****FORM10-Q**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C.  20549**
(Mark One)
**[X] ** QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
**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*
**UNITEDAIR LINES, INC.**
(Exact name of registrant as specified in its charter)
**Delaware****36-2675206**(Stateor other jurisdiction of(I.R.S.Employerincorporationor organization)IdentificationNo.)  **1200East Algonquin Road, Elk Grove Township, Illinois  60007****MailingAddress:  P. O. Box 66100, Chicago, Illinois  60666**(Addressof principal executive offices)            (Zip Code)  Registrant'stelephone number, including area code  **(847) 700-4000**
Indicate bycheck mark whether the registrant (1) has filed all reports required tobe 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 thenumber of shares outstanding of each of the issuer's classes of commonstock, as of the latest practicable date.  OutstandingatClassJuly30, 2002CommonStock ($5 par value)205
*  Registrantis the wholly owned subsidiary of UAL Corporation (File 1-6033). Registrant became subject to filing periodic reports under the SecuritiesExchange Act of 1934 as a result of a public offering of securities whichbecame effective June 3, 1988 (Registration Nos. 33-21220 and 22-18246).
Indicate bycheck mark whether the registrant (1) has filed all reports required tobe 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.  
United Air Lines, Inc.and Subsidiary Companies Report on Form 10-Q
For the Quarter EndedJune 30, 2002
  Index PARTI.FINANCIALINFORMATIONPage No.  Item1.  Financial Statements  CondensedStatements of Consolidated Financial Position - as of June 30, 2002 (Unaudited)and December 31, 2001 3  Statementsof Consolidated Operations (Unaudited) - for the three months ended June30, 2002 and 2001 5  CondensedStatements of ConsolidatedCash Flows (Unaudited) -for the six months ended June 30, 2002and 20017  Notesto Consolidated Financial Statements (Unaudited)8 Item2.  Management's Discussion and Analysis of Financial Condition andResults of Operations15  Item3.  Quantitative and Qualitative Disclosures About Market Risk26PARTII.OTHERINFORMATION  Item1.  Legal Proceedings27    Item6.  Exhibits and Reports on Form 8-K28 Signatures29 ExhibitIndex30   
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements  
United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Financial Position
(In Millions)
 June 30  2002December 31Assets(Unaudited)2001   Current assets:     Cash and cash equivalents, includingrestricted        cash of $263at June 30, 2002$   1,824 $   1,504    Short-term investments524 852    Receivables, net1,130 1,026    Related party receivables682 536    Income tax receivables259 217    Inventories, net325 329    Deferred income taxes287 278    Prepaid expenses and other     342     634   5,373  5,376      Operating property and equipment:     Owned19,755 19,129    Accumulated depreciation and amortization  (5,005)  (4,702) 14,75014,427      Capital leases2,637 2,766    Accumulated amortization    (481)    (472)    2,156   2,294 16,90616,721   Other assets:     Investments79 236    Intangibles, net385 390    Pension assets1,170 562    Related party receivables1,480 576    Aircraft lease deposits742 667    Prepaid rent65 307    Other, net     752     911   4,673  3,649    $26,952$25,746   
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Financial Position
(In Millions)
 June 30  2002December 31Liabilities and Stockholder's Equity(Unaudited)2001   Current liabilities:     Notes payable$        - $     133    Current portions of long-term debtand        capital leaseobligations   1,337    1,454    Related party debt maturing withinone year153 162    Advance ticket sales1,591 1,183    Accrued salaries, wages and benefits1,317 1,222    Accounts payable896 1,268    Other  2,064  2,845   7,358  8,267   Long-term debt  7,293  6,674   Long-term obligations under capital leases  1,890  1,943   Other liabilities and deferred credits:     Deferred pension liability2,147 1,241    Postretirement benefit liability1,773 1,690    Deferred gains769 827    Deferred income taxes77 -    Other  1,654  1,598   6,420  5,356   Commitments and contingent liabilities (Seenote)     Preferred stock committed to Supplemental ESOP       18       77   Stockholder's equity:     Common stock at par- -    Additional capital invested1,651 231    ESOP capital3,957 3,898    Retained deficit(1,290)(427)   Accumulated other comprehensiveincome(343)(269)   Other       (2)       (4)   3,973  3,429    $26,952$25,746   
See accompanying Notes to Consolidated Financial Statements.   
United Air Lines, Inc. and Subsidiary Companies
Statements of Consolidated Operations (Unaudited)
(In Millions)
  Three Months Ended June 30     20022001Operating revenues:     Passenger$ 3,190 $ 4,028    Cargo167 197    Other      349      423   3,706   4,648Operating expenses:     Salaries and related costs1,776 1,873    Aircraft fuel467 693    Purchased services353 458    Aircraft rent214 207    Landing fees and other rent254 269    Depreciation and amortization247 268    Cost of sales292 344    Aircraft maintenance151 200    Commissions105 255    Other       383      437   4,242   5,004   Loss from operations   (536)    (356)   Other income (expense):     Interest expense(149)(129)   Interest capitalized7 22    Interest income31 24    Equity in earnings of affiliates1 3    Airline stabilization grant80 -    Miscellaneous, net       (2)      (15)      (32)      (95)  Loss before income taxes(568)(451)Credit for income taxes   (205)    (157)   Net loss$  (363)$  (294)
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies
Statements of Consolidated Operations (Unaudited)
(In Millions)
 Six Months Ended June 30     20022001Operating revenues:     Passenger$ 5,948 $ 7,840    Cargo309 389    Other       645      837    6,902   9,066Operating expenses:     Salaries and related costs3,348 3,722    Aircraft fuel865 1,358    Purchased services703 911    Aircraft rent426 415    Landing fees and other rent502 508    Depreciation and amortization482 520    Cost of sales562 651    Aircraft maintenance296 399    Commissions239 488    Other      722     878   8,145  9,850   Loss from operations(1,243)    (784)   Other income (expense):     Interest expense(296)(262)   Interest capitalized17 45    Interest income65 58    Equity in earnings of affiliates1 3    Gain on sale of investment46 -    Airline stabilization grant80 -    Miscellaneous, net      (16)      (33)     (103)    (189)Loss before income taxes and     cumulative effect of accountingchange(1,346)(973)Credit for income taxes    (486)    (355)   Loss before cumulative effect of accountingchange(860)(618)Cumulative effect of accounting change, netof tax        -        3Net loss$  (860)$  (615)
See accompanying Notes to Consolidated Financial Statements.    
United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Cash Flows (Unaudited)
(In Millions)
        Six Months       Ended June 30         2002       2001Cash and cash equivalents at beginning      of period$1,504$ 1,468   Cash flows from operating activities     (67)     336   Cash flows from investing activities:     Additions to propertyand equipment(61)(1,287)   Proceeds on dispositionof property and       equipment44 4    Proceeds on saleof investments137 -    Increase in restrictedcash(263)-    Increase in relatedparty receivables(3)(8)   Decrease in short-terminvestments327 209    Other, net       7      (33)     188(1,115)   Cash flows from financing activities:     Proceeds from issuanceof long-term debt911 211    Repayment of long-termdebt(980)(124)   Principal paymentsunder capital       lease obligations(139)(135)   Dividend to parentcompany(3)(150)   Decrease in short-termborrowings(133)-    Aircraft lease deposits9 8    Decrease in relatedparty debt(257)(11)   Decrease in debtcertificates under Company leases529 -    Other, net      (1)      37      (64)   (164)   Increase (decrease) in cash andcash equivalents      57   (943)   Cash and cash equivalents at endof period,     excluding restrictedcash$1,561$   525   Cash paid during the period for:     Interest (net ofamounts capitalized)$  257 $   205    Non-cash transactions:     Long-term debt incurredin connection       with additions to equipment and other assets$    639$  237    Net unrealized gain(loss) on investments$   (16)$  105    Increase in pensionintangible$   608 $      - 
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
The Company
         United Air Lines, Inc.("United" or the "Company") is a wholly owned subsidiary of UAL Corporation("UAL").
Interim Financial Statements
         The consolidated financialstatements included herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain informationand footnote disclosures normally included in financial statements preparedin accordance with generally accepted accounting principles have been condensedor omitted pursuant to or as permitted by such rules and regulations, althoughUnited believes that the disclosures are adequate to make the informationpresented not misleading.  In management's opinion, all adjustments(which include only normal recurring adjustments) necessary for a fairpresentation of the results of operations for the three- and six-monthperiods have been made.  Certain prior-year financial statement itemshave been reclassified to conform to the current year's presentation. These financial statements should be read in conjunction with the consolidatedfinancial statements and footnotes thereto included in United's AnnualReport on Form 10-K for the year 2001.
Accounting Changes
         Effective January 1,2001, United adopted Statement of Financial Accounting Standards No. 133,"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.133"), as amended.  The adoption of SFAS No. 133 resulted in a cumulativecredit of $3 million, net of tax, to first quarter 2001 earnings.
        Effective January 1, 2002, United adopted Statement of Financial AccountingStandards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). In connection with the adoption, United has discontinued $12 million inannual amortization expense on route acquisition costs, which are indefinite-livedintangible assets.  SFAS No. 142 also requires companies to test intangiblesfor impairment on an annual basis.  During the first quarter, theCompany performed an initial evaluation of its intangibles and determinedthat the fair value of its intangibles was in excess of the book value.
        The following information relates to United's intangibles at June 30, 2002: (Inmillions)GrossCarryingAccumulated AmountAmortizationAmortizedintangible assets     Airport Slots and Gates$ 184$ 165   Other     29        7 $ 213$  172   Unamortizedintangible assets     Routes$ 344 
        Slots and gates are being amortized on a straight-line basis over the lifeof the related leases.  Other intangibles are being amortized overperiods of 3 to 10 years.  Total amortization expense recognized inthe first six months of 2002 was $5 million.  The Company expectsto record amortization expense of $7 million for the full year 2002 and$4 million in 2003, 2004, 2005 and 2006.
        Pro forma results for the three and six months ended June 30, 2001, assumingthe discontinuation of amortization are shown below:  ThreeMonthsSixMonths(Inmillions)EndedEndedLossbefore cumulative effect of accounting   change, as reported$ (294)$ (618) Amortization of routes, net of tax       2       4Lossbefore cumulative effect of accounting     change, pro forma$ (292)$ (614)   Netloss, as reported$ (294)$ (615)  Amortization of routes, net of tax       2       4Netloss, pro forma$ (292)$ (611)
         Effective January 1,2002, the Company adopted Statement of Financial Accounting Standards No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFASNo. 144"), which addresses the accounting and reporting for the impairmentor disposal of long-lived assets.  SFAS No. 144 did not have an effecton the Company's results of operations.
Income Taxes
         The provisions forincome taxes are based on the estimated annual effective tax rate, whichdiffers from the federal statutory rate of 35% principally due to stateincome taxes and certain nondeductible items.
         On March 9, 2002, thePresident signed an economic stimulus package which contained a provisionchanging the allowable carry-back period for net operating losses fromtwo years to five years.  This change enabled the Company to carryback its 2001 loss and recover taxes paid during the 1996 to 2000 period. As a result, United received an additional tax refund of approximately$460 million during the first quarter of 2002.
         The Company has determined,based on its history of operating earnings and expectations of future taxableincome, that it is more likely than not that the deferred tax assets atJune 30, 2002 will be realized.
Long-Term Debt
         During the first quarterof 2002, the Company refinanced approximately $525 million in interim financingthrough a $775 million private debt financing which refinanced certainaircraft.  During the second quarter of 2002, the Company refinancedapproximately $314 million in interim financing to long-term.
Segment Information
         United has a globalroute network designed to transport passengers and cargo between destinationsin North America, the Pacific, the Atlantic and Latin America.  Theseregions constitute United's four reportable segments.
         In accordance withDepartment of Transportation guidelines, the Company allocates passengerand cargo revenues for the North America segment based on the actual flownrevenue for flights with an origin and destination in the U.S.  Passengerand cargo revenue for international segments is based on the actual flownrevenue for flights with an origin or destination in that segment. Other revenues that are not directly associated with a flight (such asRed Carpet Club membership fees) are allocated based on available seatmiles flown in that segment.
         A reconciliation ofthe total amounts reported by reportable segments to the applicable amountsin the financial statements follows: (In Millions)Three Months Ended June 30, 2002     Reportable   North  LatinSegment Consolidated AmericaPacificAtlanticAmericaTotalOtherTotalRevenue$ 2,419 $  647 $ 518 $ 122 $ 3,706 $     - $  3,706 Earnings (loss) before         income taxes and         gains on sales$  (426)$(124)$ (57)$ (41)$  (648)$     - $  (648)(In Millions)Three Months Ended June 30, 2001     Reportable   North  LatinSegment Consolidated AmericaPacificAtlanticAmericaTotalOtherTotalRevenue$ 3,083 $ 748 $  627 $  190 $ 4,648 $     - $ 4,648 Earnings (loss) before         income taxes$  (238)$(121)$  (65)$  (27)$  (451)$     - $  (451)(In Millions)Six Months Ended June 30, 2002     Reportable   North  LatinSegment Consolidated AmericaPacificAtlanticAmericaTotalOtherTotalRevenue$ 4,550 $ 1,195 $  901 $  256$ 6,902 $   - $  6,902 Earnings (loss) before         income taxes and gains         on sales$  (937) $  (270) $(174) $ (91) $  (1,472) $   - $(1,472) (In Millions)Six Months Ended June 30, 2001     Reportable   North  LatinSegment Consolidated AmericaPacificAtlanticAmericaTotalOtherTotalRevenue$ 6,035 $ 1,492 $ 1,141 $ 398 $ 9,066 $   - $  9,066 Earnings (loss) before         income taxes $  (558) $  (239) $  (137) $ (39) $  (973) $   - $   (973)    ThreeMonthsSixMonths EndedJune 30EndedJune 30(InMillions)2002200120022001Totalloss for reportable segments$ (648)$ (451)$(1,472)$  (973) Airline stabilization grant80 - 80 -  Gain on sale       -       -      46        -Totalloss before income taxes and      cumulative effect of accounting change$ (568)$ (451)$(1,346)$  (973)
Other Comprehensive Income
         Total comprehensiveincome (loss) for the three- and six-month periods ending June 30, 2002was $(438) million and $(934) million, respectively, compared to $(207)million and $(509) million for the three- and six-month periods endingJune 30, 2001, respectively.
         Other comprehensiveincome for the second quarter consisted of a minimum pension liabilityadjustment of $(57) million and net unrealized losses of $(18) millionin 2002, compared to net unrealized gains of $87 million in 2001. Additionally, other comprehensive income for the six months ended June30, 2002 consisted of the minimum pension liability adjustment of $(57)million and net unrealized losses of $(17) million, compared to net unrealizedgains of $106 million for the six months ended June 30, 2001.
United Express
        United has marketing agreements under which independent regional carriers,flying under the United Express name, feed passengers to United owned andoperated flights.  United pays these carriers on a fee-per-departurebasis and includes the revenues derived from the carriers in passengerrevenue, net of these expenses.  Amounts included in passenger revenuesfor the three and six month periods is as follows:  Netrevenues (net expenses)                    (in millions)ThreeMonthsSix Months EndedJune 30EndedJune 30 2002200120022001                   United Express revenues (net of expenses)$(44)$(29)$(121)$(86)
        While the direct effect on United's results is negative, the Company realizesa significant benefit (not included in the results shown above) as a resultof these agreements from the traffic provided to United's operations.
        In addition, United has call options on 53 regional jets owned or leasedby these carriers.  The call option is a standard part of the UnitedExpress agreement and is intended to allow United to secure control overregional jets used for United Express flying in the event one of the UnitedExpress agreements is terminated.  Due to the significant time lagbetween order and delivery of aircraft (such as regional jets made to United'sspecifications), the call option reduces this risk if the Company determinesthat a change of United Express carrier is necessary.
        The call options are only exercisable if United maintains a specified creditrating and the United Express carrier fails to meet required operatingand/or financial performance levels for a specified period of time. Due to United's current credit rating, none of the call options are exercisableat this time.
Retirement Plans
         As a result of newlabor contracts for the International Association of Machinists and AerospaceWorkers ("IAM") and policy changes to salaried and management employeebenefits, United revalued its pension and postretirement obligations forcertain employee groups during the second quarter.  Most of the assumptionsused for the revaluation of the plans were unchanged from December 31,2001.  As of June 30, 2002, the projected benefit obligation and thefair value of plan assets for all pension plans are $10.9 billion and $7.5billion, respectively.  The projected benefit obligation and the fairvalue of plan assets for all postretirement plans are $2.9 billion and$119 million, respectively.  In addition, as a direct result of therevaluation of the pension plans, stockholder's equity at June 30, 2002was reduced by $57 million.  Due to the current underfunded statusof the pension plans, a significant decrease in our plan assets or thediscount rate could have a material impact on stockholder's equity at year-end. These changes to the pension and postretirement plans resulted in approximately$30 million in additional expense in the second quarter of 2002 or $175million on an annualized basis.
Special Charges Related to the September 11 Terrorist Attacks
         At December 31, 2001,United had accruals of $87 million related to the reduction in force and$171 million related to early termination fees.  During the firstand second quarters of 2002, the Company made payments of $34 million and$5 million, respectively, for severance and related fringe benefits todisplaced employees.  As passenger demand rebounded faster than anticipatedin the first quarter of 2002, the Company increased its scheduled flyingbeyond planned levels in April 2002 and again in June 2002.  As aresult, the Company now expects that fewer front-line employees will bepermanently displaced, and thus has reversed $25 million of accrued severanceand related costs in the first quarter 2002 and $19 million in the secondquarter.  In addition, the Company paid $11 million and $34 million,respectively, in early termination fees during the first and second quarters,respectively.  Accordingly, accruals remaining at June 30, 2002 were$126 million for early termination fees and $4 million for the reductionin force.
        Through June 30, 2002, the Company had received approximately $58 millionrelated to insurance recoveries on aircraft destroyed by the September11 attacks and approximately $5 million related to other covered expenses.
        The Company anticipates that its liability from claims arising from theevents of September 11, 2001 will be significant, after considering theliability protections provided for by the Act; however, the Company expectsthat any amounts paid on such claims will be borne by its insurance carriersas claims are resolved and, in any event, the Company believes that, underthe Act, its liability will be limited to its insurance coverage.
        The Company has not incurred any material environmental obligations relatingto September 11.
ULS Transaction
            UALLoyalty Services ("ULS"), a wholly owned subsidiary of UAL, had been United'sagent to market and sell Mileage Plus miles to non-airline business partners. In the first quarter of 2002, UAL made changes to its corporate structurewhich resulted in substantially all of UAL's customer loyalty and marketingprograms (which were previously the responsibility of United) becomingowned and operated by ULS.  These changes were designed to increasethe overall value of UAL's loyalty businesses by focusing management attentionon these activities and enhancing the range of products and services offeredto Mileage Plus members and business partners.
            First,Mileage Plus, Inc. ("MPI") dividended certain assets related to the MileagePlus business to its parent company, Mileage Plus Holdings, Inc. ("MPH"),which was then a wholly owned subsidiary of United.  Immediately thereafter,MPH dividended to United all of the stock of MPI.  United then soldall of the stock of MPH to ULS in consideration for a $900 million unsecuredpromissory note (payable over 12 years and bearing interest at a rate of7% per annum), plus the assumption of the outstanding liability for milespreviously sold to non-airline third parties (approximately $500 million). The purchase price was based on the estimated fair value of MPH, as determinedby the present value of the net future cash flows of the entity.
           Simultaneously with the above transactions, United also dividended certainassets associated with direct-to-consumer marketing and service businesses. These included certain united.com related assets, certain United Vacationsand Mileage Plus related assets, and the assets relating to Silver Wings,Cruise4Miles and Sky Mall services.  UAL then made a capital contributionof these same assets to ULS.
           Mileage Plus participation agreements with other airlines and the customerservice call centers supporting Mileage Plus members were not includedin these transactions.  These assets will remain part of MPI and therefore,of United.
           Due to the related party nature of these transactions, no gain or losswas recorded at United, UAL or ULS.  Any differences between the purchaseprice and the book value of the assets was adjusted through equity. As a result of these transactions, United's equity increased approximately$1.4 billion.
           Also as a result of these transactions, ULS became responsible for thesale of non-airline miles and retains the gross proceeds (and associatedliability) for the sale of those miles.  United, through MPI, retainsthe right to sell and the associated liability of the miles awarded fortravel on United or any of its airline partners.  As Mileage Plusmembers use miles earned through means other than air travel to redeema travel award on United, ULS will be obligated to compensate United forthe value of this award travel.  Likewise, United will be obligatedto pay ULS for miles earned through air travel as they are redeemed forany non-air travel award.  The price of a mile sold between the twoentities as a result of these arrangements is expected to be contractuallymandated and fixed.  The initial allocation of the total mileage liabilityand the percentage of miles deemed to be earned through other than airtravel are also expected to be contractually fixed and will be based onspecified market factors.  Terms of these contracts may change basedupon market conditions.
           It is the intention of both United and ULS that these transactions andthe allocation of miles be transparent to Mileage Plus members and partners. While United's passenger and other revenue will be significantly impactedfrom these transactions, the interest and principal repayments on the promissorynote, as well as the anticipated growth in the number and value of United'scustomers and business partners as a result of these relationships, areintended to compensate United for this reduction in revenue.
         In the second quarterof 2002, United recognized $73 million in revenues and $16 million in interestincome from ULS.  In the first six months of 2002, United recognized$160 million in revenues and $32 million in interest income from ULS.
Contingencies and Commitments
         United has certaincontingencies resulting from litigation and claims (including environmentalissues) incident to the ordinary course of business.  Management believes,after considering a number of factors, including (but not limited to) theviews of legal counsel, the nature of contingencies to which United issubject and its prior experience, that the ultimate disposition of thesecontingencies is not expected to materially affect United's consolidatedfinancial position or results of operations.
         At June 30, 2002, commitmentsfor the purchase of property and equipment, principally aircraft, approximated$2.0 billion, after deducting advance payments of $200 million.  Anestimated $0.4 billion will be spent during the remainder of 2002, $0.1billion in 2003, $0.5 billion in 2004 and $1.0 billion in 2005 and thereafter. The major commitments, which include price escalations, are for the purchaseof A319, A320 and B777 aircraft, which are scheduled to be delivered through2007. 
Item 2.  Management's Discussion and Analysis of FinancialCondition and Results of Operations
RESULTS OF OPERATIONS
Summary of Results
         The airline businessis subject to seasonal fluctuations.  United's operations are oftenadversely impacted by winter weather and United's first- and fourth-quarterresults normally reflect reduced travel demand.
         Additionally, beginningin 2001, the weakening U.S. economy had a significant impact on the airlineindustry as corporations reduced their business travel budgets and changedtheir travel behavior.  During the first six months of 2001, the industrybegan experiencing significant revenue declines as a result of the decreasein business traffic, which impacted both unit revenues and yields, particularlyin the domestic markets.  Historically,there has been a strong correlation between airline revenues and corporateprofitability.  As corporate profitability dropped during this period,companies reduced spending on travel.  Since approximately 65% to75% of United's domestic revenues are derived from business travelers,United was disproportionately affected by this decline.
        Subsequent to September 11, United's revenues, yield, revenue passengermiles and available seat miles were significantly impacted by the eventsof September 11 and the resulting reduction in the Company's operations.The Company continues to suffer from the weakened revenue environmentresulting from the events of September 11 and a slowing U.S. economy. While year-over-year unit revenues had been improving each month in 2002from a 14% decline in January to a 4% decline in May, June unit revenueperformance was actually slightly worse than in May.
         In the first quarterof 2002, United and UAL completed a series of transactions which effectivelytransferred the responsibility for all of UAL's customer loyalty and marketingprograms from United to UAL Loyalty Services ("ULS"), a wholly owned subsidiaryof UAL.  (See "ULS Transaction" in the Notes to Consolidated FinancialStatements.)  The net effect of these transactions was to reduceUnited's revenue by approximately $95 million in the second quarter 2002and $164 for the first six months.  These transactions are expectedto reduce United's revenue by $359 million for the full year 2002.
         United's loss fromoperations was $(536) million in the second quarter of 2002, compared to$(356) million in the second quarter of 2001.  United's net loss was$(363) million, compared to $(294) million in the same period of 2001.
         In the first six monthsof 2002, United's loss from operations was $(1.2) billion, compared to$(784) million in the first six months of 2001.  United's net losswas $(860) million, compared to $(618) million before the cumulative effectof an accounting change in the same period of 2001.
         The 2002 loss for thequarter and six months includes $51 million, net of tax, in non-operatingincome received as compensation under the Air Transportation Safety andSystem Stabilization Act.  In addition, the loss for the first sixmonths includes a gain of $29 million, net of tax, on the sale of the Company'sremaining investment in Cendant Corporation.
         Specific factors affectingUnited's consolidated operations for the second quarter and first six monthsof 2002 are described below.
Second Quarter 2002 Compared with Second Quarter 2001
         Operating revenuesdecreased $942 million (20%) and United's revenue per available seat mile(unit revenue) decreased 5% to 9.89 cents.  Passenger revenues decreased$838 million (21%) due to a 15% decrease in revenue passenger miles anda 7% decrease in yield to 11.36 cents.  United's available seat milesacross the system were down 16% over the second quarter of 2001; however,passenger load factor increased 1.2 points to 74.4%.  The followinganalysis by market is based on information reported to the U.S. Departmentof Transportation:  Increase (Decrease) Available SeatRevenue Passenger MilesRevenue Per Revenue Miles (Capacity)(Traffic)Passenger Mile (Yield)Domestic(13%)(13%)(10%)Pacific(21%)(12%)  (3%)Atlantic(23%)(21%)   3%Latin America(22%)(30%)(10%)  System(16%)(15%)  (7%)
         Cargo revenues decreased$30 million (15%) due primarily to a 14% decrease in cargo ton miles anda slight decrease in yield.  Other operating revenues decreased $74million (17%) due primarily to a $46 million decrease in fuel sales tothird parties.
         Operating expensesdecreased $762 million (15%) and United's cost per available seat mile(unit cost) increased 1%, from 11.20 cents to 11.32 cents.  Salariesand related costs decreased $97 million (5%) primarily due to the reductionin force implemented after September 11, partially offset by the increaseto pension and postretirement expense as a result of the revaluation ofthe plans and contractual salary increases for pilots, flight attendants,mechanics and public contact employees.  Aircraft fuel decreased $226million (33%) due to a 20% decrease in consumption and a 15% decrease inthe average cost of fuel from 88.2 cents to 74.7 cents a gallon. Commissions decreased $150 million (59%) as a result of a decrease in commissionablerevenues.  In addition, on March 20, 2002, United discontinued payingbase commissions on all tickets issued in the U.S. and Canada.  Purchasedservices decreased $105 million (23%) primarily as a result of volume-drivendecreases in GDS (global distribution systems) and credit card discountfees.  Cost of sales decreased $52 million (15%) primarily due tothe decreases in costs associated with fuel sales to third parties. Aircraft maintenance decreased $49 million (25%) due to retirements ofolder aircraft and a decrease in engine and aircraft repair volumes asa result of reduced flying.  Other operating expenses decreased $54million (12%) due to decreases in crew layover expenses and volume-drivenfood and beverage costs, offset by increased insurance costs for hull andliability.
         Other non-operatingexpense amounted to $112 million in the second quarter of 2002 excludingthe airline stabilization grant money, compared to $95 million in the secondquarter of 2001.  Interest expense increased $20 million (16%) dueto new debt issuances.  Interest capitalized decreased $15 million(68%) primarily as a result of lower advance payments on the acquisitionof aircraft.  Interest income increased $7 million (29%) due primarilyto interest earned from ULS in 2002.
Six Months 2002 Compared to Six Months 2001
         Operating revenuesdecreased $2.2 billion (24%) and United's revenue per available seat mile(unit revenue) decreased 8% to 9.63 cents.  Passenger revenues decreased$1.9 billion (24%) due to a 14% decrease in revenue passenger miles andan 11% decrease in yield to 11.24 cents.  United's available seatmiles across the system were down 17% over the first six months of 2001;however, passenger load factor increased 2.6 points to 73.4%.  Thefollowing analysis by market is based on information reported to the U.S.Department of Transportation:  Increase (Decrease) Available SeatRevenue Passenger MilesRevenue Per Revenue Miles (Capacity)(Traffic)Passenger Mile (Yield)Domestic(15%)(14%)(13%)Pacific(23%)(12%)  (9%)Atlantic(20%)(17%)  (5%)Latin America(19%)(26%)(16%)  System(17%)(14%)(11%)
         Cargo revenues decreased$80 million (21%) due primarily to an 18% decrease in cargo ton miles anda 4% decrease in yield.  Other operating revenues decreased $192 million(23%) primarily due to an $85 million decrease in fuel sales to third partiesand the transfer of revenues from the sale of Mileage Plus miles to ULS.
         Operating expensesdecreased $1.7 billion (17%) and United's cost per available seat mile(unit cost) increased slightly to 11.36 cents.  Salaries and relatedcosts decreased $374 million (10%) primarily due to the reduction in forceimplemented after September 11, partially offset by the increase in pensionand postretirement expense due to the revaluation of the plans and contractualsalary increases for pilots, flight attendants, mechanics and public contactemployees.  Aircraft fuel decreased $493 million (36%) due to a 22%decrease in consumption and a 19% decrease in the average price of fuelfrom 89.6 cents to 72.8 cents a gallon.  Commissions decreased $249million (51%) as a result of a decrease in commissionable revenues, aswell as the result of United discontinuing paying base commissions on alltickets issued in the U.S. and Canada, effective March 20, 2002. Purchased services decreased $208 million (23%) primarily as a result ofvolume-driven decreases in GDS (global distribution systems) and creditcard discount fees.  Cost of sales decreased $89 million (14%) primarilydue to the decreases in costs associated with fuel sales to third parties. Aircraft maintenance decreased $103 million (26%) due to retirements ofolder aircraft and a decrease in engine and aircraft repair volumes asa result of reduced flying.  Other operating expenses decreased $156million (18%) due to decreases in crew layover expenses and volume-drivenfood and beverage costs, offset by increased insurance costs for hull andliability.
         Other non-operatingexpense amounted to $229 million in the first six months of 2002 excludingthe airline stabilization grant money and the gain on the sale of Cendantshares, compared to $189 million in the same period of 2001.  Interestexpense increased $34 million (13%) due to new debt issuances.  Interestcapitalized decreased $28 million (62%) primarily as a result of loweradvance payments on the acquisition of aircraft.  Interest incomeincreased $7 million (12%) due primarily to interest earned from ULS in2002.
LIQUIDITY AND CAPITAL RESOURCES
         United's total of cash,cash equivalents and short-term investments, including restricted cash,was $2.3 billion at June 30, 2002, compared to $2.4 billion at December31, 2001.  Cash flows used in operations amounted to $67 million,including the receipt of $80 million in government grant money.
         Additionally, the Companyanticipates significant cash needs for the remainder of 2002, includingapproximately $200 million in non-aircraft capital spending, a $70 millionretro payment under the new contract for the International Associationof Machinists and Aerospace Workers ("IAM") in December and nearly $900million in debt maturities in the fourth quarter.
         Given the Company'ssubstantial capital spending and debt repayment requirements for the remainderof 2002, the Company has been actively pursuing financing alternatives. However, since September 11, United has not been able to access the publiccapital markets and has had limited access to private capital markets. Therefore, in June 2002, the Company filed for federal loan guaranteeswith the Air Transportation Stabilization Board ("ATSB"), requesting aloan of $2.0 billion, with $1.8 billion guaranteed by the ATSB.  See"ATSB Loan Application" below for further details.
          In the absenceof federal loan guarantees, the Company has insufficient access to thecapital markets to refinance the debt due in the fourth quarter. While United's current cash reserves are sufficient to repay these obligations,the cash reserves then remaining could be insufficient to support the Company'songoing obligations if it continues to generate negative cash flow fromoperations.  In the absence of federal loan guarantees, and the costreductions necessary to achieve them, there is no assurance that the Companywill be able to raise sufficient liquidity to support its obligations throughthe end of 2002.*  Therefore, the Company is revising its businessplan and intensifying its recovery efforts to ensure that United achievesthe cost savings it needs to compete in an industry that has fundamentallychanged.  (See "Financial Recovery Plan.")
         Subsequent to June30, 2002, the Company received approximately $113 million in cash whichhad been held in trust under a services agreement with Galileo International(now Cendant Corporation).
         As of June 30, 2002,the Company has applied for, and still anticipates receiving an additional$38 million in compensationunder the Air Transportation Safety and System Stabilization Act (the "Act").* However, given the requirements of the Act, receipt of this amount remainsuncertain and therefore the Company did not accrue any additional compensationunder the Act at June 30.
         Financing activitiesduring the first six months of 2002 included principal payments under debtand capital lease obligations of $980 million and $139 million, respectively. During the first quarter of 2002, United closed on a $775 million privatedebt financing which refinanced certain aircraft and raised approximately$250 million in additional cash.  During the second quarter of 2002,United arranged long-term financing for approximately $314 million in debtthat had been placed in interim financing facilities.  Also duringthe second quarter, United repaid $133 million in receivables-backed short-termborrowings when the banks supporting the borrowing program declined torenew it.
         In June 2002, Unitedrepaid $34 million to the Indianapolis Airport Authority, the city of Indianapolisand state of Indiana for failure to reach its capital targets in connectionwith the construction of the Indianapolis Maintenance Center.
         Property additions,including aircraft and aircraft spare parts, amounted to $700 million,including $639 million of vendor-financed purchases.  In the firstsix months of 2002, United took delivery of six A319, eight A320 and fourB777 aircraft.  All of these aircraft were purchased.  In addition,United acquired one B757 and six B737 aircraft off lease during the period.
         During the first sixmonths of 2002, United received over $600 million in income tax refunds,part of which was a result of changes in the tax laws as discussed in "IncomeTaxes" in the Notes to Consolidated Financial Statements. In addition, United paid $290 million in federal transportation taxes thathad been deferred under the Act after the September 11 terrorist attacks. The Company also received $137 million in proceeds from the sale of itsremaining investment in Cendant Corporation and $80 million in compensationunder the Act.
         Certain of United'ssurety bonds for workers' compensation have been cancelled in various stateswhere United is self-insured.  As a result, United has been and may,in the future, be required to post collateral in the form of cash depositsor letters of credit.*  Included in cash and cash equivalents at June30, 2002, is $263 million in restricted cash, which primarily consistsof deposits posted for various states where United is self-insured forworkers' compensation claims.
         Additionally, Unitedhas a $150 million secured letter of credit facility primarily supportingworkers' compensation claims.  Letters of credit under the facilitybegin expiring in August 2002, with the last letters of credit expiringin December 2002.  The issuer has indicated that it will not renewthe facility.  As a result, United may be required to post collateralin the form of cash deposits.*
         In conjunction withthe ratification of the contracts for the IAM, the Company has posted collateralconsisting of certain real estate, flight simulators, ground equipmentand spare part assets to support the payment of approximately $540 millionin retroactive wages due under the contracts in eight quarterly installmentscommencing December 2002.
         As of June 30, 2002,the Company has unencumbered aircraft and spare engines valued at approximately$3.4 billion.
         In June 2002, Standard& Poor's ("S&P") downgraded its credit ratings on United's seniorunsecured debt from B- to CCC+.  Moody's Investors Service Inc.'sratings on United's senior unsecured debt remains Caa1.  Downgradesof the Company's credit ratings during 2002 have resulted in an increaseof $2 million in interest expense for the year 2002.  Any additionalreductions in United's credit ratings could result in increased borrowingcosts to the Company and might further limit the availability of futurefinancing.
         As of June 30, 2002,United had a working capital deficit of $2.0 billion as compared to $2.2billion at March 31, 2002.  The March 31 working capital deficit hasbeen adjusted for $243 million of debt previously misclassified as currentmaturities rather than long-term debt.  Historically, United has reliedon working capital to fund a significant portion of its operations andhas operated with a working capital deficit.
         At June 30, 2002, commitmentsfor the purchase of property and equipment, principally aircraft, approximated$2.0 billion, after deducting advance payments.  Of this amount, anestimated $0.4 billion is expected to be spent during the remainder of2002.  For further details, see "Contingencies and Commitments" inthe Notes to Consolidated Financial Statements.
OTHER INFORMATION
ATSB Loan Application
         As part of the AirTransportation Safety and System Stabilization Act of 2001 (the "Act")enacted in response to the events of September 11, 2001, the federal governmentmade $5.0 billion in federal grants and $10.0 billion in loan guaranteesavailable to the airline industry.  Through June 30, 2002, the Companyhas received a total of $732 million in grants under the Act.  InJune 2002, the Company submitted an application to the ATSB requestingapproval of a guarantee of 90% ($1.8 billion) of a $2.0 billion loan. If approved and funded, the loan would help alleviate the liquidity pressurethe Company faces.*
         Under the terms ofthe Act, the ATSB may guarantee loans if the ATSB determines, in its discretion,that:  (1) the borrower is an air carrier for which credit is notreasonably available at the time of the transaction; (2) the intended obligationis prudently incurred; and (3) the guarantee is a necessary part of maintaininga safe, efficient and viable commercial aviation system in the U.S. The Act also requires the ATSB to ensure that the government is compensatedfor the risk assumed in making the guarantees.  Additional requirementsand factors for consideration by the ATSB in evaluating any loan guaranteeapplication, set forth in regulations issued by the Office of Managementand Budget pursuant to the Act, include:  (1) that the air carrierhas incurred losses as a result of the events of September 11, 2001, includinglosses due to the unavailability of credit or the decrease in demand forservices; (2) reasonable assurance that the air carrier will be able torepay the loan according to its terms; and (3) the adequacy of provisionsto protect the government, including the sufficiency of security for theloan and the percentage of guarantee requested.
         United believes thatit is an ideal candidate for federal loan guarantees under the terms ofthe Act and the related regulations.  United's application explainsthat the Company was significantly impacted financially by the events ofSeptember 11, has significant cash needs for the remainder of 2002 andhas had limited access to and continues to be unable to reasonably accessthe capital markets in sufficient amounts.  The Company's applicationproposes an annual guarantee fee payable to the government and substantialcollateral (including aircraft, spare engines, route authorities and slots)that will be available if United does not meet its obligations under theloan and guarantee.
        It is within the discretion of the ATSB to decide whether to issue a guaranteein the amount and on the terms requested or at all.  In evaluatingthe application, the ATSB may also consider whether an equity stake forthe federal government in UAL is required and the extent of relief providedby the Company's stakeholders that would improve United's financial position. Although United has obtained relief from some employee groups and variousother stakeholders, the reductions (as a percentage of total costs) achievedto date are significantly below those announced by US Airways Group, Inc.("US Airways") as part of the conditional approval of its loan guaranteefrom the ATSB.
        Therefore, after meetings with the staff of the ATSB, the Company has decidedto prepare an updated business plan for submission to the ATSB.  Theupdated plan will include assumptions based on achieving broader, deeperand longer-term cost savings from the Company's various stakeholders. The process to develop this updated business plan is described more fullybelow in "Financial Recovery Plan."  The Company believes the updatedplan will reflect significant improvements to United's cost structure andit is expected to further strengthen the case for approval of the Company'sapplication.  However, United may not be able to reach appropriateagreements with all of its stakeholders as to the steps necessary to implementsuch a business plan.  In addition, there can be no assurance, evenif it does reach such agreements, that the Company will be able to getATSB approval for loan guarantees.*
Financial Recovery Plan
         In the aftermath ofSeptember 11, and its dramatic impact on the airline industry, the Companydeveloped a four-plank financial recovery plan to get the airline backon the road to financial stability:Reducing the size of the airline and cutting both capital and operatingspending;
Generating as much revenue as possible from each flight;
Working with employee groups to find further labor and other savings; and
Implementing a financing plan to support the Company through these turbulenttimes.

       The Company has realized progresson executing this plan, including the following since September 11:Reduced its schedule, furloughed employees, retired fleets and made dramaticcuts in capital spending;
Eliminated base commissions; and
Formulated a plan to increase network efficiency, reduce the cost of sales,better manage air traffic, focus on under-performance of certain distributionchannels and customer segments; realign premium customer products; andimprove processes and productivity.

         In June 2002, the Companyannounced that the Board of Directors had approved a plan by the MasterExecutive Council ("MEC") of the Air Line Pilots' Association International("ALPA") to participate in the Company's financial recovery plan and theterms of salaried and management employee participation in the plan asdescribed in "Labor Agreements" below.
         Although both the IAMand the Association of Flight Attendants ("AFA") have recently rejectedthe Company's initial proposals to participate in the financial recoveryplan, the Company continues to seek the full and equitable participationof all employee groups.
         The progress describedabove notwithstanding, the Company's cost structure remains unsustainablyhigh in the context of the current weak revenue environment in the airlineindustry.  To address this imbalance, the Company is intensifyingits recovery efforts which will involve changing its business plan to builda stronger and more cost-competitive airline.  As part of theseintensified efforts, the Company will present new cost-saving proposalsto employee representatives and other stakeholders in the near future. The Company has given itself 30 days to conclude these discussions.
        There can be no assurance that the Company will be successful in theseefforts to dramatically lower its costs, and the Company's cash needs forthe fourth quarter of 2002 are significant.  Accordingly, the Companyis simultaneously preparing for the potential of a Chapter 11 bankruptcyfiling this fall.*
Labor Agreements
         In connection withthe pilots' participation in UAL's financial recovery plan, UAL and ALPAhave agreed, subject to the contingencies described below, to amend thecurrent labor contract to provide for a reduction in pilot wage rates by10% on the date the pilots' participation becomes effective (the "EffectiveDate") and the cancellation of the remaining contractual increases duein 2003 and 2004.  In their place, pilots will receive increases of7%, 8% and 8.6% in each of the next three years on the anniversary of theEffective Date.  Additionally, pilots will be granted options to acquireUAL common stock corresponding to approximately 9.75% of the fully dilutedcommon equity of UAL or 14.9 million shares (subject to anti-dilution provisions). The options will be exercisable for a period of 10 years from the dateof grant and will vest in three equal annual installments beginning onthe Effective Date.  The terms of the current ALPA labor contractwill be extended for twelve months to 2005.  The reduction in pilotwages is expected to save the Company approximately $520 million over thenext three years.*
         In addition to thechanges in compensation, the ALPA contract includes an amendment that wouldallow the planned growth of usage of regional jets by United Express carriersto continue and amendments to the ESOP plans which would allow limiteddiversification of ESOP stock by participants in the ESOPs beginning July1, 2004.
         The contract is subjectto a ratification vote, which is expected to take place in September. The amendments to the ESOP plan also require approval by the IAM.
         ALPA participationin the financial recovery plan is contingent on the equitable and meaningfulparticipation of other employee groups, the Company's securing federallyguaranteed loans and a continuing focus on non-labor cost reduction andliquidity.
        The terms of the management and salaried employees' participation in theCompany's financial recovery plan include a 5% wage reduction as of theEffective Date and cancellation of the wage increase that was scheduledfor April 1, 2002, which will be replaced by performance-based increasesin 2003 and beyond.  Management and salaried employees will also begranted options to acquire UAL common stock corresponding to approximately8.1% of the fully diluted common equity of UAL or 12.3 million shares (subjectto anti-dilution provisions).  The impact of the wage reductions formanagement and salaried employees is expected to be approximately $430million over the next three years.*
        The participation of the salaried and management employees in the financialrecovery plan is subject to participation by ALPA in the plan.
        On July 12, 2000, the Company's contracts with the IAM became amendable. On February 18, 2002, the Company and IAM District 141M (representing mechanics)reached a tentative agreement on a new contract and on March 5, the IAMratified the tentative agreement.  On April 25, 2002, the Companyand IAM District 141 (representing public contact, ramp and stores, foodservices and security employees) reached a tentative agreement on a newcontract and on May 11, the IAM ratified the tentative agreement. The mechanics' contract will become amendable in July 2005.  The otherIAM agreements will become amendable in November 2004.
        The Company's contract with the AFA, which becomes amendable in 2006, providesfor a compensation conference each year from 2001 through 2005.  Pursuantto the contract, the Company and the AFA began compensation conferencenegotiations in April 2002 and in May, an arbitration panel determinedthat United's flight attendants were due a 5.49% increase to base pay,retroactive to April 1.
Strategic Plan
         During the 1990's Unitedinvested significant funds to acquire new-generation aircraft, to developand deliver premium products and to create a global route network in orderto attract and retain the loyalty of high-yield business travelers. As a result, United achieved a unit revenue premium to its competitors. However, the financial impact of these investments, coupled with the Company'sindustry-leading compensation programs for employees, has resulted in acost structure for United that is significantly higher than that of itscompetitors.
         This strategy has enabledUnited to achieve profitable results throughout much of the economic cycle. However, in periods of economic slowdown, the Company's profitability suffersdisproportionately compared to its competitors.  For example, between1999 and 2001, United's unit cost increased by 25%, and its unit revenuedeclined by 4%, compared to U.S. industry averages (excluding United) ofa 14% increase and no change, respectively.  Consequently, the Company'soperating margins (excluding special charges) declined by 23 percentagepoints, from an operating profit margin of 8% in 1999 to a negative operatingmargin of 15% in 2001.
         Beyond the cost andrevenue improvements contained in the Financial Recovery Plan, UAL is developinga strategic plan to address these longer-term challenges.  The planredirects United's core and historic strengths and is designed to lowercosts, enhance revenue (both by increasing United's market share as wellas raising yields) and improve the productivity of all of the Company'sassets.  Through the plan, the Company will focus on six key areas:Increasing the efficiency of the network through actions such as code shares,alliances and regional jets;
Reducing the cost of sales, such as credit card fees, GDS fees and travelagent costs;
Seizing opportunities to improve the management of air traffic and irregularoperations; for example, deploying a system that would allow simultaneousapproach in San Francisco, thus increasing the arrival rate by six airplanesper hour;
Focusing on areas of under-performance by distribution channel and by customersegment;
Realigning premium product offerings to ensure they are cost effective,and in some cases, such as Red Carpet Clubs, ensuring they are profitableon their own; and
Improving processes and productivity, particularly in airports and maintenance,by utilizing more advanced technology.

         The Company expects torealize significant benefit as the strategic plan is developed and implemented;however, the exact amount of these benefits has not yet been determined.*
US Airways Code Share
         As part of its strategicplan, on July 24, 2002, the Company announced a code share agreement withUS Airways.  The agreement, which is expected to generate more than$200 million in annual revenue for United, would allow both carriers tomarket service on each other's network, providing significant consumerbenefits and bringing new revenue and customers to their route networks.* As part of the agreement, customers will be able to earn and redeem mileson each carriers' frequent flyer program.  The agreement was approvedby the MECs of each airline's pilots' union.  United and US Airwayshave also notified the DOT of the agreement.  While US Airways hasfiled for Chapter 11 bankruptcy protection subsequent to the signing ofthis agreement, the Company understands that US Airways has sought andobtained an order from the bankruptcy court authorizing it to assume thecode sharing agreement.
Insurance
       United's war risk liability insurance for losses resulting from war perils(terrorism, sabotage, hijacking and other similar perils) was cancelledeffective September 26, 2001.  United obtained replacement coverage,although it is being charged significantly higher premiums for this replacementcoverage, and this new coverage is in a substantially reduced amount forclaims not involving aircraft passengers.  The FAA is providing excessliability coverage for third party war risk liability for losses to personsother than passengers up to two times the airline's limit of liabilityavailable prior to September 11, 2001 for renewable periods up to a yearat a time.  United's coverage under this FAA policy has been renewedthrough August 17, 2002, and is likely to be renewed further, subject tothe federal government's determination that such coverage is necessaryto the national interest.
       In addition, United maintains hull war risk insurance which is worldwide,excluding certain countries.  This coverage is for war and associatedperils, including hijacking and confiscation.  United experienceda significantly higher premium for reduced coverage due to the events ofSeptember 11.  This increase in insurance premiums is expected tobe in excess of $120 million for the full year 2002 as compared to 2001.
OUTLOOK FOR 2002
         Information regardingguidance for United's 2002 outlook can be obtained from UAL Corporation'sReport on Form 10-Q for the quarter ended June 30, 2002.
         Information includedin above "Outlook for 2002" section, as well as information identifiedwith an asterisk (*) is forward-looking and involves risks and uncertaintiesthat could result in actual results differing materially from expectedresults.  Forward-looking statements represent the Company's expectationsand beliefs concerning future events, based on information available tothe Company as of the date of this filing.  Some factors that couldsignificantly impact net earnings, revenues, expenses, unit costs and capacityinclude, without limitation, the economy and the demand for air travel;the ability to reduce operating costs and conserve financial resources,taking into account increased costs incurred as a consequence of the September11 terrorist attacks to the Company; the higher costs associated with newairline security directives and any other increased regulation of air carriers;the significantly higher costs of aircraft insurance coverage for futureclaims caused by acts of war, terrorism, sabotage, hijacking and othersimilar perils, and the extent to which such insurance will continue tobe available; the ability to raise and the cost of financing in light ofthe September 11 events and the possibility of any further credit downgradesof the Company; the cost of crude oil and jet fuel; the airline pricingenvironment; industry capacity decisions; competitors' route decisions;the satisfaction of the conditions to the pilots or management and salariedemployees' participation in the Company's financial recovery plan; thesuccess of the Company's cost-reduction efforts; the success of the Company'simplementation of its financial recovery plan; the outcome of the ATSBloan guarantee process; results of union contract negotiations and cost-reductiondiscussions and their impact on labor costs and operations; willingnessof customers to travel; the mix of business and leisure fare travel; actionsof the U.S., foreign and local governments; the stability of the U.S. economy;any additional terrorist activity and/or war; inflation; foreign currencyexchange rate fluctuations; the economic environment of the airline industryand the economic environment in general.
        Investors should not place undue reliance on the forward-looking informationcontained herein, which speaks only as of the date of this filing. United disclaims any intent or obligation to update or alter any of theforward-looking statements whether in response to new information, unforeseenevents, changed circumstances or otherwise. 
Item 3.  Quantitative and Qualitative Disclosures AboutMarket Risk
For information regarding the Company's exposure to certain market risks,see Item 7A. Quantitative and Qualitative Disclosures About Market Riskin United's Annual Report on Form 10-K for the year 2001.
Interest Rate Risk -(Inmillions, except average contract rates)NotionalAverageEstimated AmountContractRateFairValue   (Pay)/Receive*Interestrate swap$  1357.86%$ (24)
Foreign Currency Risk -(Inmillions, except average contract rates)NotionalAverageEstimated AmountContractRateFairValue   (Pay)/Receive*Forwardexchange contracts   Japanese Yen - Purchased forwards$    55122.05$      1                            - Sold forwards$    31120.15$      -     Euro - Purchased forwards$  202   1.28 $    (19)    Currencyoptions   Japanese Yen - Purchased put options$     89 136.54$    -Australian Dollar - Purchasedput options$     15     0.51$    -British Pound - Purchased putoptions$     56    1.36$    -Euro - Purchased put options$     84    0.85$    -Canadian Dollar - Purchased putoptions$     56    1.66$    -Correlation Basket Option - Sold$   299   N/A$    -
Price Risk (Aircraft fuel) -(Inmillions, except average contract rates)NotionalAverageEstimated AmountContractRateFairValue   (Pay)/Receive*Purchasedforward contracts - Crude oil$  134$ 23.91/bbl$  11Purchasedforward contracts - Heating oil$    75$ 27.79/bbl$    1
*Estimated fair values represent the amount United wouldpay/receive on June 30, 2002 to terminate the contracts.  
PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings.
Hall d.b.a. Travel Specialists v. United
         As previously reportedin our Form 10-K for the year ended December 31, 2001, the putativeclassaction suit current pending in the Federal District Court for the EasternDistrict of North Carolina (Case Number 7-00-cv-123-BR(1), originally filedin North Carolina State Court on October 27, 1999) alleges that Unitedand the other carrier-defendants conspired to fix travel agent commissionsin violation of the Sherman Act and seeks treble damages and injunctiverelief.   In January 2002, the court allowed the plaintiffs toamend their complaint adding a claim related to the 2001 reduction of domesticair travel commission caps.  In April 2002, the plaintiffs moved toamend their complaint to add a claim related to the 2002 reduction of basecommissions rates to 0%.  The court allowed the amendment in May 2002. Discovery is scheduled to close on November 13, 2002 and trial is scheduledto begin April 28, 2003.
Litigation Associated with September 11 Terrorism
         Seven lawsuits arepending against United, and various other defendants, in the U.S. DistrictCourt for the Southern District of New York related to the September 11,2002 terrorist attacks.  As previously reported in our Form 10-K forthe year ended December 31, 2001, one wrongful death lawsuit, EllenMariani v. United Air Lines, Inc., Case Number 01 CV 11628, filed December20, 2001, had been served on United in the U.S. District Court for theSouthern District of New York related to the September 11 terrorist attacks. In addition to Mariani v. United Air Lines, Inc., the followingfive wrongful death lawsuits naming United have been filed and served:Jane Doe v. United Air Lines, Inc., Case Number 02 CV 0458, filedJanuary 17, 2002; Jane Doe 1 & 2 v. United Air Lines, Inc., et al.,Case Number 02 CV 0456, filed January 17, 2002; James D. Miller andCatherine Stefani v. United Air Lines, Inc., et al., 02 CV 1728, filedMarch 5, 2002; and Julie Sweeney v. United Air Lines, Inc., etal., Case Number 02 CV 1727, filed March 5, 2002; Maria Koutny v.United Air Lines, Inc., et al., Case Number 02 CV 2802, filed April11, 2002.  The seventh lawsuit, WT Farmers Market, Inc., Adem Ariciand Omer Ipek v. United Air Lines, Inc., et al., Case Number 02 CV2987,filed April 18, 2002, is for property damage and lost business opportunity. The complaints in each instance seek monetary damages and allege that Unitedbreached its duty of care to the passengers or the businesses on the groundand that the breach caused the hijacking and subsequent deaths and propertydestruction.  United has answered the complaint in the Marianiv. United Air Lines, Inc. lawsuit, but the court has stayed discoveryin all of the pending suits until the completion of further proceedings.
         United anticipatesthe filing of other lawsuits related to the September 11 attacks in thefuture.  Under federal law, liability on all such claims will be limitedto the amount of United's insurance coverage. 
Item 6.  Exhibitsand Reports on Form 8-K.(a) Exhibits
A list of exhibits included as part of this Form 10-Q is set forthin an Exhibit Index that immediately precedes such exhibits.
(b) Form 8-K dated May 2, 2002 to report UAL Corporation's and UnitedAir Lines, Inc.'s change in accountants.
Form 8-K/A (Amendment No.1) dated June 3, 2002 to amend 8-K dated May 2, 2002 reporting UAL Corporation'sand United Air Lines, Inc.'s change in accountants.    SIGNATURESPursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized.      UNITEDAIR LINES, INC.By:  /s/ FredericF. Brace FredericF. Brace ExecutiveVice President and ChiefFinancial Officer (principalfinancial officer)     By:  /s/ M. Lynn Hughitt M. Lynn Hughitt Vice President and Controller (principal accounting officer) 
Dated:  August 14, 2002      Exhibit Index ExhibitNo.Description  12.1Computationof Ratio of Earnings to Fixed Charges     

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