,there is no assurance that those agreements in principle which are notrestructured will be successfully converted to final contracts. To theextent we are unable to finalize those agreements there can be no assurancethat we will be able to reach new agreements at comparable economics orthat financiers will not repossess aircraft. The repossession of a significantnumber of aircraft could result in a material adverse affect on our financialand operational performance.
        *Municipal Bond Obligations.*At June 30, 2004, we had approximately $1.7 billion in special facilitiesrevenue bonds ("municipal bonds") outstanding that were issued on behalfof United to build or improve airport-related facilities. The Company leasesfacilities at airports pursuant to lease agreements where municipal bondsfunded at least some of the airport-related projects.
        During 2003, we filed fourcomplaints for declaratory judgment and corresponding motions for temporaryrestraining order concerning municipal bonds issued for facilities at theDenver International Airport, the New York City - John F. Kennedy InternationalAirport ("JFK"), the San Francisco International Airport ("SFO"), and theLos Angeles International Airport ("LAX"). In each case, we sought clarificationof our obligations under the applicable municipal bonds, and the protectionof our rights concerning related airport lease agreements at the applicableairport.
        On March 30, 2004, the BankruptcyCourt granted our motions for summary judgment with respect to the JFK,SFO and LAX municipal bonds, holding that our payment obligations relatedto airport improvements at these sites are not obligations arising under"leases" pursuant to Section 365 of the Bankruptcy Code. Based on thisruling, the outstanding $248 million in principal and interest in connectionwith these bonds is considered pre-petition debt. The rights and claimsof these bondholders, therefore, will be determined by our plan of reorganization.
        In our adversary proceedinginvolving the Denver airport, however, the Bankruptcy Court did not grantour motion for summary judgment. Rather, the Bankruptcy Court found thatour payment obligations related to airport improvements at the Denver airport(which represents approximately $261 million of debt) are obligations arisingunder a true lease. In accordance with the Bankruptcy Court's order, wepaid $27 million into escrow (pending the outcome of our appeal) for theApril 2003, October 2003 and April 2004 interest payments related to theDenver airport municipal bonds.
        The defendants in the SFO,JFK and LAX adversary proceedings appealed the Bankruptcy Court's ruling.Likewise, United has appealed the Bankruptcy Court's ruling with regardto the Denver airport. These appeals are pending in the United States DistrictCourt for the Northern District of Illinois. The parties have fully briefedthe issues, and the District Court has not set a date for its ruling.
        Similarly, in September 2003,we filed a complaint for declaratory judgment for all seven municipal bondissues relating to our facilities at Chicago O'Hare International Airport("O'Hare") (which represents approximately $601 million in debt), seeking,among other things, a declaration that a certain cross-default provisionin the O'Hare airport lease is unenforceable. At the time of this filing,the Bankruptcy Court has not ruled on this matter. While that case is pendingand as ordered by the Bankruptcy Court, we have paid into escrow paymentstotaling $22 million related to the O'Hare municipal bonds for March, April,May, September, October and November of 2003 and for March, April and Mayof 2004.
        Pending the Bankruptcy Court'sruling, we are unable to predict what, if any, action might be taken inthe future by either the bondholders or the airport authorities as a resultof United's failure to pay these O'Hare contractual obligations. However,we believe that the Bankruptcy Court's orders substantially reduce therisk of any declared default by providing us an opportunity to make requiredpayments and preserve our rights under the leases.
        *Claims Resolution Process.*As permitted under the bankruptcy process, our creditors have filed proofsof claim with the Bankruptcy Court. The total amount of such claims filedfar exceeds our estimate of ultimate liability. We believe that many ofthese claims are invalid because they are duplicative, are based upon contingencieswhich have not occurred, have been amended or superseded by later filedclaims, or are otherwise overstated. Differences in amount between claimsfiled by creditors and liabilities shown in our records are being investigatedand resolved in connection with our claims resolution process. While wehave made significant progress to date, we expect this process to continuefor some time and believe that further reductions to the claims registerwill enable us to determine with more precision the likely range of creditordistributions under a proposed plan of reorganization. At this time, theultimate number and allowed amount of such claims cannot be determined.
        *United Express*.On April 2, 2004, we reached an agreement with Atlantic Coast Airlines,Inc. ("ACA") to end our United Express ("UAX") relationship and enteredinto a formal transition agreement providing for an orderly transitionof UAX flying and ground handling operations between June 3 and August4, 2004. On April 16, 2004, the Bankruptcy Court approved both the rejectionof our UAX agreement with ACA and the transition agreement.
        As part of our transitionplan, in June 2004, we began replacing ACA with a combination of six regionalairlines (and some United Airlines mainline service), who will also assumeground-handling responsibilities at Chicago O'Hare, Washington Dulles andthe spoke cities. The transition is expected to be complete in August 2004.To support this transition, we expanded our relationship with current UAXpartners Air Wisconsin Airlines Corporation, Mesa Air Group, Trans StatesAirlines and SkyWest Airlines, and entered into new agreements with ChautauquaAirlines, Republic Airlines, and Shuttle America to operate thirty-tworegional jets and ten turbo-prop aircraft under the United Express brand.
Results of Operations
*        Summary of Results*.The air travel business is subject to seasonal fluctuations. United's operationsare often adversely affected by winter weather and our first- and fourth-quarterresults normally reflect reduced travel demand. Historically, operatingresults are better in the second and third quarters. In the aftermath ofthe September 11 terrorist attacks (a period which also saw the eruptionof hostilities in Iraq and the emergence of the SARS epidemic in Asia)overall customer demand and hence revenue were severely disrupted acrossthe airline industry. With the historically high load factors observedthis summer, it appears that typical seasonality patterns are re-emerging,albeit at much lower levels of industry profitability.
        Not unexpectedly, we experiencedunder-performance in revenues following the Chapter 11 filings in Decemberof 2002. This under-performance accelerated in the first quarter of 2003as weak economic conditions, the outbreak of war in Iraq and aggressivefare competition with low-cost competitors contributed to a 9% drop inpassenger unit revenue in the first quarter of 2003 versus the same periodof 2002 (as compared to a 4% drop for the airline industry overall). Tobolster our performance, we implemented a number of marketing, sales, inventorymanagement and pricing actions to restore customer confidence, stimulatedemand and increase revenue. As a result of these actions, we out-performedthe industry in load factor and passenger unit revenue growth during thefirst six months of 2004, as passenger unit revenue grew by 12% as comparedto a 3% increase for the rest of the airline industry.
        United had an operating lossof $(57) million in the second quarter of 2004, a $419 million improvementover the second quarter of 2003. United's net loss in the second quarterof 2004 was $(303) million compared to $(654) million in the same periodof 2003.
        United had an operating lossof $(360) million in the first six months of 2004, a $1.0 billion improvementover the first six months of 2003. United's net loss in the first six monthsof 2004 was $(846) million compared to $(2.0) billion in the same periodof 2003.
        During the third quarterof 2003, we began recording revenues and expenses related to certain UnitedExpress carriers at gross, rather than net. See "United Express" in theNotesto Consolidated Financial Statements.
        The second quarter 2004 resultsinclude $147 million in reorganization items recorded in connection withour bankruptcy proceedings. The second quarter 2003 results include $398million in reorganization items as well as a $152 million curtailment chargein connection with the revaluation of our pension and postretirement plans,a loss of $41 million on the sale of certain aircraft and a one-time benefitof $102 million for the reversal of a contractual payment to some employeesand changes in vacation accruals as a result of new lower pay rates thatwere part of contract negotiations. Additionally, we received $300 millionin direct government assistance from the 2003 Emergency Wartime SupplementalAppropriations Act in the second quarter of 2003. For further details,see "Special Charges" in the Notes to Consolidated Financial Statements.
        Specific factors affectingour consolidated operations for the second quarter and the first six monthsof 2004 are described below.
        *Second Quarter 2004Compared with Second Quarter 2003.*
        Operating Revenues.Operating revenues increased $928 million (31%) on a 20% rise in trafficand 3% increase in yield supported by 13% higher capacity. The followinganalysis by market is based on information reported to the U.S. Departmentof Transportation: 2004SystemDomesticPacificAtlanticLatinPassenger revenues (in millions)$ 3,242 $ 2,166 $ 553 $ 436 $ 87       Increase (Decrease) from 2003:     Passenger revenues (in millions)617 274 275 61 7 Percent24% 15%99% 16% 9%       Available seat miles (capacity)13% 10% 34% 9% (11%)Passenger load factor5.0 pts1.9 pts19.6 pts3.6 pts2.1 ptsRevenue passenger miles (traffic)20% 13% 74% 14%(8%)Revenue per revenue passengermile (yield)3%2% 15% 16% 19% 
        Cargo revenues increased$13 million (8%) largely due to a 5% increase in cargo ton miles. Otheroperating revenues decreased $60 million (23%) primarily as the resultof a decline in fuel sales to third parties partially offset by higherMileage Plus mileage sales and third party maintenance sales.
        Operating Expenses.Overall, operating expenses increased $509 million (15%). Mainline operatingexpenses (excluding regional affiliates) increased $53 million (2%). United'smainline unit cost (operating expenses, excluding regional affiliates'costs per available seat mile) decreased 10%. (In millions)
Operating expenses:Three Months Ended 
June 30, 2004Increase/(Decrease) from 2003Percentage Change Salaries and related costs$ 1,201 $ (177)(12.8%)(a)Aircraft fuel693 241 53.3% (b)Purchased services370 61 19.7% (c)Aircraft rent135 (3)(2.2%) Landing fees and other rent241 5 2.1%  Depreciation and amortization215 (57)(21.0%)(d)Regional affiliates456 456   Cost of sales136 (106) (43.8%)(e)Aircraft maintenance193 78 67.8% (f)Commissions92 20 27.8% (g)Other288(9)(3.0%)(h) $ 4,020 $ 509 14.5%  
(a) The second quarter of 2003 included a curtailment charge of $152million partially offset by a one-time benefit of $102 million due to areversal of contractual payments (for details see "Summary of Results"above). The remaining $127 decrease is largely due to productivity improvementsenabled by new labor agreements for all employee groups.
(b) Increased due to an increase in the average price per gallon (36%)and increased consumption (13%) as a result of additional flying.
(c) Increased due to higher credit card processing and reservation feesassociated with higher passenger revenues and increased outsourcing associatedwith revised labor contracts.
(d) Decreased largely due to the $41 million loss on the sale of a B747aircraft in the second quarter of 2003.
(e) Decreased due to lower fuel sales to third parties.
(f) Increased due to higher levels of purchased maintenance, includingcontracted maintenance and maintenance materials.
(g) Increased in line with higher commissionable revenues.
(h) Decreased due to the reversal of certain excise tax reserves partiallyoffset by volume driven increases in food and beverage and crew-relatedcosts.
        Other non-operating expenseamounted to $99 million in the second quarter of 2004, compared to $80million in the second quarter of 2003, excluding government assistanceand reorganization items. Inclusive of government assistance and reorganizationitems, other non-operating expense amounted to $246 million in the secondquarter of 2004, compared to $178 million in the second quarter of 2003.For details on the special charges and reorganization items, see "ReorganizationItems" and "Special Charges" in the Notes to Consolidated FinancialStatements.
        *First Six Months 2004Compared with First Six Months 2003.*
        Operating Revenues.Operating revenues increased $1.4 billion (24%) driven by a 13% rise intraffic and 6% increase in yield supported by 7% higher capacity. The followinganalysis by market is based on information reported to the U.S. Departmentof Transportation: 2004SystemDomesticPacificAtlanticLatinPassenger revenues (in millions)$ 6,175 $ 4,095 $ 1,069 $ 821 $ 190       Increase (Decrease) from 2003:     Passenger revenues (in millions)1,002 487 363 132 20 Percent19%14% 51% 19% 12%       Available seat miles (capacity)7% 6% 14% 5% (12%)Passenger load factor4.5 pts1.7 pts13.7 pts4.8 pts5.7 ptsRevenue passenger miles (traffic)13% 8% 35% 12%(5%)Revenue per revenue passengermile (yield)6%5% 12% 11% 17% 
        Other operating revenuesdecreased $203 million (31%) primarily as the result of a decline in fuelsales to third parties partially offset by higher Mileage Plus mileagesales and third party maintenance sales.
        Operating Expenses.Overall, operating expenses increased $463 million (6%). Mainline operatingexpenses (excluding regional affiliates) decreased $367 million (5%) andUnited's mainline unit cost (operating expenses, excluding regional affiliatescosts per available seat mile) decreased 11%. (In millions)
Operating expenses:Six Months Ended
June 30, 2004Increase/(Decrease) from 2003Percentage Change Salaries and related costs$ 2,442 $ (460)(15.9%)(a)Aircraft fuel1,296 273 26.7% (b)Purchased services722 78 12.1% (c)Aircraft rent273 (66)(19.5%)(d)Landing fees and other rent472 (3)(0.6%) Depreciation and amortization443 (61)(12.1%)(e)Regional affiliates830 830   Cost of sales323 (281)(46.5%)(f)Aircraft maintenance378 146 62.9% (g)Commissions185 39 26.7% (h)Other585(32)(5.2%)(i) $ 7,949 $ 463 6.2%  
(a) The second quarter of 2003 included a curtailment charge of $152million partially offset by a one-time benefit of $102 million due to areversal of contractual payments (for details see above "Summary of Results").The remaining $410 million decrease is largely due to productivity improvementsenabled by new labor agreements for all employee groups.
(b) Increased due to an increase in the average price per gallon (18%)and increased consumption (7%) as a result of additional flying.
(c) Increased due to higher credit card processing and reservation feesassociated with higher passenger revenues and increased outsourcing associatedwith revised labor contracts.
(d) Decreased due to restructuring of aircraft financings under Section1110 of the Bankruptcy Code.
(e) Decreased largely due to a second quarter 2003 $41 million losson the sale of a B747 aircraft.
(f) Decreased due to lower fuel sales to third parties.
(g) Increased due to higher levels of purchased maintenance, includingcontracted maintenance and maintenance materials.
(h) Increased in line with higher commissionable revenues.
(i) Decreased primarily due to the reversal of certain excise tax reserves.
        Other non-operating expenseamounted to $209 million in the first six months of 2004, compared to $211million in the first six months of 2003, excluding non-operating specialcharges, government assistance and reorganization items. Inclusive of non-operatingspecial charges, government assistance and reorganization items, othernon-operating expense amounted to $486 million in the first six monthsof 2004, compared to $695 million in the first six months of 2003. Fordetails on the special charges, government assistance and reorganizationitems, see "Reorganization Items" and "Special Charges" in the Notesto Consolidated Financial Statements.
Liquidity and Capital Resources
        United's total of cash, cashequivalents and short-term investments, including restricted cash, was$1.6 billion at June 30, 2004, compared to $1.9 billion at December 31,2003.
        As of June 30, 2004, we had$814 million in restricted cash, primarily representing security for workercompensation obligations, security deposits for airport leases and reserveswith institutions that process our sales. Prior to 2002, we met many ofthese obligations through surety bonds or a secured letter of credit facility;however, such facilities are more difficult to access and have become largelyunavailable to us. As a result, we have been, and will continue to be requiredto post additional cash collateral to support such obligations.
        During the first six monthsof 2004, we generated $485 million of cash from operations excluding a$127 million retro-wage payment for IAM- and AMFA-represented employees.Overall, total cash and cash equivalents decreased by $383 million duringthe first six months, as compared to an increase of $250 million duringthe same period in 2003, including approximately $300 million in compensationreceived under the Wartime Act (described in further detail in "SpecialCharges" in the Notes to Consolidated Financial Statements).
        Following passage of theWartime Act, Glenn F.Tilton, chairman, president and chief executive officer,voluntarily reduced his annual salary by 14%, from $845,500 to $712,500,effective April 1, 2003. (Mr. Tilton had previously, in December 2002,amended his employment agreement with the company to reduce his originalsalary of $950,000 by 11% to $845,500, as part of the contribution by salariedand management employees to the company's overall labor cost savings.)After the expiration of the Wartime Act's effective period on April 1,2004, the HR Subcommittee of the Board of Directors approved the restorationof Mr. Tilton's salary to $845,500. However, in the wake of the ATSB'srejection of our application for a federal loan guarantee, Mr. Tilton hasmade the personal decision to reduce his salary and have it revert by $133,000annually to its previous level of $712,500.
        During the first six monthsof 2004, we contributed $127 million towards our pension funding obligations.Required contributions total approximately $575 million for the balanceof 2004. We currently anticipate that we will not make these contributions.Such payments would diminish the Company's liquidity and reduce flexibility,thus impairing our ability to attract exit financing. For further detailssee "Retirement and Postretirement Plans" in the Notes to ConsolidatedFinancial Statements. By increasing and extending our Club Facility,and not making these pension contributions, we believe that we will haveadequate liquidity to support our ongoing operation under Chapter 11 throughoutthe seasonally slow fall and winter seasons as well as the additional timeto complete our restructuring efforts.
        Property additions, includingaircraft and aircraft spare parts, amounted to $149 million. In the firstsix months of 2004, we re-acquired two B737, one B757, and one B777 aircraft(all of which were previously rejected) and rejected four B737, two B747,two B767 and four B777 under Section 1110 of the Bankruptcy Code.
        Financing activities includedprincipal payments under debt and capital lease obligations of $89 millionand $185 million, respectively. These amounts represent payments made underSection 1110 elections for aircraft-secured obligations, which are currentlyclassified as liabilities subject to compromise. During the first six monthsof 2004, we made $241 million in principal payments towards the DIP Financing.
        We expect to spend an estimated$0.1 billion during the remainder of 2004 for the purchase of propertyand equipment. At June 30, 2004, commitments for the purchase of propertyand equipment, principally aircraft, approximated $1.6 billion, after deductingadvance payments. For further details, see "Commitments and Contingencies"in the Notes to Consolidated Financial Statements.
Outlook
        Information regarding guidancefor United's 2004 outlook can be obtained from UAL Corporation's QuarterlyReport on Form 10-Q for the quarter ended June 30, 2004.
        Certain statements throughoutManagement'sDiscussion and Analysis of Financial Condition and Results of Operationsare forward-looking and thus reflect the Company's current expectationsand beliefs with respect to certain current and future events and financialperformance. Such forward-looking statements are and will be, as the casemay be, subject to many risks and uncertainties relating to the operationsand business environments of the Company that may cause actual resultsto differ materially from any future results expressed or implied in suchforward-looking statements. Factors that could significantly affect netearnings, revenues, expenses, costs, load factor and capacity include,without limitation, the following: the Company's ability to continue asa going concern; the Company's ability to operate pursuant to the termsof the DIP financing; the Company's ability to obtain court approval withrespect to motions in the Chapter 11 proceeding prosecuted by it from timeto time; the Company's ability to develop, prosecute, confirm and consummateone or more plans of reorganization with respect to the Chapter 11 cases;risks associated with third parties seeking and obtaining court approvalto terminate or shorten the exclusive period for the Company to proposeand confirm one or more plans of reorganization; the potential adverseimpact of the Chapter 11 cases on the Company's liquidity or results ofoperations; the appointment of a Chapter 11 trustee or conversion of thecases to Chapter 7; the costs and availability of financing; the Company'sability to execute its business plan; the Company's ability to attract,motivate and/or retain key employees; the Company's ability to attractand retain customers; demand for transportation in the markets in whichthe Company operates; general economic conditions; the effects of any hostilitiesor act of war or any terrorist attack; the ability of other air carrierswith whom the Company has alliances or partnerships to provide the servicescontemplated by the respective arrangements with such carriers; the costsand availability of aircraft insurance; the costs of aviation fuel; thecosts associated with security measures and practices; competitive pressureson pricing (particularly from lower-cost competitors); government legislationand regulation; and other risks and uncertainties set forth from time totime in UAL's reports to the United States Securities and Exchange Commission.Consequently, the forward-looking statements should not be regarded asrepresentations or warranties by the Company that such matters will berealized. The Company disclaims any intent or obligation to update or reviseany of the forward-looking statements, whether in response to new information,unforeseen events, changed circumstances or otherwise. 
Item 3.Quantitative and Qualitative Disclosures About MarketRisk
        For information regardingour exposure to certain market risks, see Item 7A. Quantitative andQualitative Disclosures About Market Risk in UAL's Annual Report onForm 10-K for the year 2003.
Interest Rate Risk -(In millions, except averagecontract rates)NotionalAverageEstimated AmountContract RateFair Value   (Pay)/Receive*Interest rate swap$ 1307.56%$ (29)
Price Risk (Aircraft Fuel) - When market conditions indicate risk reductionis achievable, United enters into fuel option contracts to reduce its pricerisk exposure to jet fuel. The option contracts are designed to provideprotection against sharp increases in the price of aircraft fuel. As marketconditions change, so may United's hedging program. During the second quarterof 2004, we began hedging future aircraft fuel purchases for 2004.    June 30, 2004 (In millions, except averagecontract rates)NotionalAverageEstimated AmountContract RateFair Value   (Pay)/Receive*Purchased call options - Heatingoil$ 256 $ 1.12/gal- Sold put options - Heating oil$ (219)$ 0.96/gal$ 2 
*Estimated fair values represent the amount United wouldpay/receive on June 30, 2004 to terminate the contracts. 
Item 4.  Controls and Procedures
        An evaluation was carriedout under the supervision and with the participation of the Company's management,including the Chief Executive Officer ("CEO") and Chief Financial Officer("CFO"), of the effectiveness of the Company's disclosure controls andprocedures as of June 30, 2004.  Based on that evaluation, the Company'smanagement, including the CEO and CFO, has concluded that the Company'sdisclosure controls and procedures are effective. During the second quarterof 2004, there was no change in the Company's internal control over financialreporting that has materially affected, or is reasonably likely to materiallyaffect, the Company's internal control over financial reporting.  
PART II.  OTHER INFORMATION
Item 1. Legal Proceedings
        As previously reported inour Annual Report on Form 10-K for the year ended December 31, 2003, theU.S. Environmental Protection Agency and the State of California soughtpenalties and certain compliance program improvements from United in 2002for alleged non-compliance with hazardous waste generator requirementsat our San Francisco Maintenance Center identified in 1999 and 2001. OnJune 18, 2004, United agreed with the U.S. Environmental Protection Agency(represented by the Department of Justice) and the State of Californiato pay an $850,000 penalty in settlement of these claims, along with anagreement to conduct a future audit of the maintenance center environmentalcompliance management system. This settlement agreement was approved bythe Bankruptcy Court on July 23, 2004.
        On July 29, 2004, the InternationalAssociation of Machinists and Aerospace Workers ("IAM") and certain IAMmembers filed a complaint in the United States District Court for the NorthernDistrict of Illinois alleging breaches of fiduciary duty by our chairman,president and chief executive officer and certain other officers in connectionwith the Company's decision not to make the July 2004 pension plan contributionand the amendment to its Club Facility (see "DIP Financing" in the Notesto Consolidated Financial Statements). The complaint seeks a courtorder requiring the named officers to take all necessary steps to securefunding from "any available source" in order for those plans to meet theirfunding obligations. We believe the claims are baseless and intend to vigorouslycontest these allegations.
Item 6.  Exhibits and Reports on Form 8-K.(a) Exhibits
A list of exhibits included as part of this Form 10-Q is set forth inan Exhibit Index that immediately precedes such exhibits.
(b) Reports on Form 8-K
Form 8-K dated April 29 2004 attaching the Company's Monthly OperatingReport for the period March 1, 2004 through March 31, 2004.
Form 8-K dated May 25, 2004 attaching the Company's Memorandum in Supportof Debtor's Motion to Modify their Retiree Medical Benefits pursuant toSection 1114(G).
Form 8-K dated May 27, 2004 attaching the Company's Monthly OperatingReport for the period April 1, 2004 through April 30, 2004.
Form 8-K dated June 14, 2004 disclosing May 2004 operating performancefor the Company.
Form 8-K dated June 24, 2004 attaching the Company's Monthly OperatingReport for the period May 1, 2004 through May 30, 2004.
Form 8-K dated July 14, 2004 disclosing the Company's deferral of adecision to pay the quarterly funding contributions to its pension plans,which was due July 15, 2004.
Form 8-K dated July 23, 2004 announcing the Company reached an agreementto amend its debtor-in-possession credit facility.    SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this quarterly report on Form 10-Q for thequarter ended June 30, 2004 to be signed on its behalf by the undersignedthereunto duly authorized on the 30th day of July, 2004.  UNITED AIR LINES,INC. By:  /s/Frederic F. BraceFrederic F. BraceExecutive VicePresident andChief FinancialOfficer(principal financialofficer)  By:  /s/ M. Lynn HughittM. Lynn HughittVice President and Controller(principal accounting officer)   Exhibit Index Exhibit No.Description     12.1Computation of Ratio of Earnings to Fixed Charges   31.1Certification of the Principal Executive OfficerPursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-OxleyAct of 2002)   31.2Certification of the Principal Financial OfficerPursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-OxleyAct of 2002)   32.1Certification of the Chief Executive OfficerPursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)   32.2Certification of the Chief Financial OfficerPursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

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