****UNITED STATES SECURITIESAND 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, 2005**
**OR**
**[  ]  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 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)Identification No.)  **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**
    Indicateby check mark whether the Registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes    X      No
    Indicate by check mark whether theRegistrant is an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct.)   Yes          No   X
    Indicatethe number of shares outstanding of each of the issuer's classes of commonstock, as of the latest practicable date.  Outstanding atClassJuly 29, 2005Common Stock ($5 par value)205
*  Registrant is the whollyowned subsidiary of UAL Corporation (File 1-6033).  Registrant becamesubject to filing periodic reports under the Securities Exchange Act of1934 as a result of a public offering of securities which became effectiveJune 3, 1988 (Registration Nos. 33-21220 and 22-18246).  
United Air Lines, Inc. and SubsidiaryCompanies Report on Form 10-QFor the Quarter Ended June 30, 2005
Index PARTI.FINANCIALINFORMATIONPage No.  Item1. Financial Statements  Condensed Statementsof Consolidated Financial Position (Unaudited) - as of June 30, 2005 andDecember 31, 20043  Statements of ConsolidatedOperations (Unaudited) - for the three months and six months endedJune 30, 2005 and 20045  Condensed Statementsof ConsolidatedCash Flows (Unaudited) - for the six months ended June 30, 2005 and 20047  Notes to ConsolidatedFinancialStatements (Unaudited)8 Item2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations24  Item3. Quantitative and Qualitative Disclosures AboutMarket Risk36    Item4. Controls and Procedures37PARTII.OTHERINFORMATION  Item6. Exhibits 38 Signatures39 ExhibitIndex40  
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    June 30December 31Assets20052004   Current assets:  Cash and cash equivalents$ 1,644 $ 1,203 Restricted cash947 856 Short-term investments16 77 Receivables, net1,118 941 Related party receivable188 222 Deferred income taxes126 117 Inventories, net233 234    Prepaid fuel expense259 187 Prepaid expenses and other307260 4,8384,097   Operating property and equipment:  Owned17,502 17,730 Accumulated depreciation and amortization(5,827)(5,623) 11,67512,107   Capital leases2,665 2,708 Accumulated amortization(693)(653) 1,9722,055 13,64714,162   Other assets:  Investments25 22 Intangibles, net377 380 Pension assets8 665 Aircraft lease deposits484 540 Prepaid rent64 71 Other, net744782 1,7022,460    $20,187$20,719   
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    June 30December 31Liabilities and Stockholder's Equity20052004   Current liabilities:  Current portions of long-term debt and  capital lease obligations$ 888 $ 903 Advance ticket sales2,085 1,361 Accrued salaries, wages and benefits876 2,098 Accounts payable638 599 Related party payable454 461 Fuel purchase commitments259 187 Other1,2761,255 6,4766,864   Long-term debt and capital lease obligations255301   Other liabilities and deferred credits:  Deferred pension liability105 2,333 Postretirement benefit liability1,948 1,920    Deferred income taxes426 330 Other931938 3,4105,521   Liabilities subject to compromise18,74916,161   Commitments and contingent liabilities (Seenote)     Stockholder's equity:  Common stock at par- - Additional capital invested4,213 4,213 Retained deficit(10,256)(7,773)Accumulated other comprehensive loss(1,423)(3,331)Receivables from affiliates(1,237)(1,237) (8,703)(8,128)    $20,187$20,719    
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Statements of Consolidated Operations (Unaudited)(In Millions)
    Three Months Ended June 30 20052004Operating revenues:  Passenger - United Airlines$ 3,301 $ 3,248 Passenger - Regional Affiliates632 505 Cargo180 167 Other 261275 4,3744,195Operating expenses:  Salaries and related costs1,050 1,206 Aircraft fuel955 693 Regional affiliates685 605 Purchased services382 370 Landing fees and other rent225 242 Aircraft maintenance227 193 Depreciation and amortization201 218 Cost of sales141 141 Aircraft rent110 135 Commissions76 81 Special operating items5 - Other293291 4,3504,175   Earnings from operations2420   Other income (expense):  Interest expense(114)(121)Interest capitalized- 1 Interest income5 5 Reorganization items, net(1,398)(144)Miscellaneous, net81 (1,499)(258)   Loss before income taxes and equityin earnings of affiliates(1,475)(238)Credit for income taxes--Loss before equity in earningsof affiliates(1,475)(238)Equity in earnings of affiliates41Net loss$(1,471)$ (237)     
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 20052004Operating revenues:  Passenger - United Airlines$ 6,217 $ 6,239 Passenger - Regional Affiliates1,156 945 Cargo352 315 Other 565610 8,2908,109Operating expenses:  Salaries and related costs2,081 2,455 Aircraft fuel1,760 1,296 Regional affiliates1,330 1,156 Purchased services742 722 Landing fees and other rent458 473 Aircraft maintenance446 378 Depreciation and amortization413 447 Cost of sales277 332 Aircraft rent231 273 Commissions153 162 Special operating items5 - Other609594 8,5058,288   Loss from operations(215)(179)   Other income (expense):  Interest expense(226)(244)Interest capitalized(5)1 Interest income9 15 Special non-operating items- (13)Reorganization items, net(2,116)(274)Miscellaneous, net6610 (2,272)(505)   Loss before income taxes and equityin earnings/(losses)  of affiliates(2,487)(684)Credit for income taxes--Loss before equity in earnings/(losses)of affiliates(2,487)(684)Equity in earnings/(losses) ofaffiliates4(2)Net loss$(2,483)$ (686) 
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 20052004Cash and cash equivalents at beginning   of period, excluding restrictedcash$ 1,203$ 1,625   Cash flows from operating activities822457   Cash flows from reorganizationactivities:  Reorganization items, net(2,116)(274)Pension curtailments and settlements1,045 - Increase in liabilities 884 196 Other122 - (65)(78)   Cash flows from investingactivities:  Additions to propertyand equipment(97)(150)Proceeds on dispositionof property and  equipment35 13   Increase inrestricted cash(91)(160)Decrease in short-terminvestments61 62 Other, net(35)(56) (127)(291)   Cash flows from financingactivities:  Proceeds from DIPFinancing- 10 Repayment of DIP Financing(10)(242)Repayment of long-termdebt(113)(89)Principal paymentsunder capital  lease obligations(55)(185)Aircraft lease deposits,net- 160 Other(11)(10) (189)(356)   Increase (decrease)in cash and cash equivalents441(268)   Cash and cash equivalentsat end of period,  excluding restrictedcash$ 1,644$ 1,357   Cash paid during theperiod for:  Interest (net of amountscapitalized)$ 192 $ 293 Non-cash transactions:  Net unrealized gain/(loss)on investments$ 17 $ - Decrease in pensionintangible assets$ 657 $ - Increase in long-termdebt incurred in connection with  additions to otherassets$ 21 $ 172  
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 ("GAAP") have been condensed or omitted as permitted by theSEC. We believe that the disclosures presented here are not misleading.The financial statements include all adjustments (which include only normalrecurring adjustments, reorganization items and other special charges describedbelow) that are considered necessary for a fair presentation of our financialposition and operating results. These financial statements should be readtogether with the information included in our most recent Annual Reporton Form 10-K for the year 2004. Certain prior year financial statementitems have been reclassified to conform to the current year's presentation.
        Effective first quarter 2005,our financial statements reflect reclassifications associated with a corporatereorganization of the entities under common control. Prior periods havebeen reclassified to conform to the current year's presentation. For furtherdetails, see "Related Party Transactions" in the Notes to the ConsolidatedFinancial Statements.
Voluntary Reorganization Under Chapter 11
        *Bankruptcy Considerations.* On December 9, 2002 ("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-B-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 the consolidated financialstatements.
        As required by the BankruptcyCode, the United States Trustee for the Northern District of Illinois appointedon December 13, 2002 an official committee of unsecured creditors (the"Creditors' Committee"). The Creditors' Committee and its legal representativeshave a right to be heard on all matters that come before the BankruptcyCourt concerning our reorganization. There can be no assurance that theCreditors' Committee will support our positions or our plan of reorganization,and any 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 "debtor-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 debtor-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 after the Petition Date(the stay of such actions in our case ended on February 7, 2003), exceptunder two conditions: (a) the debtor may extend the 60-day period by agreementwith the relevant financier and with court approval; or (b) the debtormay agree to perform all of the obligations under the applicable leaseor financing and cure any defaults as required under the Bankruptcy Code.If neither of these conditions is met, the lessor or financier may demandthe return of the aircraft and enforce any of its contractual rights orremedies to sell, lease or otherwise retain or dispose of such property.
        We have negotiated with ouraircraft lessors and lenders to restructure existing financings to reduceaircraft ownership costs to better reflect current market rates, and wehave reached agreements in principle to restructure transactions with respectto a majority of our financed aircraft. However, the need for further costreductions due to difficult conditions in the airline industry with substantiallyhigher fuel prices has required us to re-examine some of these agreementsand to seek to renegotiate certain of those financings, most importantlythe financings associated with approximately 119 aircraft with a groupof mostly-public financiers (the "Public Debt Group")..
       We have beenin discussions with the Public Debt Group seeking to renegotiate an agreementin principle reached in the summer of 2004 from which we subsequently withdrew.Previously, the Bankruptcy Court issued a temporary restraining order ("TRO")that enjoined the repossession of six B737 and eight B767 aircraft. Duringthe second quarter of 2005, the TRO was cancelled by court order. Dissolutionof the TRO only affected the eight B767 aircraft as the Company had sincerejected the leases for the six B737 aircraft. Subsequently, the Companyreturned four B767 aircraft and entered into a letter of intent to purchasethe remaining four B767 aircraft. On July 15, 2005, the Bankruptcy Courtapproved the letter of intent and approved a separate agreement that enablesthe Company to finance a limited number of additional aircraft purchases.
        On August 6, 2005, Unitedentered into agreements in principle to restructure the financings forall of the aircraft in United's fleet that are controlled by the PublicDebt Group, other than the 14 aircraft financed under the Series 1997-1Enhanced Equipment Trust Certificates ("EETC"), saving United approximately$300 million annually.  These agreements, which are subject to BankruptcyCourt approval, are expected to secure United's long-term access to theseaircraft, and resolve any related administrative claims. With respect toall the agreements reached with financiers since entering reorganization,and including the benefit of contractual changes and strategic fleet reductions,the Company will reduce its annual fleet costs by approximately $850 millionsince entering Chapter 11. In addition, with respect to those Public DebtGroup financings for aircraft in United's fleet which were previously rejected,returned or repossessed, we have reached a global resolution of relatedadministrative claims against the Company, subject to Bankruptcy Courtapproval.  There can be no assurance that Bankruptcy Court approvalfor these agreements will be received.
        United is also seeking toacquire the senior "A" tranche debt in the 1997-1 EETC transactions whichwould permit it to secure long-term access to the 14 aircraft subject tothat financing. United had previously acquired the "B" and "C" tranchesof this debt as a necessary predicate to purchasing the "A" tranche.
        If the Company does not finalizethe agreements in principle with the Public Debt Group, our operationaland financial performance could be materially adversely affected, includingthe possibility that one or more financiers may seek to repossess a significantnumber of aircraft, or we may choose to reject or return such aircraft.
        We have also rejected orreturned certain surplus aircraft to adjust our fleet size and compositionto more closely match market demand, and are continuing this process toachieve an approximate fleet size of 455 aircraft in 2005. In addition,as part of ongoing negotiations with financiers, we have converted somelong-term financing arrangements into operating leases of a reduced termand, in several instances, re-acquired previously rejected aircraft ascircumstances 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. Byorder of the Bankruptcy Court, our Section 365 rights to assume, assumeand assign, or reject unexpired leases of non-residential real estate expireon the earlier of the date of termination of our exclusive period to filea plan of reorganization (currently, September 1, 2005) or the date ofthe conclusion of a disclosure statement hearing in connection with a proposedplan of reorganization.
        In general, if we rejectan executory contract or unexpired lease, it is treated as a pre-petitionbreach of the lease or contract in question and, subject to certain exceptions,relieves us of performing any future obligations. However, such a rejectionentitles 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 change in the future asa 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 existing defaults under such contract or lease. We expect thatthe future assumption of certain executory contracts and unexpired leasesmay convert liabilities currently shown as subject to compromise to liabilitiesnot subject to compromise.
        To successfully emerge fromChapter 11, in addition to obtaining exit financing, the Bankruptcy Courtmust confirm a plan of reorganization, the filing of which will dependupon the timing and outcome of numerous ongoing matters in the Chapter11 process. We had intended to file a plan of reorganization in early August2005; however that filing was delayed at the request of the Creditor'sCommittee to allow the Committee more time to review the plan. We now expectto file a plan of reorganization in early September that provides for UAL'semergence from bankruptcy later in 2005 or early 2006, but there can beno assurance that the Bankruptcy Court will confirm the Company's planof reorganization or that any such plan will be implemented successfully.
        The Company's plan of reorganizationwill determine the rights and satisfaction of claims of various creditorsand security holders. At this time, it is not possible to predict withcertainty the effect of the Chapter 11 reorganization process on our business.We will include estimates of expected claims dispositions in our plan ofreorganization, but the ultimate settlement of those claims will continueto be subject to the uncertain outcome of litigation, negotiations andBankruptcy Court decisions up to and for a period of time after a planof reorganization is confirmed.
*         Financial StatementPresentation.*We have prepared the accompanying consolidated financialstatements in accordance with American Institute of Certified Public Accountants'Statement of Position 90-7, "*Financial Reporting by Entities in ReorganizationUnder the Bankruptcy Code*," ("SOP 90-7") 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 for periods subsequent to a Chapter 11 filing separatetransactions and events that are directly associated with the reorganizationfrom the ongoing operations of the business. Accordingly, all transactions(including, but not limited to all professional fees, realized gains andlosses and provisions for losses) directly associated with the reorganizationand restructuring of the business are reported separately in the financialstatements. For the three-month and six-month periods ending June 30, 2005and 2004, we recognized the following reorganization expenses in our financialstatements: (In millions)Three Months 
Ended June 30,Six Months 
Ended June 30,  2005200420052004Pension related charges$ 612 $ - $ 1,045 $ - Contract rejection charges509 - 509 - Aircraft rejection charges224 103 468 224Professional fees 49 49 92 83Severance and employee retention6 - 13 7 Interest income(10)(4)(17)(8)Other8(4)6(32) $ 1,398$ 144$ 2,116$274
        In the first and second quartersof 2005, the Company recognized non-cash pension curtailment charges of$433 million and $207 million, respectively, associated with actions takenby the Pension Benefit Guaranty Corporation ("PBGC") to involuntarily terminateUnitedAir Lines, Inc. Ground Employees' Retirement Plan (the "Ground EmployeesPlan"), United Airlines Flight AttendantDefined Benefit Pension Plan (the "Flight Attendant Plan") and UnitedAirlines Management, Administrative and Public Contact DefinedBenefit Pension Plan ("MAPC Plan"). The PBGC was appointed trusteefor the Ground Employees Plan effective May 23, 2005 and the MAPC Planand the Flight Attendant Plan effective June 30, 2005, assuming all rightsand powers over the pension assets and obligations of each plan. Upon terminationand settlement of these plans, the Company recognized a non-cash net settlementloss of approximately $395 million in accordance with SFAS No. 88, "*Employer'sAccounting for Settlements and Curtailments of Defined Benefit PensionPlans and for Termination Benefits" ("*SFAS 88"). In addition,during the second quarter of 2005 the Company recognized a non-cash settlementloss in the amount of $10 million for the termination of the non-qualifiedsupplemental retirement plan for management employees who have benefitsunder the tax-qualified pension plan that cannot be paid due to InternalRevenue Code limits on compensation or benefits.
        Contract rejection chargesare non-cash costs that include our estimate of claims resulting from theCompany's rejection of certain contract obligations such as executory contracts,unexpired leases, municipal bond obligations and regional carrier contracts.These claim amounts remain subject to future adjustments arising from negotiatedsettlements, actions of the Bankruptcy Court, the determination as to thevalue of any collateral securing claims, proofs of claim or other events.
        Aircraft rejection chargesare non-cash costs that include our estimate of claims resulting from theCompany's rejection of certain aircraft leases and return of aircraft aspart of the bankruptcy process.
        As we restructure aircraftfinancings as permitted by Section 1110 of the Bankruptcy Code, our policyis to reflect the revised lease rates in aircraft rent once we have signeddefinitive term sheets for the financings and they have been approved bythe Bankruptcy Court.
       The Condensed Statements ofConsolidated Financial Position distinguish pre-petition liabilitiessubject to compromise from both those pre-petition liabilities that arenot subject to compromise and from post-petition liabilities. Liabilitiessubject to compromise are reported at the amounts expected to be allowedby the Bankruptcy Court, even if they may be settled for lesser amounts.
        In addition, as a resultof the Chapter 11 filing, the realization of assets and satisfaction ofliabilities, without substantial adjustments and/or changes in ownership,are subject to uncertainty. While operating as debtor-in-possession underthe protection of Chapter 11 and subject to approval of the BankruptcyCourt and the terms of the applicable debtor-in-possession secured financing("DIP Financing") covenants, or otherwise as permitted in the ordinarycourse of business, we may sell or otherwise dispose of assets (includingaircraft) and liquidate or settle liabilities for some amounts other thanthose reflected in the consolidated financial statements. Further, theforthcoming plan of reorganization is expected to materially change theamounts and classifications of certain assets and liabilities, as comparedto amounts and classifications shown in the historical consolidated financialstatements.
**       **Pursuant to the BankruptcyCode, we have filed schedules with the Bankruptcy Court identifying ourassets and liabilities as of the Petition Date, while our creditors havefiled proofs of claim with the Bankruptcy Court and we expect new claimsto be filed in the future. Approximately 14,000 proofs of claim (includinglate-filed claims) have been filed so far with the Bankruptcy Court requestingpayments from the Company. Through the claims resolution process we haveidentified many claims which we believe should be disallowed by the BankruptcyCourt, for a number of reasons such as our identification of claims thatare duplicative, have been amended or superseded by later filed claims,are without merit, or are otherwise overstated. We have filed omnibus objectionsto many of these claims and will continue to file additional objections.As of June 30, 2005, approximately 5,000 of the total claims have eitherbeen withdrawn by the claimants or disallowed by the Bankruptcy Court.
        As of June 30, 2005, approximately9,000 proofs of claim totaling $31.5 billion remain filed with the BankruptcyCourt. The remaining amount of the proofs of claim filed continues to farexceed our estimate of ultimate liability. Differences in amount betweenclaims filed by creditors and liabilities shown in our records continueto be investigated and resolved in connection with our claims resolutionprocess. While we have made significant progress to date, we expect thisprocess to continue for some time, and to continue beyond the date of confirmationof a plan of reorganization. We believe that further resolution of claimsis necessary for us to determine with more precision the likely range ofcreditor distributions under a proposed plan of reorganization. We haverecorded liability amounts for the claims that can be reasonably estimatedand which we believe are probable of being allowed by the Bankruptcy Courtand we have classified these as liabilities subject to compromise in theattached Condensed Statements of Consolidated Financial Position.We will include estimates of expected claims dispositions in our plan ofreorganization, although we expect those estimates to be further revisedas the bankruptcy process continues.
        We will continue to evaluateexisting and new claims filed and will make adjustments, as appropriate.To date, such adjustments have been material and we anticipate that futureadjustments will be material as well.
***       **DIP Financing.*Inconnection with the Chapter 11 filings, the Company arranged DIP Financing.As of June 30, 2005, the DIP Financing consisted of a $1.0 billion facilityof which $900 million was available due to a $100 million reserve for collateralmaintenance and liquidation expenses. The facility included a revolvingcredit and letter of credit facility of $200 million and a term loan of$800 million, and was scheduled to mature on September 30, 2005. We hadthe option of borrowing under the DIP Financing at an interest rate ofthe prime rate plus 3.5% or LIBOR plus 4.5% plus mutually agreed fees.As of June 30, 2005, we had outstanding borrowings of $853 million at arate of 9.5%. In addition, letters of credit were issued under the DIPFinancing in an aggregate amount of $37 million. We were required to maintaina minimum unrestricted cash balance of $750 million.
        On July 15, 2005, the BankruptcyCourt approved an agreement with the DIP Financing lenders to increasethe term loan to $1.1 billion for a total facility of $1.3 billion; extendthe maturity date and the effectiveness of financial covenants to December30, 2005 with the option to further extend the maturity date until March31, 2006 if certain conditions are satisfied; reduce the interest rateto the prime rate plus 3.25% or LIBOR plus 4.25%; maintain a minimum unrestrictedcash balance of at least $750 million; waive certain events of defaultrelated to certain technical matters; and provide for a new capital expenditurebasket for certain aircraft purchases, including a cash sublimit, but requiringfinancing for the balance of the aggregate purchase price of such aircraft.
        The Company is proposingto enter into an amendment to the DIP financing which would provide for,among other things, a waiver of any event of default as a result of theCompany acquiring the Tranche A, Tranche B and Tranche C indebtedness underthe Series 1997-1 Enhanced Equipment Trust Certificates. The proposed amendmentfurther provides for the refinancing of a majority of that indebtedness,as secured by up to 14 aircraft to be acquired in connection with the acquisitionof that indebtedness. This proposed amendment will require the approvalof the DIP financing lenders and the Bankruptcy Court. There can be noassurance that either approval will be received. For more information onthe terms of the proposed amendment, please see UAL's Form 8-K filed withthe SEC on August 8, 2005.
        The terms of the DIP Financinginclude covenants that require us to satisfy ongoing monthly financialrequirements, including minimum earnings before interest, income taxes,depreciation, amortization and aircraft rents ("EBITDAR") thresholds, limitationson capital expenditures and minimum unrestricted cash. Failure to complywith these covenants would constitute an event of default under the DIPFinancing and allow the lenders to accelerate the loan. The Company compliedwith the EBITDAR covenant in April, May and June 2005.
        Borrowing availability isdetermined by a formula based on a percentage of eligible assets. The eligibleassets consist of certain previously unencumbered aircraft, spare engines,spare parts inventory, certain flight simulators and quick engine changekits. The underlying value of such assets may fluctuate periodically dueto prevailing market conditions and fluctuations in value may have an impacton the borrowing availability under the DIP Financing. Availability maybe further limited by additional reserves imposed by the lending banksin their commercially reasonable discretion.
        The DIP Financing is guaranteedby UAL, United and all other filing subsidiaries and is secured by firstpriority liens on all unencumbered present and future assets and by juniorliens on all other assets, other than certain specified assets, includingassets which are subject to financing agreements that are entitled to thebenefits of Section 1110 and to the extent such financing agreements prohibitsuch junior liens.
New Accounting Pronouncements
        In December 2004, the FinancialAccounting Standards Board ("FASB") issued Statement of Financial AccountingStandards No. 123 (Revised 2004), "*Share-Based Payment*" ("SFAS 123R")which establishes standards for accounting for transactions in which anentity obtains employee services in exchange for stock options or share-basedpayments. SFAS 123R requires that the compensation cost (as measured bythe fair value of the equity or liability instruments issued) relatingto share-based payment transactions be recognized in financial statements.This statement replaces SFAS No. 123, "*Accounting for Stock-Based Compensation,*"("SFAS 123") and supersedes Accounting Principles Board Opinion No. 25,"*Accounting for Stock Issued to Employees*" ("APB 25"). Currentlywe account for stock options under APB 25 as permitted by SFAS 123. SFAS123R is effective for the first interim or annual reporting period of theCompany's first fiscal year that begins after June 15, 2005. The Companywill recognize compensation expense for its participation in stock-basedcompensation plans for the portion of outstanding awards for which theemployee service has not yet been rendered, based on the grant date fairvalue of those awards calculated under SFAS 123R. We anticipate the adoptionof SFAS 123R will not have a material impact on our financial statementswhile we are in bankruptcy.
        In March 2005, the FASB issuedFASB Interpretation No. 47, "*Accounting for Conditional Asset RetirementObligations - An Interpretation of FASB Statement No. 143"* ("FIN47").FIN47 clarifies the term conditional asset retirement obligation as usedin SFAS No. 143, *"Accounting for Asset Retirement Obligations",*andaddresses the diverse accounting practices that have developed with respectto the timing of liability recognition for legal obligations associatedwith the retirement of a tangible long-lived asset when the timing and(or) method of settlement of the obligation are conditional on a futureevent. In addition, FIN47 clarifies that an entity is required to recognizea liability for the fair value of a conditional asset retirement obligationwhen incurred if the liability's fair value can be reasonably estimated.FIN47 is effective no later than the end of the fiscal year ending December31, 2005. Currently, we are evaluating the impact of FIN47 on our financialstatements.
        In May 2005, the FASB issuedSFAS No. 154, "*Accounting Changes and Error Corrections"*("SFAS154"). This statement, which replaces APB Opinion No. 20, "*AccountingChanges",* and FASB Statement No. 3, "*Reporting Accounting Changesin Interim Financial Statements",* requires that a voluntary changein accounting principle be applied retroactively to all prior period financialstatements presented, unless it is impractical to do so. SFAS 154 alsoprovides that a change in method of depreciating or amortizing a long-livednon-financial asset be accounted for as a change in estimate effected bya change in accounting principle, and also provides that correction oferrors in previously issued financial statements should be termed a "restatement".SFAS 154 is effective for fiscal years beginning after December 15, 2005.We anticipate that the adoption of SFAS 154 will not have a material impacton our financial statements.
        In accordance with SOP 90-7,we are required to adopt all new accounting pronouncements upon emergencefrom bankruptcy, if they have effective dates within one year of the dateof adoption of fresh-start reporting.
Stock Option Accounting
        At June 30, 2005, we hadcertain stock-based employee compensation plans. We account for these plansunder APB 25 and related Interpretations. No stock-based employee compensationcost for stock options is reflected in our financial statements as providedunder APB 25, as all options granted under the plans had an exercise priceequal to the market value of the underlying common stock on the date ofgrant.
        If compensation cost forstock-based employee compensation plans had been determined using the fairvalue recognition provisions of SFAS 123 we would have reported our netloss as the pro forma amounts shown below: (In millions)Three MonthsSix Months Ended June 30,Ended June 30, 2005200420052004Net loss, as reported$ (1,471)$ (237)$ (2,483)$ (686)Less: Total compensation expensedetermined under    fair value method(1)(3)(2)(5)Net Loss, pro forma$(1,472)$ (240)$ (2,485)$ (691)
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 both2005 and 2004. As of June 30, 2005, our valuation allowance totaled $3.6billion. Further, we have determined that it is more likely than not thatour gross deferred tax assets, net of valuation allowances at June 30,2005, will be realized through the reversals of existing deferred tax credits.
Retirement and Postretirement Plans
        Our net periodic benefitcost included the following components for the three-month and six-monthperiods ended June 30, 2005 and 2004: (In millions)Pension BenefitsOther Benefits Three months ended June 30, 2005  20052004 20052004 Service cost$ 23 $ 62  $ 10 $ 16  Interest cost174 197  30 42  Expected return on plan assets(146)(175) (3)(3) Amortization of prior servicecost      including transition obligation/(asset)6 20  (34)(26) Curtailment charge207 - - - Settlement losses405 -  - -  Recognized actuarial loss3823 2223 Net periodic benefit costs$ 707$ 127 $ 25$ 52  (In millions)Pension BenefitsOther Benefits Six months ended June 30, 2005  20052004 20052004 Service cost$ 61 $ 120  $ 22 $ 27  Interest cost395 395  65 92  Expected return on plan assets(328)(355) (5)(5) Amortization of prior servicecost      including transition obligation/(asset)14 40  (72)(51) Curtailment charge640 - - - Settlement losses, net390 -  - -  Recognized actuarial loss8550 4851 Net periodic benefit costs$ 1,257$ 250 $ 58$ 114 
        Effective July 2004, theCompany ceased making contributions to its qualified defined benefit pensionplans.
        Historically, the Companyhas maintained a non-qualified supplemental retirement plan for managementemployees who have benefits under the tax-qualified pension plan that cannotbe paid due to Internal Revenue Code limits on compensation or benefits.In June 2003, we terminated all participation and benefit payments underthe non-qualified plan for those participants who had terminated employmentwith the Company prior to December 9, 2002. Effective February 28, 2005,we terminated the non-qualified supplemental plan for all remaining participantsand recorded a small settlement gain.
       In the first and second quarter of 2005, the Company recognizedpension curtailment charges of $433 million and $207 million, respectively,associated with actions taken by the PBGC to involuntarily terminate theCompany's defined benefit pension plans for the Ground Employees Plan asof March 11, 2005 and for the MAPC Plan and the Flight Attendant Plan asof June 30, 2005. These pension plans were projected to have benefit obligationsand plan assets aggregating approximately $8.0 billion and $4.2 billion,respectively, as of December 31, 2004. In May 2005, the PBGC was appointedtrustee for the Ground Employees Plan and in June 2005, the PBGC was appointedtrustee for the MAPC Plan and the Flight Attendant Plan, assuming all rightsand powers over the pension assets and obligations. Upon termination andsettlement of these plans, the Company recognized a net settlement lossof approximately $395 million****in accordance with SFAS 88.
        SOP 90-7 requires that pre-petitionliabilities, including claims that become known after a petition is filed,be reported on the basis of the expected amount of the claim allowed ratherthan the amounts for which those claims might be settled. Management isnot able at this time to precisely estimate the PBGC's probable claimsto be allowed from the terminations of the Ground Employee Plan, MAPC Planor the Flight Attendant Plan until a plan of reorganization is approvedby the Bankruptcy Court. Historically, bankruptcy courts have allowed pensiontermination claims based on either PBGC assumptions or prudent investorassumptions. Management has estimated that the range of probable allowableclaims may be as high as $7.2 billion using the PBGC's statutory assumptions(as defined by ERISA regulations) for estimating the net pension obligationand may be as low as $1.9 billion using the prudent investor's assumptions.The prudent investor assumptions use a discount rate which is based uponthe selection of a set of investments by a prudent investor which wouldproduce a return achievable in the market as a whole. Management concludedthat a prudent investor rate of 8.00% was appropriate for estimating thelow end of the range of potential allowable claims.
        In accordance with SFAS No.5, *Accounting for Contingencies,* and FASB Interpretation No. 14,*ReasonableEstimation of the Amount of Loss*, if management can estimate the rangeof the probable allowable claim, but no specific value within the rangeis more probable than any other, the lowest value in the range of the probableloss should be recorded. As such, a $1.9 billion allowable claim for thePBGC was recorded in the second quarter of 2005 and classified as LiabilitiesSubject to Compromise on the Condensed Statements of Consolidated FinancialPosition. The Company has a contractual obligation to support the PBGC'sclaim that was calculated with statutory assumptions. The Company expectsthat the PBGC's claim will be objected to and cannot predict the amountof the claim the Bankruptcy Court will ultimately allow.  
Restricted Cash
        At June 30, 2005, Unitedhad $947 million in restricted cash, primarily representing security forworkers' compensation obligations, security deposits for airport leasesand reserves with institutions that process our credit card ticket sales.There can be no assurance that these institutions will not require additionallevels of security deposits or reserve holdbacks. In the second quarterof 2005, one such institution increased their level of reserve holdbacksby approximately $84 million.
Liabilities Subject to Compromise
        Liabilitiessubject to compromise refers to both secured and unsecured obligationswhich will be accounted for under a plan of reorganization, including claimsincurred prior to the Petition Date. They represent the estimated amountexpected to be allowed on known or potential claims to be resolved throughthe Chapter 11 process, and remain subject to future adjustments arisingfrom negotiated settlements, actions of the Bankruptcy Court, rejectionof executory contracts and unexpired leases, the determination as to thevalue of any collateral securing claims, proofs of claim or other events.To date, such adjustments, as reflected in reorganization expense, havebeen material and we anticipate that future adjustments will be materialas well.
        Differences between liabilityamounts we have estimated and claims filed by our creditors are being investigatedand the Bankruptcy Court will make a final determination of the allowableclaims. The determination of how these liabilities will ultimately be treatedwill not be known until the Bankruptcy Court approves a plan of reorganizationand the claims resolution process is complete, which may occur well afterconfirmation of a plan of reorganization. We will continue to evaluatethe amounts of these liabilities through the remainder of the Chapter 11process. To the extent that we identify additional amounts subject to compromise,we will recognize them accordingly. As a result, the amounts of liabilitiessubject to compromise are subject to change.
        At June 30, 2005, we hadliabilities subject to compromise of $18.7 billion consisting of the following:  (In millions)  Long-term debt, including accruedinterest$ 6,954 Defined benefit pension plans4,434 Aircraft-related accruals anddeferred gains3,835 Capital lease obligations, includingaccrued interest1,670 Accounts payable291 Related party266 Early termination fees162 Other 1,137  $18,749
Segment Information
        We have five reportable segmentsthat reflect the management of our business: North America, the Pacific,the Atlantic, Latin America and UAL Loyalty Services, LLC ("ULS"). Forinternal management and decision-making purposes, we have allocated expensesand revenues (as incorporated in our consolidated financial statements)to these segments as follows: (In millions)Three Months Ended June 30, 2005 United Air Lines, Inc.Inter-United North  Latin segmentConsolidated AmericaPacificAtlanticAmericaULSEliminationTotalRevenue$ 2,698$ 797$ 552$ 120$ 207- $ 4,374 Intersegment revenue933121533(183)- Earnings (loss) before       special items and       reorganization items(164)(18)30(15)99- (68) (In millions)Three Months Ended June 30, 2004 United Air Lines, Inc.Inter-United North  Latin segmentConsolidated AmericaPacificAtlanticAmericaULSEliminationTotalRevenue$ 2,665$ 695$ 532$ 107$ 196$ - $ 4,195Intersegment revenue852217325(152)- Earnings (loss) before       reorganization items(183)716(7)74- (93) (In millions)Six Months Ended June 30, 2005 United Air Lines, Inc.Inter-United North  Latin segmentConsolidated AmericaPacificAtlanticAmericaULSEliminationTotalRevenue$ 5,092 $ 1,490 $ 1,013 $ 245 $ 450 $ - $ 8,290 Intersegment revenue152 51 35 9 33(280)- Earnings (loss) before       special items and       reorganization items(468)(44)(11)(32)193 - (362) (In millions)Six Months Ended June 30, 2004 United Air Lines, Inc.Inter-United North  Latin segmentConsolidated AmericaPacificAtlanticAmericaULSEliminationTotalRevenue$ 5,207 $ 1,304$ 983$ 223$ 392$ - $ 8,109 Intersegment revenue151 39 29 6 25(250)- Earnings (loss) before       special items and       reorganization items(514)(3)(7)(13)138 - (399)
        Beginning in the third quarterof 2004, our Statements of Consolidated Operations reflect reclassificationsof regional carrier revenue and expenses in order to provide better presentationof results of operations for United Airlines mainline and United Express(Regional affiliates). Prior periods have been reclassified to conformto the current year's presentation. The effect of these reclassificationson reportable segments for the three-month and six-month periods of 2004from amounts previously reported on our Form 10-Q was an increase of $177and $148 million, respectively to North America revenue.
        A reconciliation of the totalamounts reported by reportable segments to the applicable amounts in theconsolidated financial statements follows:  Three Months EndedSix Months Ended June 30,June 30,(In millions)2005200420052004Total loss for reportable segments$ (68)$ (93)$ (362)$ (399)Special items(5)- (5)(13)Reorganization items, net(1,398)(144)(2,116)(274)Net loss $ (1,471)$ (237)$ (2,483)$ (686)
        United's dedicated revenue-producingassets (primarily aircraft) generally can be deployed in any of its reportablesegments, while ULS had $1.3 billion in total assets as of June 30, 2005.
Comprehensive Income
We include in other comprehensive income changes in minimum pensionliabilities and changes in fair value of derivative financial instrumentswhich qualify for hedge accounting. For the second quarter 2005 and 2004,total comprehensive income (loss) amounted to $402 million and $(237) million,respectively. For the six months ended June 30, 2005 and 2004, total comprehensive(loss) amounted to $575 million and $686 million, respectively. Total comprehensiveincome for the six months ended June 30, 2005 includes a $1,891 millionnet adjustment relating to the termination of various pension plans, asdiscussed in Retirement and Postretirement Plans.  
Special Items
        During the second quarterof 2005, we recognized a charge of $5 million for aircraft impairmentsrelated to the planned accelerated retirement of certain aircraft currentlyoperated by Air Wisconsin Airlines Corporation ("AWAC").
        During the first quarterof 2004, we incurred a $13 million charge in non-operating expense forthe write-down of certain non-operating B767 aircraft.  
Aircraft Fuel Hedges
        Aircraft fuel represented22% and 21%, respectively, of our total operating expenses for the threemonths and six months ended June 30, 2005.
        Our strategy to hedge a portionof our price risk related to projected jet fuel requirements primarilyinvolves using collar options. The collars (only some of which were designatedas cash flow hedges) involve the purchase of fuel call options with thesimultaneous sale of fuel put options with identical expiration dates.Those contracts designated as hedges are recorded at fair value, with thechanges in fair value, to the extent they are effective, recorded in othercomprehensive income until the underlying hedged fuel is consumed. To theextent that the designated hedges are ineffective, gain or loss is recognizedcurrently. The fair value of each designated hedge is determined by theuse of standard option value models using commodity-related assumptionsderived from prices observed in underlying markets. For those contractsnot designated as hedges, the related gain or loss is recognized currentlyas an element of non-operating income. In the three months ending June30, 2005, the Company recognized a loss of $1 million (which included incomeof $1.2 million relating to the options' time-value and a loss of $2.5million as a result of ineffective hedges) in non-operating income. Inaddition, in the six months ending June 30, 2005, the Company recognizedincome of $40 million (which included income of $5 million relating tothe options' time-value and hedge ineffectiveness being immaterial) innon-operating income.
        We have hedged approximately8%of our remaining 2005 projected fuel requirements at an average price of$1.24 per gallon, excluding taxes. These contracts will expire throughDecember 31, 2005. The current fair value of our designated hedge positionis approximately $21 million as of June 30, 2005 and is included in othercomprehensive income. We expect that this entire amount, to the extentit remains effective, will be recognized into earnings over the secondhalf of 2005 as a reduction to fuel expense. We plan to continue to hedgefuture fuel purchases as circumstances and market conditions allow.
Commitments and Contingencies
        In addition to common commerciallease transactions, we have entered into numerous long-term agreementsto lease certain airport and maintenance facilities that are financed throughtax-exempt special facility revenue bonds ("municipal bonds") and issuedby various local municipalities to build or improve airport and maintenancefacilities.
        During 2003, we filed fourcomplaints for declaratory judgment and corresponding motions for temporaryrestraining orders concerning United's municipal bond obligations for facilitiesat Denver International Airport ("DEN"), John F. Kennedy InternationalAirport ("JFK"), San Francisco International Airport ("SFO"), and Los AngelesInternational Airport ("LAX"). In each case, we sought clarification ofour obligations to pay principal and interest under the applicable municipalbonds, and the protection of our rights concerning related airport leaseagreements at the applicable airports.
        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 municipal bonds financing airport improvements at these sites were notobligations arising under "leases" pursuant to Section 365 of the BankruptcyCode. Based on this ruling, the outstanding $248 million in principal inconnection with these municipal bonds was considered pre-petition debtand the applicable accrued rent has been classified as liabilities subjectto compromise.
        In our adversary proceedinginvolving DEN, however, the Bankruptcy Court did not grant our motion forsummary judgment. Rather, the Bankruptcy Court found that our payment obligationsfor the municipal bonds financing airport improvements at DEN (which representsapproximately $261 million in principal) were obligations arising undera true lease. We have appealed the adverse ruling of the DEN proceeding,but in accordance with the Bankruptcy Court's order, we have paid $45 millioninto escrow for the semi-annual interest payments due for the DEN municipalbonds.
        The defendants in the JFK,SFO and LAX adversary proceedings also appealed the Bankruptcy Court'sruling in the U.S. District Court for the Northern District of Illinois("District Court"). In November 2004, the District Court reversed the BankruptcyCourt's ruling and held in favor of the defendants in the SFO adversaryproceeding. In January 2005, the District Court affirmed the BankruptcyCourt's ruling with respect to the DEN adversary proceeding and reversedthe Bankruptcy Court's ruling with respect to the LAX adversary proceeding.On February 18, 2005, the District Court affirmed the Bankruptcy Court'sruling in the Company's favor in the JFK adversary proceeding.
        The Company has appealedthe District Court's ruling with respect to the SFO, LAX and DEN adversaryproceedings to the United States Court of Appeals for the Seventh Circuit,and the defendants have appealed the ruling in the Company's favor in theJFK matter. On July 26, the Court of Appeals reversed the District Court'sruling with respect to the SFO adversary proceeding, but the defendantsmay petition the court for a rehearing or a writ of certiorari. The outcomeof these appeals remains uncertain and, therefore, the ultimate treatmentof these municipal bond obligations in reorganization is uncertain. Inaccordance with the Bankruptcy Court's order, we have paid $10 millionand $22 million into escrow for the interest payments due for the LAX andSFO municipal bonds, respectively.
        Similarly, in September 2003,we filed a complaint for declaratory judgment for all seven municipal bondissues (which represent approximately $601 million in principal) relatingto our facilities at Chicago O'Hare International Airport ("O'Hare"), seeking,among other things, a declaration that a certain cross-default provisionin the O'Hare airport lease is unenforceable. On February 15, 2005, theBankruptcy Court approved an agreement ("O'Hare Settlement Agreement")resolving the disputes between United, the trustees and the bondholdersthat in effect reduced the Company's indebtedness related to these bondissues from approximately $601 million to approximately $150 million. TheCity of Chicago, a party to these adversary proceedings, is not a partyto the O'Hare Settlement Agreement. The O'Hare Settlement Agreement requiresthe indenture trustees and certain designated bondholders to waive anyexisting defaults with respect to the bonds, and not to seek any furtherpayment on account of the bonds beyond the consideration set forth in theO'Hare Settlement Agreement. It requires the Company, in connection withthe confirmation of its plan of reorganization, to relinquish any claimsto certain unused construction fund monies (which currently total approximately$65 million) and to issue convertible debt to the counterparties in theO'Hare Settlement Agreement, upon emergence from bankruptcy of the reorganizedUAL Corporation, having a par value of $150 million.
        As of June 30, 2005, theCompany had paid into escrow cash payments totaling approximately $22 millionrelated to interest due on three of the seven O'Hare municipal bonds forsemi-annual interest payments that were purported to have come due duringthe pendency of the Chapter 11 reorganization. As part of the O'Hare SettlementAgreement, these escrow funds, less the legal fees of the trustees andcertain holders, will be remitted back to the Company.
        On August 7, 2005, the Companyreached an agreement in principle with the City of Chicago, with respectto all unresolved disputes relating to our facilities at O'Hare. The agreementin principle, which will require definitive documentation and the approvalof the Bankruptcy Court, provides for certain utilization and accommodationrequirements with respect to the Company's gates at O'Hare that could resultin the loss of access to certain gates if United fails to maintain a minimumutilization standard. The Company expects to meet the minimum utilizationstandard. There can be no assurance at this time that a definitive agreementwill be reached, or that Bankruptcy Court approval of this agreement willbe received.
        United has certain contingenciesresulting from litigation and claims (including environmental issues) incidentto the ordinary course of business. Management believes, after consideringa number of factors, including (but not limited to) the views of legalcounsel, the nature of contingencies to which we are subject and priorexperience, that the ultimate disposition of these contingencies will notmaterially affect the Company's consolidated financial position or resultsof operations.
        We record liabilities forlegal and environmental claims against us in accordance with GAAP. Theseamounts are recorded based on our assessments of the likelihood of theireventual settlements. The amounts of these liabilities could increase ordecrease in the near term, based on revisions to estimates relating tothe various claims. In addition, as a result of the bankruptcy filing,as of the Petition Date, virtually all pending litigation is stayed, andabsent further order of the Bankruptcy Court, no party, subject to certainexceptions, may take any action, again subject to certain exceptions, torecover on pre-petition claims against us. Accordingly, we have classifiedcertain of these liabilities as liabilities subject to compromise.
        The Company anticipates thatif found liable, its damages from claims arising from the events of September11, 2001 will be significant; however, we believe that, under the Air TransportationSafety and System Stabilization Act of 2001, our liability will be limitedto our insurance coverage.
        At June30, 2005, commitments for the purchase of property and equipment, principallyaircraft, approximated $1.7 billion, after deducting advance payments.Since September 11, 2001, we have reached agreements with the aircraftmanufacturers enabling us to delay or cancel delivery of future orders.Since resetting our fleet plan is critical to our overall restructuring,we continue to hold discussions regarding these deliveries. Our currentcommitments would require the payment of an estimated $0.1 billion forthe remainder of 2005, $0.1 billion in 2006, $0.4 billion in 2007, $0.5billion in 2008 and $0.6 billion in 2009 and thereafter primarily for thepurchase of A319 and A320 aircraft. It is likely that the amount and timingof these obligations will change, and could potentially be eliminated intheir entirety. Additionally, the disposition of advance payments to themanufacturers and aircraft financier**s** of $127 million is subjectto the ultimate outcome of these discussions.
Related Party Transactions
        In 2005, the Bankruptcy Courtapproved a corporate restructuring that (a) moved Ameniti Travel Clubs,Inc (formerly known as Confetti, Inc.) as a subsidiary of ULS to a subsidiaryof MyPoints.com, Inc. ("MyPoints"), (b) moved MyPoints as a subsidiaryof ULS to a subsidiary of UAL, and (c) moved ULS as a subsidiary of UALto a subsidiary of United. This change in ownership was accounted for asa restructuring of entities under common control and all assets and liabilitiestransferred have been stated at net book values and all prior periods presentedhave been reclassified. This restructuring resulted in decreased net lossesof $66 million and $160 million, respectively, for the three and six monthsended June 30, 2004. In addition, the restructuring resulted in a changein classification of certain operating revenues that are associated withour Mileage Plus program as follows:Increase/(decrease)Three Months EndedSix Months Ended June 30, 2004June 30, 2004(In millions)  Operating revenues:  Passenger - United Airlines$ 4 $ 32 Other(4)(32)Total operating revenues $ -$ -
       As of result of the bankruptcyfiling, we reclassified all pre-petition intercompany accounts receivableto equity and all pre-petition intercompany accounts payable to liabilitiessubject to compromise.
        As of June 30, 2005, theCompany identified and corrected several misclassifications resulting fromthe change in ownership of ULS for the three month periods ended December31, 2004 and March 31, 2005. These misclassifications had resulted in anoverstatement in cash and cash equivalents and an understatement of short-terminvestments of $45 and $33 million respectively; an overstatement of otherliabilities and an understatement of additional capital invested of $61million for deferred revenue not eliminated in the three months ended March31, 2005; and a misclassification of related party payables which resultedin a corresponding overstatement of other liabilities for $253 millionfor the three months ended March 31, 2005, and therefore had no impacton total current liabilities.
Item 2.  Management's Discussion and Analysis of FinancialCondition and Results of Operations
Chapter 11 Restructuring Efforts
        The following sections describedetails of restructuring efforts underway by the Company in the areas oflabor agreements, defined benefit pension plans, aircraft financings, futureoperating fleet redeployment and reductions, municipal bond obligations,and the ongoing bankruptcy claims resolution process. See "Voluntary ReorganizationUnder Chapter 11" in the Notes to Consolidated Financial Statementsfor further information on the reorganization process.  
        In the summer of 2004, weidentified a further $2 billion in required future annual cash savings(to be fully realized by fiscal year 2007) that we believe are necessaryto attract exit financing and to emerge from reorganization later in 2005.We have amended our collective bargaining agreements ("CBAs") and reducedour non-represented salaried and management employees' compensation andbenefits to achieve approximately $700 million in average annual laborsavings toward the $2 billion goal. We are seeking operational savingsand the termination and replacement of defined benefit pension plans toachieve the remainder of the $2 billion savings target.
***       ** Labor Restructuring. *Effective January 1, 2005, the Company reduced the compensation of itsnon-represented salaried and management employees and announced changesto benefits and productivity for this group. The Company has also negotiatedconsensual modifications to its CBAs with each of its labor unions to achievefurther average annual labor savings. On January 31, 2005, the BankruptcyCourt approved amended CBAs between the Company and the Association ofFlight Attendants ("AFA"), the Air Line Pilots Association ("ALPA"), theProfessional Airline Flight Control Association ("PAFCA"), and the TransportWorkers Union ("TWU") (all of whom had their memberships ratify such amendments).On May 31, 2005, the Bankruptcy Court approved an amended CBA between theCompany and AMFA and subsequently,****on July 22, 2005, approved anamended CBA between the Company and IAM, both of which were ratified bytheir memberships.
        The Company has also agreedto provide each employee group a portion of the equity, securities or otherconsideration provided to general unsecured creditors under any plan ofreorganization proposed or supported by the Company. Each employee groupis to receive a distribution based on the value of cost savings providedby that group. Approval of this distribution is subject to the BankruptcyCourt process.
        The Company has agreed toprovide to employees represented by ALPA, PAFCA, TWU, AMFA and IAM as wellas its salaried and management employees, approximately $706 million inconvertible notes upon the emergence of the Company from bankruptcy inthe event the groups' defined benefit pension plans are terminated. Allrepresented groups other than the AFA have agreed to eliminate any requirementsin their respective CBAs to maintain, and not to oppose efforts by theCompany to terminate, each of their respective defined benefit pensionplans.
        *Pensions.* The Companydetermined that to obtain exit financing and successfully reorganize andemerge from Chapter 11 bankruptcy proceedings, it was necessary to terminateand replace all of its defined benefit pension plans. To this end, on April22, 2005, the Company and the PBGC entered into a global settlement agreementwhich provides for the settlement and compromise of various disputes andcontroversies with respect to four defined benefit pension plans of United,including the United Airlines Pilot Defined Benefit Pension Plan (the "PilotPlan"), Flight Attendant Plan, Ground Employees Plan and the MAPC Plan(collectively, the "Pension Plans"). On May 10, 2005, the Bankruptcy Courtapproved the settlement agreement, including modifications requested bycertain creditors. The AFA and several other parties have filed legal challengesto the approval of the PBGC agreement by the Bankruptcy Court. To date,no such challenges have been successful, although several remain pending.
        On May 23, 2005, the PBGCassumed responsibility for the Ground Employees Plan. On June 30, 2005,the PBGC assumed responsibility for the Flight Attendant Plan and the MAPCPlan. The PBGC and the Company have executed termination and trusteeshipagreements with respect to each of these plans. The Company thus has nofurther duties or rights with respect to these plans. The Pilot PensionPlan termination date will be as specified in the settlement agreementand PBGC will not become statutory trustee until all issues referencedin the settlement agreement are resolved. The PBGC has moved for summaryjudgment on the termination of the Pilot Plan; a hearing has been scheduledbefore the Bankruptcy Court for August 18, 2005.
        Under the settlement agreement,the Company has agreed to propose a plan of reorganization that providesfor the distribution of the following consideration to the PBGC:- $500 million in principal amount of 6% senior unsecured notes to be issuedto the PBGC no later than the bankruptcy exit date; maturing 25 years fromissuance date; with interest payable in kind (notes or common stock) through2011 (and thereafter in cash) in semi-annual installments; and being callableat any time at 100% of par value.
- 5,000,000 shares of 2% convertible preferred stock to be issued to thePBGC no later than the bankruptcy exit date, at a liquidation value of$100 per share, convertible at any time following the second anniversaryof the issuance date into common stock of the reorganized Company at aconversion price equal to 125% of the average closing price of the commonstock during the first 60 days following exit from bankruptcy; with dividendspayable in kind semi-annually; the preferred stock will rank pari passuwith all current and future UAL or United preferred stock; and be redeemableat any time at $100 par value at the option of the issuer; and being non-transferableuntil two years after the issuance date.
- $500 million in principal amount of 8% senior unsecured notes contingentlyissuable to the PBGC in up to eight equal tranches of $62.5 million (withno more than two tranches issued on a single date), beginning with thefiscal year ending December 31, 2009 and ending with the fiscal year endingDecember 31, 2017 in which there is an issuance trigger date. Issuanceis triggered when, among other things, the Company's EBITDAR exceeds $3.5billion over the prior twelve months, provided that issuance would notcause a default under any other securities then existing. Each issued tranchewould mature 15 years from its respective issuance date; with interestpayable in cash in semi-annual installments; and being callable at anytime at 100% of par value.
        For more information on theterms of the settlement agreement, please see UAL's Form 8-K filed withthe SEC on April 28, 2005.
       Thedistribution of these securities to the PBGC is subject to a "safety valve"provision that allows for modifications to the terms of the securitiesto the extent that such terms are materially impairing, hindering or delayingthe Company's ability to obtain the necessary financing to exit bankruptcy.
        The PBGC agreed to waiveits pension restoration rights, provided that the Company obtains the PBGC'sconsent with respect to any defined contribution plan proposed to be providedby the Company to its employees following termination of the Pension Plans.The Company could elect to implement a defined contribution plan withoutthe PBGC's consent, but under those circumstances, the PBGC would retainits restoration rights.
        Additionally, the Companyhas agreed to propose a plan of reorganization that provides the PBGC witha single pre-petition general unsecured unfunded liability claim arisingfrom the termination of the Pension Plans. At the Company's option, thePBGC will assign 45% of the distribution it receives from this claim asdirected by the Company; provided that the Company's direction of thisassignment must be (1) consistent with the best interests of general unsecuredcreditors, (2) subject to at least 10 business days prior notice to theCreditors' Committee and after consultation with the Committee, and (3)subject to Bankruptcy Court approval under the best interest of creditors'test in a de novo review. If the Company does not comply with the above,the distribution will be directed to the unsecured creditors.
       OnNovember 30, 2004, Independent Fiduciary Services, Inc. ("IFS"), the independentfiduciary appointed by the Company, filed a motion in the Bankruptcy Courtrequesting the allowance of a $288 million to $993 million administrativeclaim against the Company for unpaid minimum funding contributions. OnMarch 18, 2005, the Bankruptcy Court ruled that only those contributionsarising from pension benefits associated with service performed by participantsin the post-petition period would be considered an administrative claim.IFS is appealing this decision. Because the settlement agreement shallbe deemed to have settled and released any claims by the PBGC on its ownbehalf or on behalf of the Pension Plans arising from or related to anyminimum funding obligations (subject to certain terms and conditions),it also provides for United to terminate the IFS agreement, and for thePBGC to support the Company's actions in certain circumstances. On May27, 2005, the Company provided notice to IFS of its intent to terminatethe Fiduciary Services Agreement between the Company and IFS with respectto each of the Company's Pension Plans effective on the later of: (a) July27, 2005 or (b) the termination date for each such plan, respectively.The Company and the PBGC have entered into trusteeship agreements for theFlight Attendant Plan, Ground Employees Plan, and MAPC Plan, with effectivedates of June 30, March 11, and June 30, 2005, respectively. Thus, as ofJuly 27, 2005, IFS is no longer independent fiduciary for the Flight AttendantPlan, Ground Employees Plan or the MAPC Plan that were the subject of IFS'sMotion.
        On June 24, 2005, the Houseof Representatives passed an amendment to a spending bill that seeks toprevent the PBGC from using appropriated funds to enforce or implementthe settlement agreement. The Senate must also still act on this legislation,which is not yet scheduled. We do not believe this legislation will haveany effect in its present form.
      The AFA has stated that they may engage in self-helpin response to the PBGC's involuntarily termination of the Flight AttendantPlan. Such self-help could take the form of intermittent disruptions toUnited's operations, which could adversely affect future bookings on United.The Company has communicated to the AFA that it believes that any disruptionto the airline's operations would be illegal and that it intends to vigorouslyprosecute parties taking such actions.
**       ***Section 1110 AircraftRestructuring.** ***All vendors are being paid for all goodsfurnished and services provided after the Petition Date in the ordinarycourse of business. However, under Section 362 of the Bankruptcy Code,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 after the Petition Date(the stay of such actions in our case ended on February 7, 2003), exceptunder two conditions: (a) the debtor may extend the 60-day period by agreementwith the relevant financier and with court approval; or (b) the debtormay agree to perform all of the obligations under the applicable leaseor financing and cure any defaults as required under the Bankruptcy Code.If neither of these conditions is met, the lessor or financier may demandthe return of the aircraft and enforce any of its contractual rights orremedies to sell, lease or otherwise retain or dispose of such property.
        We have negotiated with ouraircraft lessors and lenders to restructure existing financings to reduceaircraft ownership costs to better reflect current market rates, and wehave reached agreements in principle to restructure transactions with respectto a majority of our financed aircraft. However, the need for further costreductions due to difficult conditions in the airline industry with substantiallyhigher fuel prices has required us to re-examine some of these agreementsand to seek to renegotiate certain of those financings, most importantlythe financings associated with approximately 119 aircraft with a groupof mostly-public financiers (the "Public Debt Group").
        We have been in discussionswith the Public Debt Group seeking to renegotiate an agreement in principlereached in the summer of 2004 from which we subsequently withdrew. Previously,the Bankruptcy Court issued a temporary restraining order ("TRO") thatenjoined the repossession of six B737 and eight B767 aircraft. During thesecond quarter of 2005, the TRO was cancelled by court order. Dissolutionof the TRO only affected the eight B767 aircraft as the Company had sincerejected the leases for the six B737 aircraft. Subsequently, the Companyreturned four B767 aircraft and entered into a letter of intent to purchasethe remaining four B767 aircraft. On July 15, 2005, the Bankruptcy Courtapproved the letter of intent and approved a separate agreement that enablesthe Company to finance a limited number of additional aircraft purchases.
        On August 6, 2005, Unitedentered into agreements in principle to restructure the financings forall of the aircraft in United's fleet that are controlled by the PublicDebt Group, other than the 14 aircraft financed under the Series 1997-1Enhanced Equipment Trust Certificates ("EETC"), saving United approximately$300 million annually.  These agreements, which are subject to BankruptcyCourt approval, are expected to secure United's long-term access to theseaircraft, and resolve any related administrative claims. With respect toall the agreements reached with financiers since entering reorganization,and including the benefit of contractual changes and strategic fleet reductions,the Company will reduce its annual fleet costs by approximately $850 millionsince entering Chapter 11. In addition, with respect to those Public DebtGroupfinancings for aircraft in United'sfleet which were previously rejected, returned or repossessed, we havereached a global resolution of related administrative claims against theCompany, subject to Bankruptcy Court approval.  There can be no assurancethatBankruptcy Court approval for these agreements will be received.
        United is also seeking toacquire the senior "A" tranche debt in the 1997-1 EETC transactions whichwould permit it to secure long-term access to the 14 aircraft subject tothat financing. United had previously acquired the "B" and "C" tranchesof this debt as a necessary predicate to purchasing the "A" tranche.
        If the Company does not finalizethe agreements in principle with the Public Debt Group, our operationaland financial performance could be materially adversely affected, includingthe possibility that one or more financiers may seek to repossess a significantnumber of aircraft, or we may choose to reject or return such aircraft.
        We have also rejected orreturned certain surplus aircraft to adjust our fleet size and compositionto more closely match market demand, and are continuing this process toachieve an approximate fleet size of 455 aircraft in 2005. In addition,as part of ongoing negotiations with financiers, we have converted somelong-term financing arrangements into operating leases of a reduced termand, in several instances, re-acquired previously rejected aircraft ascircumstances warranted.
        *Redeployment and Reductionof Fleet.*  On October 6, 2004, the Company announced a plan toexpand its international route network, redeploying aircraft to more profitableroutes and reducing the overall size of its mainline fleet. These actionsare part of the Company's ongoing strategy to adjust fleet size and routemix to current market conditions, which continue to be intensely competitive.In the first six months of 2005, we reduced our mainline operating fleetby 39 aircraft as compared to December 31, 2004.
        In addition, on April 22,2005, the Bankruptcy Court approved an agreement to transition to otherregional carriers all flying operations currently performed for the Companyby United Express carrier AWAC. This transition will be completed by early2006. The Company does not anticipate that this change will adversely affectits United Express operations. Under this transition agreement, AWAC refundedto the Company on April 22, 2005 approximately $22 million of previouslyincurred costs which was recognized as a reduction to regional carrierexpense. As a result of the transition agreement, the Company also recognizeda charge of $5 million for aircraft impairments relating to planned acceleratedretirement of certain aircraft currently operated by AWAC.
        Effective in May 2005, weamended our capacity purchase agreement with Mesa Air Group to give themthe right to place into service up to 30 leased 50-seat regional jet aircraftto be branded as United Express and operated within the United Expresssystem. United will receive $30 million in cash before the end of 2005for agreeing to this amendment, of which $10 million was received duringthe second quarter of 2005; these payments will be recognized as a reductionto regional carrier expense over the contract terms.
        *Municipal Bond Obligations.*As a result of our bankruptcy filing, we are not permitted to make paymentson unsecured pre-petition debt. We have been advised that our municipalbonds may be unsecured (or in certain instances, partially secured) pre-petitiondebt. At June 30, 2005, we had approximately $1.7 billion outstanding inmunicipal bonds that were issued on behalf of United to finance the constructionof improvements at airport-related facilities. For further details, see"Commitments and Contingencies" in the Notes to the Consolidated FinancialStatements.
        *Claims Resolution Process.*As permitted under the bankruptcy process, our creditors have filed proofsof claim with the Bankruptcy Court and we expect new claims to be filedin the future. Through the claims resolution process, we have identifiedmany claims which we believe should be disallowed by the Bankruptcy Courtfor a number of reasons, such as our identification of claims that areduplicative, have been amended or superseded by later filed claims, arewithout merit, or are otherwise overstated. We have filed omnibus objectionsto many of these claims and will continue to file additional objections.For further details, see "Voluntary Reorganization Under Chapter 11 - FinancialStatement Presentation" in the Notes to the Consolidated Financial Statements.
Results of Operations
        Over the past several years,the Company and the airline industry have been faced with severe businesschallenges and fundamental changes in the airline industry that have producedmaterial adverse impacts on our results of operations, financial positionand liquidity. During the three-month periods ended June 30, 2005 and 2004,we reported earnings from operations of $24 million and $20 million, respectively,and we reported net losses of $1,471 million and $237 million for the samerespective periods. In addition, during the six-month periods ended June30, 2005 and 2004, we reported losses from operations of $215 million and$179 million, respectively, and we reported net losses of $2,483 millionand $686 million for the same respective periods.
        Operating revenues for theairline industry in general, as well as for the Company, have been adverselyimpacted by a variety of factors in the last few years. Such factors haveincluded from time to time unfavorable general economic conditions; theterrorist attacks of September 11, 2001 and fears of further terroristactivities; enhanced airport security measures which have increased airportinconvenience and produced some negative customer reaction; the enactmentof federal taxes on ticket sales to fund those new security measures; theoutbreak of Severe Acute Respiratory Syndrome in early 2003 and subsequentfears of other outbreaks of communicable diseases; and the growth of low-costcarriers in the United States placing further downward pressures on revenuesby forcing us to compete with discounted fares offered by low-cost airlinesin a growing percentage of the markets we serve. These and other adversefactors caused United mainline passenger revenue per revenue passengermile to decline from 13.3 cents in 2000 (the last year we reported an operatingprofit) to 10.8 cents in 2004.
        In the first six months of2005, United mainline passenger revenue was 11.03 cents per revenue passengermile, or 0.4% lower than it was in the first six months of 2004. Passengerload factor improved from 78.7% in the first six months of 2004 to 80.8%in the same period of 2005. These results reflect a 2.5% reduction in systemcapacity between periods. As announced in the fourth quarter of 2004, theCompany continues to shift capacity from domestic to international marketsand it believes that its actions to address overcapacity domestically arebeginning to produce unit revenue improvements in that segment.
        Our operating expenses havefluctuated as we have sought to restructure our obligations in bankruptcy,adjust our mainline and regional carrier operating capacity to match marketplacedemand, and cope with historically high jet fuel prices throughout recentyears. United mainline operating cost per available seat mile increasedfrom 10.6 cents in 2000 to 12.0 cents in 2001, and then declined to 10.2cents by 2004. In spite of significant accomplishments in restructuringour operating expenses, including significant contributions from employeesand creditors through the bankruptcy process, high fuel costs have hada significant adverse affect on unit operating costs, particularly in morerecent periods. In the first six months of 2005, United mainline operatingcost per available seat mile ("CASM") was 10.39 cents per available seatmile, or 3.5% higher than it was in the first six months of 2004. The increasein fuel prices between periods added approximately seven tenths of a centto the first six months of 2005 CASM, as compared to the same period in2004.
*        Summary of Results*.The air travel business is subject to seasonal fluctuations. Our operationscan be impacted by adverse weather and our first- and fourth-quarter resultsnormally reflect reduced travel demand. Historically, results of operationsare better in the second and third quarters.
        The second quarter 2005 resultsinclude $1.4 billion in reorganization items recorded in connection withour bankruptcy proceedings. The second quarter 2004 results included $144million in reorganization items.
        *Second Quarter 2005Compared with Second Quarter 2004.*  Operating revenues increased$179 million. Passenger mainline revenues increased $53 million due toa 3% increase in yield partially offset by a 1% decrease in traffic. Thefollowing analysis by market is based on information reported to the U.S.Department of Transportation: 2005SystemDomesticPacificAtlanticLatinPassenger revenues (in millions)3,3012,042671482106      Increase (Decrease) from 2004:     Passenger revenues(in millions)53(128)1174618Passenger revenues (percent)1.6%(5.9%)21.2%10.5%21.3%        Available seat miles (capacity)(3.0%)(11.6%)19.5%3.0%20.5%  Passenger load factor1.4pt.3.2pt(3.8)pt0.2pt3.1pt  Revenue passenger miles(traffic)(1.4%)(8.2%)14.2%3.3%25.7%  Revenue per revenue passengermile (yield)3.2%2.6%6.7%8.3%(4.5%)
        Cargo revenues increased$13 million (8%) due to a 6% higher yield and 2% increase in cargo tonmiles. Other operating revenues decreased $14 million (5%) primarily dueto decreased intercompany revenue and UAFC fuel sales to third parties,partially offset by increased third party maintenance revenues and MileagePlus mileage sales.
        Operating expenses increased$175 million (4%) and mainline unit cost (operating expenses, excludingregional affiliates costs per available seat mile) increased 6%. (In millions)
Operating expenses:Increase/(Decrease) from 2004Percentage Change Salaries and related costs(156)(12.9%)(a)Aircraft fuel262 37.8% (b)Regional affiliates80 13.2% (c)Purchased services12 3.2%  Landing fees and other rent(17)(7.0%) Aircraft maintenance34 17.6% (d)Depreciation and amortization(17)(7.8%) Cost of sales- -  Aircraft rent(25)(18.5%)(e)Commissions(5)(6.2%)    Special operatingitems5 100%(f)Other20.7% Total1754.2% 
(a) Decreased primarily due to cost savings associated with lower salaryand benefit rates and lower full-time equivalent employees.
(b) Increased primarily as a result of a 45% increase in the averagecost of fuel (including tax and hedge impact) partially offset by a decreasein consumption.
(c) Increased primarily as a result of increased fuel costs and volumesof United Express regional carrier flying partially offset by new contractsavings.
(d) Increased primarily due to higher levels of purchased maintenanceactivity. This increase is offset by productivity and labor rate improvements,the effects of which are included in (a) above.
(e) Decreased due to restructuring of aircraft lease obligations andfleet reductions.
(f) See "Special Items" in the Notes to Consolidated Financial Statementsfor details.
        Other non-operating expenseamounted to $101 million in the second quarter of 2005, compared to $114million in the second quarter of 2004, excluding reorganization items.In the second quarter of 2005, the Company recognized a non-operating lossof $1 million in miscellaneous, net to record the impact of non-designatedand ineffective fuel hedges. Inclusive of reorganization items, other non-operatingexpense amounted to $1.5 billion in the second quarter of 2005, comparedto $258 million in the second quarter of 2004. For details on reorganizationitems, see "Voluntary Reorganization Under Chapter 11 - Financial StatementPresentation" in the Notes to Consolidated Financial Statements.
        *First Six Months of2005 Compared with First Six Months of 2004.*  Operating revenuesincreased $181 million. Passenger mainline revenues declined $22 million.In the first quarter of 2004, passenger revenues included a $60 millionfavorable adjustment. The following analysis by market is based on informationreported to the U.S. Department of Transportation: 2005SystemDomesticPacificAtlanticLatinPassenger revenues (in millions)6,2173,8311,275889222      Increase (Decrease) from 2004:     Passenger revenues (in millions)(22)(307)1956030Passenger revenues (percent)(0.4%)(7.4%)18.0%7.2%16.0%      Available seat miles (capacity)(2.5%)(10.6%)17.8%3.6%19.4%Passenger load factor2.1pt.4.4pt(4.1)pt0.1pt0.5ptRevenue passenger miles (traffic)0.1%(5.4%)12.1%3.7%20.1%Revenue per revenue passengermile (yield)(0.4%)(2.1%)5.9%4.9%(4.9%)
        Cargo revenues increased$37 million (12%) largely due to a 4% higher yield and 8% increase in volumes.Other operating revenues decreased $45 million (7%) primarily due to decreasedUAFC fuel sales to third parties and intercompany revenue, partially offsetby increased third party maintenance revenues and Mileage Plus mileagesales.
        Operating expenses increased$217 million (3%) and mainline unit cost (operating expenses, excludingregional affiliates costs per available seat mile) increased 3%. (In millions)
Operating expenses:Increase/(Decrease) from 2004Percentage Change Salaries and related costs(374)(15.2%)(a)Aircraft fuel464 35.8% (b)Regional affiliates174 15.1% (c)Purchased services20 2.8%  Landing fees and other rent(15)(3.2%) Aircraft maintenance68 18.0% (d)Depreciation and amortization(34)(7.6%) Cost of sales(55)(16.6%)(e)Aircraft rent(42)(15.4%)(f)Commissions(9)(5.6%) Special operating items5 100% (g)Other15 2.5% Total2172.6% 
(a) Decreased primarily due to cost savings associated with lower salaryand benefit rates and lower full-time equivalent employees.
(b) Increased primarily as a result of a 41% increase in the averagecost of fuel (including tax and hedge impact) partially offset by a decreasein consumption.
(c) Increased primarily as a result of increased fuel costs and volumesof United Express regional carrier flying, partially offset by new contractsavings.
(d) Increased primarily due to higher levels of purchased maintenanceactivity. This increase is offset by productivity and labor rate improvements,the effects of which are included in (a) above.
(e) Decreased due to lower third-party fuel sales by UAFC.
(f) Decreased due to restructuring of aircraft lease obligations andfleet reductions.
(g) See "Special Items" in the Notes to Consolidated Financial Statementsfor details.
        Other non-operating expenseamounted to $156 million in the first six months of 2005, compared to $218million in the first six months of 2004, excluding special non-operatingitems and reorganization items. In the first six months of 2005, the Companyrecognized a non-operating gain of $40 million in miscellaneous, net torecord the impact of non-designated and ineffective fuel hedges. Inclusiveof special non-operating items and reorganization items, other non-operatingexpense amounted to $2.3 billion in the first six months of 2005, comparedto $505 million in the first six months of 2004. For details on the specialitems and reorganization items, see "Voluntary Reorganization Under Chapter11 - Financial Statement Presentation" and "Special Items" in the Notesto Consolidated Financial Statements.
Liquidity and Capital Resources
         The matters describedin "Liquidity and Capital Resources," to the extent that they relate tofuture events or expectations, may be significantly affected by the Chapter11 reorganization process. Those proceedings involve, or may result in,various restrictions on the Company's activities, limitations on financing,and may require Bankruptcy Court and Creditors' Committee approval forvarious matters, and may create uncertainty as to ongoing relationshipswith vendors, suppliers, customers and others with whom we may conductor seek to conduct business.
        Generally, under the BankruptcyCode most of a debtor's liabilities must be satisfied in full before thedebtor's stockholders can receive any distribution on account of such shares.The rights and satisfaction of claims of our various creditors and securityholders will be determined by the confirmed plan of reorganization. Itis likely that pre-petition unsecured claims against the Company will besubstantially impaired in connection with our reorganization. At this timewe can make no prediction concerning how each of these claims will be valuedin the bankruptcy proceedings.
        United's total of cash, cashequivalents and short-term investments, including restricted cash, was$2.6 billion at June 30, 2005, as compared to $2.1 billion at December31, 2004.
        As of June 30, 2005, we had$947 million in restricted cash, an increase of $91 million as comparedto December 31, 2004. Restricted cash primarily represents cash collateralto secure workers' compensation obligations, security deposits for airportleases and reserves with institutions that process our credit card ticketsales. Prior to 2003, we met many of these obligations (which were smallerin amount) through surety bonds or secured letters of credit; however,such facilities are currently largely unavailable to us. As a result, wemay be required to post significant additional cash collateral to meetsuch obligations in the future.
       Duringthe second quarter of 2005, an institution that processes our credit cardticket sales increased its cash holdback by approximately $84 million tosecure advanced ticket sales in accordance with the terms of its merchantagreement.
        *Operating Activities.*For the first six months of 2005, we generated cash flow from operationsof $822 million, a $365 million increase as compared to $457 million inoperating cash flows generated in 2004.
        We contributed $127 milliontowards our pension funding obligations in 2004, but made no cash contributionsin 2005. Detailed information regarding our pension plans is included in"Retirement and Postretirement Plans" in the Notes to Consolidated FinancialStatements.
        *Investing Activities.*Cash used from investing activities was $127 million in 2005 compared to$291 million in 2004. The change from 2004 to 2005 primarily reflects smallerrestricted cash increases in 2005 than 2004, decreased property additions(including aircraft and aircraft spare parts), and increased proceeds fromthe disposition of property and equipment. In the first six months of 2005,the Company sold six B727, four B737 and five B767 aircraft, transferredseven B767 aircraft to non-operating status and rejected (and/or returnedto the lessor) 29 B737 aircraft and three B767 aircraft under Section 1110of the Bankruptcy Code.
        *Financing Activities.*Cash flows used in financing activities were $189 million in 2005 and $356million in 2004. In the first six months of 2005, we made principal paymentsunder debt and capital lease obligations of $113 million and $55 million,respectively. The decrease in principal payments on capital lease obligationswas related to aircraft rejections under Section 1110. In addition, wemade $10 million in principal payments on the DIP Financing in the firstsix months of 2005.
        The Company has committedto spend an estimated $100 million for the remainder of 2005 for the purchaseof property and equipment. At June 30, 2005, commitments for the futurepurchase of property and equipment, principally aircraft, approximated$1.7billion, after deducting advance payments. For further details, see "Commitmentsand Contingencies" in the Notes to the Consolidated Financial Statements.
        At June 30, 2005, we hada total of $853 million in debt outstanding under the DIP Financing and$37 million in outstanding letters of credit. We believe that the DIP Financing,together with other sources of cash, such as from operations, will be adequateto provide for our projected future liquidity needs through our emergencefrom bankruptcy. On July 15, 2005 the Bankruptcy Court approved an agreementwith the DIP financing lenders to increase the term loan to $1.1 billion,thereby providing a total facility of $1.3 billion. This agreement alsoprovides for a new capital expenditure basket for certain aircraft purchases,including a cash sublimit, but requiring financing for the balance of theaggregate purchase price of such aircraft.
        The Company is proposingto enter into an amendment to the DIP financing which would provide for,among other things, a waiver of any event of default as a result of theCompany acquiring the Tranche A, Tranche B and Tranche C indebtedness underthe Series 1997-1 Enhanced Equipment Trust Certificates. The proposed amendmentfurther provides for the refinancing of a majority of that indebtedness,as secured by up to 14 aircraft to be acquired in connection with the acquisitionof that indebtedness. This proposed amendment will require the approvalof the DIP financing lenders and the Bankruptcy Court. There can be noassurance that either approval will be received. For more information onthe terms of the proposed amendment, please see UAL's Form 8-K filed withthe SEC on August 8, 2005.
        With historically high fuelprices and continuing weak revenue, we have continued to restructure ourcosts to achieve a business plan that will permit the Company to attractexit financing for our projected future liquidity needs upon emergencefrom bankruptcy. This exit financing, together with other available cashand cash flows from future operations, is expected to provide us with adequatelevels of liquidity necessary for our ongoing operations and to serviceour restructured fixed obligations. We expect that in order for the Companyto attract exit financing, we will be required to comply with financialcovenants, and that this financing would be approved as part of an overallplan of reorganization. However, the Company cannot guarantee that thisfinancing will be obtained, or that a plan of reorganization will be approvedor implemented successfully.  
Outlook
        Information regarding guidancefor United's 2005 outlook can be obtained from the UAL Corporation's Quarterlyreport on Form 10-Q for the quarter ended June 30, 2005.
        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 subject tomany risks and uncertainties relating to our operations and business environmentthat may cause actual results to differ materially from any future resultsexpressed or implied in such forward-looking statements. Factors that couldcause actual results to differ materially from these forward-looking statementsinclude, without limitation, the following: our ability to continue asa going concern; our ability to comply with the terms of the DIP Financingor negotiate modifications or amendments thereto as necessary; our abilityto successfully renegotiate aircraft financings under Section 1110 of theBankruptcy Code; our ability to obtain court approval with respect to motionsin the Chapter 11 proceeding prosecuted by us from time to time; our abilityto develop, prosecute, confirm and consummate one or more plans of reorganizationwith respect to the Chapter 11 cases; risks associated with third partiesseeking and obtaining court approval to terminate or shorten our exclusiveperiod to propose and confirm one or more plans of reorganization; thepotential adverse impact of the Chapter 11 cases on our liquidity or resultsof operations; the appointment of a Chapter 11 trustee or conversion ofthe cases to Chapter 7; the costs and availability of financing; our abilityto execute our business plan; our ability to attract, motivate and/or retainkey employees; our ability to attract and retain customers; demand fortransportation in the markets in which we operate; general economic conditions;the effects of any hostilities or act of war or any terrorist attack; theability of other air carriers with whom we have alliances or partnershipsto provide the services contemplated by the respective arrangements withsuch carriers; the costs and availability of aircraft insurance; the costsof aviation fuel; the costs associated with security measures and practices;labor costs; competitive pressures on pricing (particularly from lower-costcompetitors) and on demand; government legislation and regulation; theability of the Company to maintain satisfactory labor relations;any disruptionsto operations due to any potential actions by our labor groups; weatherconditions; and other risks and uncertainties set forth from time to timein United's reports to the United States Securities and Exchange Commission.Consequently, the forward-looking statements should not be regarded asrepresentations or warranties by the Company that such matters will berealized. We disclaim any intent or obligation to update or revise anyof 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 United's Annual Reporton Form 10-K for the year 2004.
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, the Company enters into fuel option contracts to reduceits price risk exposure to jet fuel. The option contracts are designedto provide protection against increases in the price of aircraft fuel.As market conditions change, so may the Company's hedging program.   June 30, 2005 (In millions, except averagecontract rates)NotionalAverageEstimated AmountContract RateFair Value   (Pay)/Receive*Purchased call options - Heatingoil$ 109 $ 1.24/gal$ 42 Sold put options - Heating oil(93)1.05/gal-  
*Estimated fair values represent the amount the Companywould pay/receive on June 30, 2005 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, 2005.  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 2005, 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 6.  ExhibitsA list of exhibits included as part of this Form 10-Q is set forthin an Exhibit Index that immediately precedes such exhibits.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, 2005 to be signed on its behalf by the undersignedthereunto duly authorized on the 12th day of August, 2005.   UNITED AIR LINES, INC. By:  /s/ Frederic F.BraceFrederic F. BraceExecutive Vice President andChief Financial Officer(principal financial officer)  By:  /s/ David M. WingDavid M. WingVice 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)         

**