****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        SECURITIESEXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE       SECURITIES EXCHANGEACT 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**(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)  **Location: 1200 East AlgonquinRoad, Elk Grove Township, Illinois               60007****Mailing Address:  P. O.Box 66100, Chicago, Illinois                                         60666**(Address of principal executiveoffices)                                                              (Zip Code)  **Registrant's telephone number,including area code  (847) 700-4000**
    Indicate by check mark whether theRegistrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes    X      No
    Indicate the number of shares outstandingof each of the issuer's classes of common stock, as of the latest practicabledate.  Outstanding atClassSeptember 30, 2004Common Stock ($5 par value)205
*  Registrant is the wholly owned subsidiary of UALCorporation (File 1-6033).  Registrant became subject to filing periodicreports under the Securities Exchange Act of 1934 as a result of a publicoffering of securities which became effective June 3, 1988 (RegistrationNos. 33-21220 and 22-18246).  
United Air Lines, Inc. and Subsidiary Companies Report on Form 10-Q2For the Quarter Ended September 30, 2004 Index PART I.FINANCIAL INFORMATIONPage No.  Item 1. Financial Statements  Condensed Statements of Consolidated FinancialPosition (Unaudited) - as of September 30, 2004 and December 31, 2003 
3  Statements of Consolidated Operations (Unaudited)- for the three months and nine months ended September 30, 2004 and 2003 
5  Condensed Statements of Consolidated Cash Flows(Unaudited) - for the nine months ended September 30, 2004 and 2003 
7  Notes to Consolidated Financial Statements (Unaudited)8 Item 2. Management's Discussionand Analysis of            Financial Condition and Results of Operations20  Item 3. Quantitative and QualitativeDisclosures About
Market Risk29    Item 4. Controls and Procedures30PART II.OTHER INFORMATION  Item 1.  Legal Proceeding31    Item 6.  Exhibits and Reportson Form 8-K31 Signatures32 Exhibit Index33     
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)     September 30December 31Assets20042003   Current assets:  Cash and cash equivalents$ 792 $ 1,163 Restricted cash834 657 Short-term investments22 52 Receivables, net1,028 837 Deferred income taxes17 26 Inventories, net239264 Prepaid expenses and other487421 3,4193,420   Operating property and equipment:  Owned17,869 17,953 Accumulated depreciation and amortization(5,520)(5,108) 12,34912,845   Capital leases2,720 2,721 Accumulated amortization(629)(555) 2,0912,166 14,44015,011   Other assets:  Investments59 47 Intangibles, net379 382 Pension assets904 904 Aircraft lease deposits497 679 Prepaid rent76 79 Other, net797663 2,7122,754    $20,571$21,185      
See accompanying Notes to Consolidated Financial Statements.
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)     September 30December 31Liabilities and Stockholder's Equity20042003   Current liabilities:  Current portions of long-term debt and  capital lease obligations$ 891 $ 689 Advance ticket sales1,595 1,330 Accrued salaries, wages and benefits2,142 2,292 Accounts payable496 492 Related party accounts payable308 211 Other1,108968 6,5405,982Long-term debt172-Long-term obligations under capital leases151163   Other liabilities and deferred credits:  Deferred pension liability4,874 4,747 Postretirement benefit liability1,982 1,924 Deferred income taxes161 150 Other228288 7,2457,109   Liabilities subject to compromise13,75714,084Commitments and contingent liabilities (Seenote)     Stockholder's equity:  Common stock at par- - Additional capital invested1,603 1,603 ESOP capital3,9883,988 Retained deficit(8,022)(6,839)Accumulated other comprehensive loss(3,248)(3,290)Receivables from affiliates(1,615)(1,615) (7,294)(6,153)    $ 20,571$ 21,185     
See accompanying Notes to Consolidated Financial Statements. 
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Statements of Consolidated Operations (Unaudited)(In Millions)  Three Months Ended September 30 20042003Operating revenues:  Passenger - United Airlines$ 3,298 $ 3,141 Passenger - Regional Affiliates495 428 Cargo171 145 Other 261250 4,2253,964Operating expenses:  Salaries and related costs1,274 1,210 Aircraft fuel805 514 Commissions91 94 Purchased services370 319 Aircraft rent134 151 Landing fees and other rent237 239 Depreciation and amortization211 263 Regional affiliates576 521 Cost of sales203 189 Aircraft maintenance184 167 Other 291 308 Special items-26 4,3764,001   Loss from operations(151)(37)   Other income (expense):  Interest expense(103)(126)Interest capitalized- - Interest income16 14 Equity in earnings/(losses) of affiliates2 (1)Non-operating special items18 (25)Reorganization items, net(117)(237)Miscellaneous, net(2)(4) (186)(379)   Loss before income taxes(337)(416)Credit for income taxes--   Net loss$ (337)$ (416)
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)  Nine Months Ended September 30 20042003Operating revenues:  Passenger - United Airlines$ 9,504 $ 8,451 Passenger - Regional Affiliates1,440 1,105 Cargo486 463 Other 709901 12,13910,920Operating expenses:  Salaries and related costs3,716           4,073 Aircraft fuel2,101 1,538 Commissions276 239 Purchased services1,092 963 Aircraft rent407 490 Landing fees and other rent709 714 Depreciation and amortization654 768 Regional affiliates1,732 1,417 Cost of sales526 748 Aircraft maintenance562 399 Other 875 926 Special items-26 12,65012,301   Loss from operations(511)(1,381)   Other income (expense):  Interest expense(347)(420)Interest capitalized1 2 Interest income54 86 Equity in losses of affiliates- (4)Non-operating special items18 138 Reorganization items, net(394)(884)Miscellaneous, net(4)8 (672)(1,074)   Loss before income taxes(1,183)(2,455)Credit for income taxes--   Net loss$ (1,183)$ (2,455)
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)  Nine Months Ended September 30 20042003Cash and cash equivalents at beginning   of period, excluding restrictedcash$ 1,163$ 718   Cash flows from operating activities156749    Cash flows from reorganizationactivities:  Reorganization items, net(394)(884)Transfer of Company lease certificates- 215 Increase in liabilities276 497 Loss on disposition of property-36 (118)(136)Cash flows from investing activities:  Additions to property and equipment(218)(85)Proceeds on disposition of propertyand  equipment17 120 Proceeds on sale of investments18 15 Increase in restricted cash(176)(63)Additionsto long-term investments(15)- Increasein deferred software costs(18)(14)Decrease in short-term investments30 202 Increase in deferred financingcosts(20)(62)Other, net(32)9 (415)122Cash flows from financing activities:  Proceeds from DIP Financing513 138 Repayment of DIP Financing(313)(111)Repayment of long-term debt(126)(210)Principal payments under capital  lease obligations(214)(86)Aircraft lease deposits, net160 28 Decrease in related party debt(15)(20)Other, net-10 6(251)   Increase (decrease) in cash andcash equivalents(371)484   Cash and cash equivalents at endof period,  excluding restricted cash$ 792$ 1,202   Cash paid during the period for:  Interest (net of amounts capitalized)$ 333 $ 276    Non-cash transactions:  Increase in long-term debt incurredin  connection with additions to otherassets $ 172 $ 9 Net unrealized gain on investments$ - $ 3 Decrease in pension assets$ - $ (200)
See accompanying Notes to Consolidated Financial Statements.
United Air Lines, Inc. and Subsidiary CompaniesNotes to Consolidated Financial Statements (Unaudited)
The Company
        United Air Lines, Inc. ("United,""we," "our" or the "Company") is a wholly owned subsidiary of UAL Corporation("UAL").
Interim Financial Statements
        We prepared the consolidatedfinancial statements shown here as required by the Securities and ExchangeCommission ("SEC"). Some information and footnote disclosures normallyincluded in financial statements that meet generally accepted accountingprinciples have been condensed or omitted as permitted by the SEC. We believethat the disclosures presented here are not misleading. The financial statementsinclude all adjustments (which include only normal recurring adjustments,reorganization items and other special items described below) that areconsidered necessary for a fair presentation of our financial positionand operating results.
        Certain prior year financialstatement items have been reclassified to conform to the current year'spresentation. These financial statements should be read together with theinformation included in our most recent Annual Report on Form 10-K forthe year 2003.
        As of third quarter 2004,our Consolidated Statements of Operations reflect reclassificationsin order to provide better clarity regarding our Mainline and Regionaloperations. Revenues and expenses for all of our United Express ("UAX")carriers are presented gross on our financial statements as "Regional Affiliates".Prior periods have been reclassified to conform to the current year's presentation.These reclassifications did not impact our operating income (loss) or netincome (loss) for each period presented. For further details, see "UnitedExpress" in the Notes to the Consolidated Financial Statements.
Voluntary Reorganization Under Chapter 11
        *Bankruptcy Proceedings.*On December 9, 2002 (the "Petition Date"), UAL, United and 26 directand indirect wholly owned subsidiaries filed voluntary petitions to reorganizetheir businesses under Chapter 11 of the United States Bankruptcy Codein the United States Bankruptcy Court for the Northern District of Illinois,Eastern Division (the "Bankruptcy Court"). The Bankruptcy Court is jointlyadministering these cases as "In re: UAL Corporation, et al., Case No.02-48191." The consolidated financial statements shown here include certainsubsidiaries that did not file to reorganize under Chapter 11. The assetsand liabilities of these subsidiaries are not considered material to theConsolidated Financial Statements.
        As required by the BankruptcyCode, the United States Trustee for the Northern District of Illinois hasappointed an official committee of unsecured creditors (the "Creditors'Committee"). The Creditors' Committee and its legal representatives havea right to be heard on all matters that come before the Bankruptcy Courtconcerning our reorganization. There can be no assurance that the Creditors'Committee will support our positions or our plan of reorganization, andany disagreements between the Creditors' Committee and us could protractthe Chapter 11 process, hinder our ability to operate during the Chapter11 process, and delay our emergence from Chapter 11.
        With the exception of ournon-filing subsidiaries, we continue to operate our businesses as "debtors-in-possession"under the jurisdiction of the Bankruptcy Court and in accordance with theapplicable provisions of the Bankruptcy Code, the Federal Rules of BankruptcyProcedure and applicable court orders. In general, as debtors-in-possession,we are authorized under Chapter 11 to continue to operate as an ongoingbusiness, but may not engage in transactions outside the ordinary courseof business without the prior approval of the Bankruptcy Court.
        All vendors are being paidfor all goods furnished and services provided after the Petition Date inthe ordinary course of business. However, under Section 362 of the BankruptcyCode, actions to collect most of our pre-petition liabilities are automaticallystayed (except for liabilities relating to certain qualifying aircraft,aircraft engines and other aircraft-related equipment that are leased orsubject to a security interest or conditional sale contract). Under Section1110 of the Bankruptcy Code, actions to collect such aircraft-related pre-petitionliabilities are automatically stayed for 60 days only (our automatic stayended on February 7, 2003), except under two conditions: (a) the debtormay extend the 60-day period by agreement with the relevant financier andwith court approval; or (b) the debtor may agree to perform all of theobligations under the applicable financing and cure any defaults as requiredunder the Bankruptcy Code. If neither of these conditions is met, the financiermay demand the return of the aircraft and enforce any of its contractualrights or remedies to sell, lease or otherwise retain or dispose of suchproperty.
        We have negotiated with lessorsand lenders to restructure existing financings to reduce aircraft ownershipcosts to better reflect current market rates, and we have reached agreementsin principle with respect to a substantial majority of our financed aircraft.However, in light of the final decision received from the Air TransportationStabilization Board ("ATSB") regarding our loan application and the needfor further cost reductions, we are re-examining these agreements and believeit likely that we will need to renegotiate one or more of them. Althoughwe expect to be successful with respect to any such efforts, to the extentwe are unable to restructure any financings we believe are unaffordableunder the modified business plan, we may face the possibility that oneor more financiers may seek to repossess their aircraft. Likewise, thereis no assurance that those agreements in principle which are not restructuredwill be successfully converted to final contracts. To the extent we areunable to finalize those agreements there can be no assurance that we willbe able to reach new agreements at comparable economics or that financierswill not repossess aircraft. The repossession of a significant number ofaircraft could result in a material adverse affect on our financial andoperational performance.
        We have also rejected orabandoned certain surplus aircraft to adjust our fleet size and compositionto more closely match market demand. In addition, as part of on-going negotiationswith financiers, we have converted many long-term financing arrangementsinto short-term operating leases and, in several instances, re-acquiredpreviously rejected aircraft as circumstances warranted.
        Under Section 365 of theBankruptcy Code, we may assume, assume and assign, or reject certain executorycontracts and unexpired leases, including leases of real property, subjectto the approval of the Bankruptcy Court and certain other conditions. OurSection 365 rights to assume, assume and assign, or reject unexpired leasesof non-residential real estate expire on the earlier of the date of terminationof our exclusive period to file a plan of reorganization (currently, December1, 2004) or the date of the conclusion of a disclosure statement hearingin connection with a proposed plan of reorganization.
        In general, if we rejectan executory contract, unexpired lease or aircraft, it is treated as apre-petition breach of the lease or contract in question and, subject tocertain exceptions, relieves us of performing any future obligations butentitles the lessor or contract counterparty to a pre-petition generalunsecured claim for damages caused by such deemed breach and accordingly,the counterparty may file a claim against us for such damages. As a result,liabilities subject to compromise are likely to increase in the future,as a result of damage claims created by our rejection of various aircraft,executory contracts and unexpired leases. Generally, if we assume an aircraftfinancing agreement, executory contract or unexpired lease we are requiredto cure most existing defaults under such contract or lease. We expectthat the assumption of certain executory contracts and unexpired leasesmay convert liabilities currently shown as subject to compromise to liabilitiesnot subject to compromise.
        To successfully exit Chapter11, we must obtain confirmation by the Bankruptcy Court of a plan of reorganization.A plan of reorganization would, among other things, resolve our pre-petitionobligations and other liabilities subject to compromise and establish ourcorporate governance subsequent to exit from bankruptcy. The plan of reorganizationwould also address the terms and conditions of exit financing as part ofour revised capital structure. There can be no assurance that we will obtainthe necessary financing to exit from bankruptcy. We believe that UAL'spresently outstanding equity securities will have no value as we expectthose securities will be canceled under any proposed plan of reorganization.Thus, we urge that caution be exercised with respect to existing and futureinvestments in any UAL equity security. The rights and claims of variouscreditors and security holders will also be determined by the plan. Atthis time, it is not possible to predict accurately the effect of the Chapter11 reorganization process on our business, nor can we make any predictionsconcerning how certain claims will be valued in UAL's bankruptcy case.
        We are currently operatingunder an "exclusive period" which expires December 1, 2004, during whichwe are the only party permitted to file a plan of reorganization. The decisionas to when we will file a plan of reorganization depends on the timingand outcome of numerous ongoing matters in the Chapter 11 process. We expectto file a plan of reorganization that provides for UAL's emergence frombankruptcy, but there can be no assurance that the Bankruptcy Court willconfirm a plan of reorganization or that any such plan will be implementedsuccessfully.
***    **    DIP Financing.  *In connection with UAL's Chapter 11 case, the Company arranged a debtor-in-possessionsecured financing ("DIP Financing"). The initial DIP Financing consistedof two facilities, a $300 million facility provided by Bank One N.A. ("BankOne Facility") and a $1.2 billion facility provided by J.P. Morgan ChaseBank, Citicorp USA, Inc., Bank One, N.A., and The CIT Group/Business Credit,Inc. ("Club Facility"). Subsequently, we reached agreements to modify termsof the Club Facility. The Club Facility currently consists of a revolvingcredit and letter of credit facility of $200 million and a term loan of$800 million, which matures on June 30, 2005. We have the option of borrowingunder the Club Facility at an interest rate of the prime rate plus 4% orLIBOR plus 5% (with a LIBOR floor of 3%). As of September 30, 2004, wehad repaid the Bank One Facility and had outstanding borrowings of $863million under the Club Facility at a rate of 8%. In addition, letters ofcredit were issued under the Club Facility in the amount of $36 million.
         The terms of the amendedClub Facility include covenants that require us to satisfy ongoing monthlyfinancial requirements as determined by reference to EBITDAR (earningsbefore interest, income taxes, depreciation, amortization and aircraftrents) thresholds and limitations on capital expenditures. In addition,we are required to maintain a minimum unrestricted cash balance of $600million. The terms of the amended Club Facility also contain financialcovenants that do not permit us to make payments inconsistent with ourbusiness plan, unless the lenders otherwise consent based on a modifiedbusiness plan. To preserve the Company's liquidity, this business plandoes not contemplate contributions to our pension plans.
        While we are currently incompliance with the terms of the Club Facility, we believe that due torecord high fuel prices and continued weakness in the revenue environment,there is a strong possibility that we will not comply with the Club Facility'sEBITDAR covenant in the fourth quarter. Under the current terms of theClub Facility, failure to comply with the EBITDAR covenant would constitutea default of the Club Facility, which would allow the lenders to acceleratethe loan. We are currently in discussions with the Club Facility lendersregarding, among other things, the possibility of waiving the EBITDAR provisionsfor October, November and December 2004, retaining 100% of the proceedsreceived in connection with the sale of our equity investment in Orbitz,Inc. and increasing the unrestricted minimum cash balance covenant.
*        Financial StatementPresentation. *We have prepared the accompanying consolidatedfinancial statements in accordance with American Institute of CertifiedPublic Accountants' Statement of Position 90-7 ("SOP 90-7"), "FinancialReporting by Entities in Reorganization Under the Bankruptcy Code," andon a going-concern basis, which assumes continuity of operations, realizationof assets and satisfaction of liabilities in the ordinary course of business.
        SOP 90-7 requires that thefinancial statements separate transactions and events that are directlyassociated with the restructuring from the ongoing operations of the business.Accordingly, all transactions (including, but not limited to, all professionalfees, realized gains and losses, and provisions for losses) directly relatedto the reorganization and restructuring of the business are reported separatelyin the financial statements. The Statements of Consolidated FinancialPosition distinguishes pre-petition liabilities subject to compromiseboth from those that are not subject to compromise as well as from allpost-petition liabilities. Liabilities subject to compromise are reportedat the amounts expected to be allowed by the Bankruptcy Court, even ifthey may be settled for lesser amounts.
        In addition, as a resultof UAL's Chapter 11 case, the realization of assets and the satisfactionof liabilities (without substantial adjustments and/or changes in ownership)are subject to uncertainty. While operating as debtors-in-possession underthe protection of Chapter 11 and subject to approval of the BankruptcyCourt and the terms of the applicable DIP Financing covenants, or otherwiseas permitted in the ordinary course of business, we may sell or disposeof assets (including aircraft) and liquidate or settle liabilities forsome amounts other than those reflected in the consolidated financial statements.Further, our plan of reorganization could materially change the amountsand classifications in the historical consolidated financial statements.
        As permitted under the bankruptcyprocess, our creditors have filed proofs of claim with the Bankruptcy Court.The total amount of such claims filed far exceeds our estimate of ultimateliability. We believe that many of these claims are invalid because theyare duplicative, are based upon contingencies which have not occurred,have been amended or superseded by later filed claims, or are otherwiseoverstated. Differences in amount between claims filed by creditors andliabilities shown in our records are being investigated and resolved inconnection with our claims resolution process. While we have made significantprogress to date, we expect this process to continue for some time andbelieve that further reductions to the claims register will enable us todetermine with more precision the likely range of creditor distributionsunder a proposed plan of reorganization. At this time, the ultimate numberand allowed amount of such claims cannot be determined.
Stock Option Accounting
        We account for stock-basedemployee compensation plans under Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to Employees." We have not incurred anystock-based employee compensation cost for stock options, as all optionsgranted under the plans had an exercise price equal to the market valueof the underlying common stock on the date of grant.
        If compensation cost forstock-based employee compensation plans had been determined using the fairvalue recognition provisions of Statement of Financial Accounting Standards("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company'snet loss would have been reported as the pro forma amounts shown below: (In millions, except per share)Three MonthsNine Months Ended September 30Ended September 30 2004200320042003Net loss, as reported$ (337)$ (416)$ (1,183)$ (2,455)Less: Total compensation expensedetermined under    fair value method(2)(5)(7)(15) $ (339)$ (421)$ (1,190)$ (2,470)     
Income Taxes
        Beginning in the third quarterof 2002, we established a valuation allowance against our net deferredtax asset. Thus, United has a zero percent effective tax rate for both2003 and 2004. As of September 30, 2004, our valuation allowance totaled$2.8 billion. Further, we have determined that it is more likely than notthat our gross deferred tax assets, net of valuation allowances at September30, 2004, will be realized through the reversals of existing deferred taxcredits.
Retirement and Postretirement Plans
        In December 2003, the FinancialAccounting Standards Board ("FASB") revised SFAS No. 132, "Employers' Disclosuresabout Pensions and Other Postretirement Benefits", ("SFAS No. 132") effectivefor all interim periods following December 15, 2003. SFAS No. 132 revisesemployers' disclosures about pension plans and other postretirement benefitplans including disclosures made in interim periods. While it does notchange the measurement or recognition of those plans, it requires additionalinterim disclosures as detailed below.
        Our net periodic benefitcost included the following components for the three months and nine monthsended September 30: (In millions)Pension BenefitsOther Benefits Three Months Ended September 30 20042003 20042003 Service cost$ 62$ 66  $ 7 $ 18  Interest cost197 181  30 46  Expected return on plan assets(175)(160) (2)(2) Amortization of prior servicecost      including transition obligation/(asset)20 21  (37)(12) Recognized actuarial (gain)/loss23 16 1921 Net periodic benefit costs$ 127$ 124 $ 17$ 71   (In millions)Pension BenefitsOther Benefits Nine Months Ended September 30 20042003 20042003 Service cost$ 182 $ 235  $ 34 $ 69  Interest cost592 648  122 182  Expected return on plan assets(531)(571) (7)(7) Amortization of prior servicecost      including transition obligation/(asset)61 74  (88)(46) Curtailment charge- 125  - 13  Special termination benefit- 10  - 4  Recognized actuarial (gain)/loss73 58 7083 Net periodic benefit costs$ 377$ 579 $ 131$ 298 
       After giving consideration to the temporary funding relief provided bythe Pension Funding Equity Act of April 2004, our minimum required contributionto our defined benefit pension plan trusts for all employee groups is approximately$700 million in 2004. Of this total, we contributed $127 million (whichis related to the 2003 plan year) during the first half of 2004. In July2004, the Company announced that it was suspending contributions to itsdefined benefitpension plans to preserveits liquidity. At this time, the Company believes that in order to obtainexit financing, successfully reorganize and exit Chapter 11 bankruptcyproceedings, it will be necessary to terminate and replace these pensionplans. The financial statements do not include any adjustments that mightresult from this potential action.
Restricted Cash
        At September 30, 2004, Unitedhad $834 million in restricted cash, primarily representing security forworker compensation obligations, security deposits for airport leases andreserves with institutions that process the Company's sales.
Liabilities Subject to Compromise
        Liabilities subject to compromiserefers to obligations which will be accounted for under a plan of reorganization,including claims incurred prior to the Petition Date. They result fromknown or potential claims to be resolved through the Chapter 11 process,and remain subject to future adjustments arising from negotiated settlements,actions of the Bankruptcy Court, rejection of executory contracts and unexpiredleases, the determination as to the value of any collateral securing claims,proofs of claim or other events. To date, such adjustments, as reflectedin reorganization expense, have been material and we anticipate that futureadjustments will be material as well. Payment terms for these amounts willbe established in connection with the Chapter 11 process.
        At September 30, 2004, liabilitiessubject to compromise of $13.8 billion consisted of:  (In millions)  Long-term debt, including accruedinterest$ 7,354  Aircraft-related accruals anddeferred gains3,372  Capital lease obligations, includingaccrued interest1,765  Accounts payable295  Intercompany loans and payables251  Other 720  $ 13,757
United Express
        United has marketing agreementsunder which independent regional carriers, flying under the UAX name, feedpassengers to other United-branded flights. During the second half of 2003,we reached new or substantially revised agreements with UAX carriers AirWisconsin Airlines Corporation, Mesa Air Group, SkyWest Airlines and TransStates Airlines.
        However, we were unable toreach a comparable market-based contract with Atlantic Coast Airlines ("ACA")and, on April 2, 2004, we agreed to end our UAX relationship with ACA andentered into a formal transition agreement. This orderly transition ofUAX flying and ground handling began in June and was completed in August.
        To support these changes,we expanded our relationship with other UAX partners and entered into newagreements with Chautauqua Airlines, Republic Airlines, and Shuttle America.Additionally, we replaced ACA's ground-handling responsibilities at ChicagoO'Hare, Washington Dulles and other cities.
        As discussed in the Notesto the Consolidated Financial Statements, we now report all UAX carrierrevenues and expenses gross as "Regional Affiliates" on the financial statements.The following table shows the effect of these reclassifications on operatingrevenues and operating expenses: (In millions)Three MonthsNine Months Ended September 30Ended September 30 2004200320042003Increase in operating revenues$ 20 $ 207 $ 345 $ 1,021 Increase in operating expenses$ 20 $ 207 $ 345 $ 1,021 
Segment Information
        United has a global routenetwork designed to transport passengers and cargo between destinationsin North America, the Pacific, the Atlantic and Latin America. These regionsconstitute United's four reportable segments. For internal management anddecision-making purposes, we have allocated expenses and revenues (as incorporatedin our consolidated financial statements) to these segments as follows:   (In millions)Three Months EndedSeptember 30, 2004  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 2,824 $ 747 $ 558 $ 96 $ 4,225 Earnings (loss) before     special items and     reorganization items$ (267)$ 14 $ 18 $ (3)$ (238)(In millions)Three Months EndedSeptember 30, 2003  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 2,801 $ 560 $ 494 $ 109 $ 3,964 Earnings (loss) before     special items and     reorganization items$ (93)$ (34)$ 11 $ (12)$ (128)(In millions)Nine Months Ended September30, 2004  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 8,269 $ 2,030 $ 1,525 $ 315 $ 12,139 Earnings (loss) before     special items and     reorganization items$ (812)$ 11 $ 11 $ (17)$ (807)(In millions)Nine Months Ended September30, 2003  Reportable North  LatinSegment AmericaPacificAtlanticAmericaTotalRevenue$ 7,734 $ 1,514 $ 1,351 $ 321 $ 10,920 Earnings (loss) before     special items and     reorganization items$(1,017)$ (305)$ (126)$ (83)$ (1,531) Three Months EndedNine Months Ended September 30September 30(In millions)2004200320042003Total loss for reportable segments$ (238)$ (128)$ (807)$ (1,531)Curtailment charge- - - (152)Special charges18 (51)18 112 Reorganization items, net(117)(237)(394)(884)Total loss before income taxes $ (337)$ (416)$ (1,183)$ (2,455) 
Other Comprehensive Income Total comprehensive income(loss):Three MonthsNine Months Ended September 30Ended September 30(In millions)2004200320042003Net loss$ (337)$ (416)$ (1,183)$ (2,455)Pension liability adjustment- - - (964)Unrealized gains on derivativesand securities:    Unrealized holding gains arisingduring period52 - 52 3 Less: reclassification adjustmentfor gains included in net    losses(10)-(10)-42 - 42 3 Total comprehensive loss$ (295)$ (416)$ (1,141)$ (3,416)
        See "Special Items" notebelow for details regarding the 2003 pension liability adjustment and "AircraftFuel Hedging" note below for details regarding fuel hedge gains in 2004.
Reorganization Items
        We recognized the followingreorganization expense in conjunction with our Chapter 11 filings:   Three MonthsNine Months  Ended September 30Ended September 30 (In millions)2004200320042003 Aircraft rejection charges$ 88 $ 170 $ 312 $ 449  Transfer of lease certificates- - - 215  Professional fees40 37 123 112  Severance and employee retention- 33 7 81  Interest income(2)(3)(7)(7) Other (9)-(41)34  $ 117$ 237$ 394$ 884
        Aircraft rejection chargesare non-cash items that include our estimate of claims resulting from United'srejection of certain aircraft financing obligations (and return of theassociated aircraft) as part of the bankruptcy process.
        In the first quarter of 2003,we renegotiated certain off-balance sheet leases as part of the Section1110 process. Under the terms of the revised leases, we surrendered ourinvestment in the junior portion of the original lease debt to the originalequity participant. As a result, our investment in the corresponding leasecertificates was reduced to zero, resulting in a $215 million non-cashcharge in reorganization items.
Special Items
         *Aircraft Impairment*.As a result of the review of our operating fleet as part of our overallrestructuring, we decided to accelerate the retirement of our B767-200aircraft from 2008 to 2005. Therefore, in accordance with SFAS No. 144,"Accounting for the Impairment or Disposal of Long-Lived Assets," we reviewedthe fleet for impairment and wrote down the aircraft to their fair marketvalues, as estimated using third-party appraisals, resulting in an impairmentcharge of $26 million in the third quarter of 2003.
        *Aircraft Write-down*.During the third quarter of 2003, we also incurred a $25 million chargein non-operating expense for the write-down of certain non-operating B767aircraft.
       *Air Canada.* On April1, 2003, Air Canada filed for protection under the Companies' CreditorsArrangement Act ("CCAA") of the Canada Business Corporation Act. Duringthe first quarter of 2003, the Company recorded a non-operating specialcharge of $137 million in connection with Air Canada's CCAA filing. Thecharge included $46 million for the impairment of our investment in AirCanada preferred stock and $91 million to record a liability resultingfrom our guarantee of Air Canada debt. We consider this liability to bea pre-petition obligation and accordingly, it is considered a liabilitysubject to compromise.
       During the third quarter of 2004,Air Canada successfully emerged from protection under the CCAA. We hadfiled a pre-petition claim against Air Canada based on our equity interestin three Airbus A330 aircraft leased to Air Canada. As part of its planof reorganization, Air Canada offered its unsecured creditors the opportunityto participate in their initial public offering. We subscribed to 986,986shares in the reorganized company in August 2004 and sold them in October2004 for a nominal gain. Separately, we sold our pre-petition claim andrecorded a non-operating gain of  $18 million during the third quarterof 2004.
         *Curtailment Charge.* During the second quarter of 2003, we revalued our pension and postretirementplans for certain employee groups as a result of the ratification of newlabor contracts for our major employee groups and employee furloughs. Thesignificant actuarial assumptions used for the revaluation of the planswere unchanged from December 31, 2002, except for the discount rate andweighted average salary scale. The revaluation of the plans resulted inspecial termination and curtailment charges of $152 million recognizedin salaries and related costs in the second quarter of 2003. In addition,as a direct result of the revaluation of the pension plans, stockholders'equity and pension intangible assets were reduced by approximately $964million and $200 million, respectively. These changes to the pension andpostretirement plans also reduced salaries and related costs by approximately$100 million in the second quarter of 2003 or approximately $550 millionon an annualized basis.
*        Government Assistance*. In May 2003, we received approximately $300 million in compensation underthe Emergency Wartime Supplemental Appropriations Act. The legislationincluded approximately $3 billion of financial aid for U.S. air carriersas follows: $2.4 billion to compensate air carriers for expenses and forgonerevenues related to aviation security, including $100 million for reinforcingcockpit doors; suspension of the passenger and air carrier security feesfrom June 1, 2003 through September 30, 2003; and an extension of government-providedwar-risk insurance through December 2004.
Reconciliation of Accruals
        In the period following September11, 2001, we recorded an accrual of $162 million to reflect our estimateof the early termination fees associated with certain contracts. This obligationhas yet to be resolved, and therefore continues to be included in liabilitiessubject to compromise in its entirety.  
Related Party Transactions
        United recognized the followingamounts related to transactions with UAL Loyalty Services, Inc. ("ULS"): (inmillions)Three MonthsNine Months Ended September 30Ended September 30 2004200320042003Revenues$ 108 $ 106 $ 299 $ 300 Commissionexpense and purchased services(13)(10)(38)(30)Interestincome11 11 35 32 
Aircraft Fuel Hedging
        Aircraft fuel represented18% and 17%, respectively, of our total operating expenses for the threemonths and nine months ended September 30, 2004.
        During the second quarterof 2004, we began to implement a strategy to hedge a portion of our pricerisk related to projected jet fuel requirements primarily through collaroptions. The collars (designated as cash flow hedges) involve the purchaseof fuel call options with the simultaneous sale of fuel put options withidentical expiration dates. These contracts are recorded at fair valuewith the changes in fair value, to the extent they are effective, recordedin other comprehensive income until the underlying hedged fuel is consumed.See "Other Comprehensive Income" note above for details. The fair valueis determined by the use of standard option value models using commodity-relatedassumptions derived from prices observed in underlying markets. To date,the impact of these hedge transactions has been immaterial to our financialstatements.
        Currently, we have hedgedapproximately 36% of our fourth quarter 2004 projected fuel requirementsat an average price of $1.00 to $1.17 per gallon, excluding taxes. Thecurrent fair value of our position is approximately $43 million as of September30, 2004. We expect that the entire amount of $43 million will be recognizedinto earnings within the next 12 months as a reduction to fuel expense.We plan to continue to hedge future fuel purchases for 2004 and beyondas circumstances and market conditions allow.
Commitments and Contingencies
        United has certain contingenciesresulting from litigation and claims (including environmental issues) encounteredin the ordinary course of business. Management believes, after consideringa number of factors, including (but not limited to) the views of legalcounsel, the nature of contingencies to which we are subject and priorexperience, that the ultimate disposition of these contingencies will notmaterially affect the Company's consolidated financial position or resultsof operations.
        We record liabilities forlegal and environmental claims against us in accordance with generallyaccepted accounting principles. These amounts are recorded based on ourassessments of the likelihood of their eventual settlements. The amountsof these liabilities could increase or decrease in the near term, basedon revisions to estimates relating to the various claims. In addition,as a result of the bankruptcy filing, as of the Petition Date, virtuallyall pending litigation is stayed, and absent further order of the BankruptcyCourt, no party, subject to certain exceptions, may take any action, againsubject to certain exceptions, to recover on pre-petition claims againstus. Accordingly, we have classified certain of these liabilities as liabilitiessubject to compromise.
        The Company denies liabilityand will vigorously contest the allegations made against it in litigationarising from the events of September 11, 2001. However, in the event thatliability were to be assessed after a full trial on the merits, it is likelythat any damages awarded would be significant. Nevertheless, we believethat, under federal law, our actual liability will be limited to our insurancecoverage.
        At September 30, 2004, commitmentsfor the purchase of property and equipment, principally aircraft, approximated$1.8 billion, after deducting advance payments. Our current commitmentswould require the payment of an estimated $0.1 billion for the remainderof 2004, $0.6 billion in 2007, $0.5 billion in 2008, $0.4 billion in 2009and $0.2 billion in 2010 and thereafter, primarily for the purchase ofA319, A320 and B777 aircraft. On October 6, 2004, we announced plans toreduce the size of our aircraft fleet from its August 2004 level of 541aircraft to 455 aircraft by March 2005. In light of the above, it is likelythat the amount and timing of these obligations will change, and couldpotentially be eliminated in their entirety. Additionally, the dispositionof advance payments to the manufacturers of $161 million is subject tothe ultimate outcome of these discussions.
Item 2.  Management's Discussion and Analysis of FinancialCondition and Results of Operations
Chapter 11 Reorganization
        On December 9, 2002, UAL,United and 26 of its subsidiaries filed voluntary petitions to reorganizetheir businesses under Chapter 11 of the United States Bankruptcy Code.For further details regarding the Chapter 11 Cases, see "Voluntary ReorganizationUnder Chapter 11" in the Notes to Consolidated Financial Statements.In addition, specific information pertaining to our bankruptcy filing maybe obtained through the website  www.pd-ual.com.
       To successfully obtain exit financing,the Company must have a viable and financeable business plan. Currently,the airline industry faces record high fuel costs, overcapacity and a weakpricing environment. These marketplace dynamics demand even further costreductions, above and beyond the approximate $5 billion in financial improvementsalready targeted through our restructuring activities, to enable Unitedto exit bankruptcy as a financially stable and competitive enterprise.Given the stark realities facing the airline industry today, we now believethat we will need to achieve additional cost savings of approximately $2billion annually, inclusive of savings that would be realized from terminatingand replacing our pension plans.
        The Company believes it hasno choice but to turn to its workforce, creditors and other stakeholdersfor further savings. We are currently in the process of working with allof our constituents to lower the Company's costs across the board. We believethat these efforts require further reductions in labor costs by mid-January2005 to maintain adequate cash balances, potentially satisfy our Club Facilitycovenants, and obtain exit financing. To that end, we will commence theprocess available to us under Section 1113 of the Bankruptcy Code whilewe work with our unions to achieve a consensual resolution. Section 1113(c)of the Bankruptcy Code provides a mechanism for a debtor to reject itscollective bargaining agreements, assuming certain requirements are satisfied.In addition, the Section 1113 process allows the court to take all stepsnecessary to permit the successful reorganization of the debtor and toensure that all of the affected parties are treated fairly and equitably.The Company expects that part of its proposal to its unions will be toremove any requirement in the collective bargaining agreements that theCompany maintain defined benefit pension plans.
*        Pensions. *Our projected minimum pension funding obligation over the 2004 to 2008time period is approximately $4.2 billion even after giving considerationto the temporary pension funding relief provided by the Pension FundingEquity Act of 2004. In July 2004, the Company announced that it was suspendingcontributions to its defined benefit pension plans to preserve its liquidity.At this time, the Company believes that in order to obtain exit financing,successfully reorganize and exit Chapter 11 bankruptcy proceedings, itwill be necessary to terminate and replace these pension plans.
          On August 30,2004, the Pension Benefit Guarantee Corporation purported to perfect certainstatutory liens, allegedly arising as a result of United not making itsminimum funding contributions, on the following non-filing, direct andindirect wholly-owned subsidiaries of UAL: ULS Ventures, Inc., United AirLines Ventures, Inc., and Covia LLC.
*        Section 1110 AircraftRestructuring.*  We have negotiated with lessors and lendersto restructure existing financings to reduce aircraft ownership costs tobetter reflect current market rates, and we have reached agreements inprinciple with respect to a substantial majority of our financed aircraft.However, in light of the ATSB's final decision regarding our loan applicationand the need for further cost reductions, we are re-examining these agreementsand believe it is likely that we will need to renegotiate one or more ofthem. Although we expect to be successful with respect to any such efforts,to the extent we are unable to restructure any financings we believe areunaffordable under the modified business plan, we may face the possibilitythat one or more financiers may seek to repossess their aircraft. Likewise,there is no assurance that those agreements in principle which are notrestructured will be successfully converted to final contracts. To theextent we are unable to finalize those agreements there can be no assurancethat we will be able to reach new agreements at comparable economics orthat financiers will not repossess aircraft. The repossession of a significantnumber of aircraft could result in a material adverse affect on our financialand operational performance.
        *Municipal Bond Obligations.* At September 30, 2004, we had approximately $1.7 billion in special facilitiesrevenue bonds ("municipal bonds") outstanding that were issued on behalfof United to build or improve airport-related facilities. The Company leasesfacilities at airports pursuant to lease agreements where municipal bondsfunded at least some of the airport-related projects.
        During 2003, we filed fourcomplaints for declaratory judgment and corresponding motions for temporaryrestraining order concerning municipal bonds issued for facilities at theDenver International Airport, the New York City - John F. Kennedy InternationalAirport ("JFK"), the San Francisco International Airport ("SFO"), and theLos Angeles International Airport ("LAX"). In each case, we sought clarificationof our obligations under the applicable municipal bonds, and the protectionof our rights concerning related airport lease agreements at the applicableairport.
        On March 30, 2004, the BankruptcyCourt granted our motions for summary judgment with respect to the JFK,SFO and LAX municipal bonds, holding that our payment obligations relatedto airport improvements at these sites are not obligations arising under"leases" pursuant to Section 365 of the Bankruptcy Code. Based on thisruling, the outstanding $248 million in principal and interest in connectionwith these bonds is considered pre-petition debt. The rights and claimsof these bondholders, therefore, will be determined by our plan of reorganization.
        In our adversary proceedinginvolving the Denver airport, however, the Bankruptcy Court did not grantour motion for summary judgment. Rather, the Bankruptcy Court found thatour payment obligations related to airport improvements at the Denver airport(which represents approximately $261 million of debt) are obligations arisingunder a true lease. While we have appealed this ruling, in accordance withthe Bankruptcy Court's order, we paid $36 million into escrow (pendingthe outcome of our appeal) for the April 2003, October 2003, April 2004and October 2004 interest payments related to the Denver airport municipalbonds.
        The defendants in the SFO,JFK and LAX adversary proceedings appealed the Bankruptcy Court's ruling.These appeals are pending in the United States District Court for the NorthernDistrict of Illinois. The parties have fully briefed the issues, and theDistrict Court has not set a date for its ruling.
        Similarly, in September 2003,we filed a complaint for declaratory judgment for all seven municipal bondissues (which represents approximately $601 million in debt) relating toour 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. At our October 15, 2004 omnibushearing, we announced that we had reached a settlement agreement with therelevant indenture trustees and bondholders of these seven municipal bondissues that in effect reduces the Company's indebtedness related to thesebond issues from approximately $601 million to $150 million (the "SettlementAgreement"). The Settlement Agreement is subject to Bankruptcy Court approval,and we have filed a motion requesting approval of the Settlement Agreement,which is set to be heard at the December 17, 2004 omnibus hearing. TheCity of Chicago, a party to these adversary proceedings, is not a partyto the Settlement Agreement.
        The Settlement Agreementrequires the indenture trustees and certain designated bondholders to waiveany existing defaults with respect to the bonds, and not to seek any furtherpayment on account of the bonds beyond the consideration set forth in theSettlement Agreement. It requires the Company, in connection with the confirmationof its plan of reorganization, to relinquish any claims to certain constructionfund monies (which currently total approximately $65 million) and issueconvertible debt of reorganized UAL Corporation having a par value of $150million to the counterparties in the Settlement Agreement.
        As of September 30, 2004,we have paid into escrow payments totaling $22 million related to the O'Haremunicipal bonds for March, April, May, September, October and Novemberof 2003 and for March, April and May of 2004. As part of the SettlementAgreement, we will not make any further payments into escrow unless approvalof the Settlement Agreement is denied by the Bankruptcy Court.
        *Claims Resolution Process.*As permitted under the bankruptcy process, our creditors have filed proofsof claim with the Bankruptcy Court. The total amount of such claims filedfar exceeds our estimate of ultimate liability. We believe that many ofthese claims are invalid because they are duplicative, are based upon contingencieswhich have not occurred, have been amended or superseded by later filedclaims, or are otherwise overstated. Differences in amount between claimsfiled by creditors and liabilities shown in our records are being investigatedand resolved in connection with our claims resolution process. While wehave made significant progress to date, we expect this process to continuefor some time and believe that further reductions to the claims registerwill enable us to determine with more precision the likely range of creditordistributions under a proposed plan of reorganization. At this time, theultimate number and allowed amount of such claims cannot be determined.
        *United Express*.On April 2, 2004, we agreed to end our UAX relationship with ACA and enteredinto a formal transition agreement. This orderly transition of UAX flyingand ground handling began in June and was completed in August.
        To support these changes,we expanded our relationship with other UAX partners and entered into newagreements with Chautauqua Airlines, Republic Airlines, and Shuttle America.Additionally, we replaced ACA's ground-handling responsibilities at ChicagoO'Hare, Washington Dulles and other cities.
        *ULS*. On November5, 2004, UAL filed a motion requesting that the Bankruptcy Court authorizea contribution by UAL of ULS stock to United and convert ULS into a single-memberlimited liability company ("ULS Transaction"). It is currently contemplatedthat the ULS Transaction, if approved, will become effective in the firstquarter of 2005.
Results of Operations
        *Summary of Results.*During 2004, the airline industry has endured record high fuel pricesand a weak revenue environment largely driven by intense fare competitionand overcapacity within the domestic markets. As a result, the U.S. airlineindustry, including United, continues to post significant financial losses.
        During what is typicallyour strongest quarter, United had an operating loss of $(151) million inthe third quarter of 2004, a $114 million decline over the third quarterof 2003. United's net loss in the third quarter of 2004 was $(337) million,compared to $(416) million in the same period of 2003.
        United had an operating lossof $(511) million in the first nine months of 2004, an $870 million improvementover the first nine months of 2003. United's net loss in the first ninemonths of 2004 was $(1.2) billion, compared to $(2.5) billion in the sameperiod of 2003.
        As of third quarter 2004,all of our UAX carrier revenues and expenses are presented gross on ourfinancial statements. Prior periods have been reclassified to conform tothis presentation. See "United Express" in the Notes to ConsolidatedFinancial Statements.
        The third quarter 2004 resultsinclude $117 million in reorganization items recorded in connection withour bankruptcy proceedings as well as an $18 million gain on the sale ofour pre-petition claim against Air Canada. The third quarter 2003 resultsinclude $237 million in reorganization items recorded in connection withour bankruptcy proceedings, $26 million in impairment charges and $25 millionfor the write-down of certain aircraft. For further details, see "SpecialItems" in the Notes to Consolidated Financial Statements.
        Specific factors affectingour consolidated operations for the third quarter and the first nine monthsof 2004 are described below.
        *Third Quarter 2004Compared with Third Quarter 2003.*
        Operating Revenues.Operating revenues increased $261 million (7%) on an 11% rise in trafficand 5% decrease in yield supported by 8% higher capacity. Strong internationalresults, in particular in our Pacific operation could not fully overcomethe effects of a weak U.S. pricing environment. The following analysisby market is based on information reported to the U.S. Department of Transportation:       
2004SystemNorth AmericaPacificAtlanticLatin AmericaPassenger revenues (in millions)$ 3,298$ 2,116$ 621$ 479$ 82      Increase (Decrease) from 2003:     Passenger revenues (in millions)157(47)15955(10)Percent5%(2)%34%13%(11)%      Available seat miles (capacity)8% 7%22%4%(20)%Passenger load factor1.9 pts2.8 pts(1.4) pts1.3 pts3.8 ptsRevenue passenger miles (traffic)11% 11%20%6%(16)%Revenue per revenue passengermile (yield)(5)%(11)%12%6%6%
        Cargo revenues increased$26 million (18%) largely due to a 15% increase in cargo ton miles. Otheroperating revenues increased $11 million (4%) primarily as the result ofhigher Mileage Plus mileage sales and other miscellaneous third party salespartially offset by a decline in fuel sales to third parties.
        Operating Expenses.Overall, operating expenses increased $375 million (9%). Mainline operatingexpenses (excluding regional affiliates) increased $320 million (9%). United'smainline unit cost (operating expenses, excluding regional affiliates'costs per available seat mile) increased 1% as record high fuel expensemore than overcame productivity and cost improvements elsewhere. (In millions)
Operating expenses:Three Months Ended 
September 30, 2004Increase/(Decrease) from 2003Percentage Change Salaries and related costs$ 1,274 $ 64 5.3%  Aircraft fuel805 291 56.6% (a)Purchased services370 51 16.0% (b)Aircraft rent134 (17)(11.3%)(c)Landing fees and other rent237 (2)(0.8%)  Depreciation and amortization211 (52)(19.8%)(d)Regional affiliates576 55 10.6% (e)Cost of sales203 14 7.4%  Aircraft maintenance184 17 10.2% (f)Commissions91 (3)(3.2%) Other291 (17)(5.5%) Special items-(26)-  $ 4,376 $ 375 9.4%  
(a) Increased due to an increase in the average price per gallon (44%)and increased consumption (9%) as a result of additional flying.
(b) Increased due to higher credit card processing and reservation feesassociated with higher passenger revenues and increased levels of outsourcing.
(c) Decreased largely due to restructuring of aircraft financings underSection 1110 of the Bankruptcy Code.
(d) Decreased due to the 2003 loss on the sale of certain aircraft.
(e) Increased due to the expansion of UAX flying.
(f) Increased due to higher levels of purchased maintenance, includingcontracted maintenance and maintenance materials.
        Other non-operating expenseamounted to $87 million in the third quarter of 2004, compared to $117million in the third quarter of 2003, excluding non-operating special itemsand reorganization items. Inclusive of non-operating special items andreorganization items, other non-operating expense amounted to $186 millionin the third quarter of 2004, compared to $379 million in the third quarterof 2003. For details on the special items and reorganization items, see"Reorganization Items" and "Special Items" in the Notes to ConsolidatedFinancial Statements.
        *First Nine Months 2004Compared with First Nine Months 2003.*
        Operating Revenues.Operating revenues increased $1.2 billion (11%) driven by a 12% rise intraffic and 1% increase in yield supported by 7% higher capacity. The followinganalysis by market is based on information reported to the U.S. Departmentof Transportation: 2004SystemNorth AmericaPacificAtlanticLatin AmericaPassenger revenues (in millions)$ 9,504$ 6,242$ 1,691$ 1,300$ 271      Increase (Decrease) from 2003:     Passenger revenues (in millions)1,0533345231888Percent13%6%45%17%3%      Available seat miles (capacity)7%6%16%5%(14)%Passenger load factor3.6 pts2.1 pts8.6 pts3.5 pts5.0 ptsRevenue passenger miles (traffic)12%9%29%10%(9)%Revenue per revenue passengermile (yield)1%(3)%12%9%13%
        Other operating revenuesdecreased $192 million (21%) primarily  as the result of a declinein fuel sales to third parties partially offset by higher Mileage Plusmileage sales and other miscellaneous third party sales.
        Operating Expenses.Overall, operating expenses increased $349 million (3%). Mainline operatingexpenses (excluding regional affiliates) decreased $34 million and United'smainline unit cost (operating expenses, excluding regional affiliates costsper available seat mile) decreased 6%. (In millions)
Operating expenses:Nine Months Ended
September 30, 2004Increase/(Decrease) from 2003Percentage Change Salaries and related costs$ 3,716$ (357)(8.8%) Aircraft fuel2,101563 36.6% (a)Purchased services1,092129 13.4% (b)Aircraft rent407(83)(16.9%)(c)Landing fees and other rent709(5)(0.7%) Depreciation and amortization654(114)(14.8%)(d)Regional affiliates1,732315 22.2% (e)Cost of sales526(222)(29.7%)(f)Aircraft maintenance562163 40.9% (g)Commissions27637 15.5% (h)Other875(51)(5.5%) Special items-(26)-  $ 12,650$ 349 2.8%  
(a) Increased due to an increase in the average price per gallon (27%)and increased consumption (8%) as a result of additional flying.
(b) Increased due to higher credit card processing and reservation feesassociated with higher passenger revenues and increased levels of outsourcing.
(c) Decreased due to restructuring of aircraft financings under Section1110 of the Bankruptcy Code.
(d) Decreased largely due to the 2003 loss on the sale of certain aircraft.
(e) Increased due to the expansion of UAX flying.
(f) Decreased due to lower fuel sales to third parties.
(g) Increased due to higher levels of purchased maintenance, includingcontracted maintenance and maintenance materials.
(h) Increased in line with higher commissionable revenues.
        Other non-operating expenseamounted to $296 million in expense for the first nine months of 2004,compared to $328 million in the first nine months of 2003, excluding non-operatingspecial items and reorganization items. Inclusive of non-operating specialitems and reorganization items, other non-operating expense amounted to$672 million in the first nine months of 2004, compared to $1.1 billionin the first nine months of 2003. For details on the special items andreorganization items, see "Reorganization Items" and "Special Items" inthe Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
        United's total of cash, cashequivalents and short-term investments, including restricted cash, was$1.6 billion at September 30, 2004, compared to $1.9 billion at December31, 2003.
        As of September 30, 2004,we had $834 million in restricted cash, primarily representing securityfor worker compensation obligations, security deposits for airport leasesand reserves with institutions that process our sales. Prior to 2002, wemet many of these obligations through surety bonds or a secured letterof credit facility; however, such facilities are more difficult to accessand have become largely unavailable to us. As a result, we have been, andwill continue to be required to post additional cash collateral to supportsuch obligations.
        During the first nine monthsof 2004, we generated $156 million of cash from operations. Overall, totalcash and cash equivalents decreased by $371 million during the first ninemonths.
        During the first nine monthsof 2004, we contributed $127 million towards our pension funding obligations(of the approximately $700 million in funding contributions due this year).We currently anticipate that we will not make any further pension contributions,and now believe that it will be necessary for the Company to terminateand replace its pension plans to obtain exit financing and successfullyexit from bankruptcy. For further details see "Retirement and PostretirementPlans" in the Notes to Consolidated Financial Statements.
       During the third quarter, we renegotiatedand expanded our Club Facility, allowing us to draw down an additional$503 million. While we are currently in compliance with the terms of theClub Facility, we believe that due to record high fuel prices and continuedweakness in the revenue environment, there is a strong possibility thatwe will not comply with the Club Facility's EBITDAR covenant in the fourthquarter. Under the current terms of the Club Facility, failure to complywith the EBITDAR covenant would constitute a default of the Club Facility,which would allow the lenders to accelerate the loan. We are currentlyin discussions with the Club Facility lenders regarding, among other things,the possibility of waiving these EBITDAR provisions for October, Novemberand December 2004, retaining 100% of the proceeds received in connectionwith the sale of our equity investment in Orbitz, Inc. and increasing theunrestricted minimum cash balance covenant.
        Property additions, includingaircraft and aircraft spare parts, amounted to $218 million in the firstnine months of 2004 as we re-acquired two B737, one B757, and one B777aircraft (all of which were previously rejected). In addition, two B767aircraft were transferred to non-operating status, and rejected (and/orreturned to the lessor) 17 B737 (of which seven will be returned in thefourth quarter of 2004), two B747, two B767 and four B777 under Section1110 of the Bankruptcy Code.
        Financing activities includedprincipal payments under debt and capital lease obligations of $126 millionand $214 million, respectively. These amounts represent payments made underSection 1110 elections for aircraft-secured obligations, which are currentlyclassified as liabilities subject to compromise. During the first ninemonths of 2004, we made $313 million in principal payments towards theDIP Financing.
        We expect to spend an estimated$0.1 billion during the remainder of 2004 for the purchase of propertyand equipment. At September 30, 2004, commitments for the purchase of propertyand equipment, principally aircraft, approximated $1.8 billion, after deductingadvance payments. For further details, see "Commitments and Contingencies"in the Notes to Consolidated Financial Statements.
        During the third quarter2004, we agreed to sell our equity investment in Orbitz, Inc. pursuantto a tender offer by Cendant Corporation. Although there can be no assurancethis transaction will be consummated, we anticipate that it will closebefore year end, subject to regulatory approvals and other customary conditions.The Bankruptcy Court approved United's participation in the transactionon October 15, 2004. If consummated, this transaction will generate approximately$185 million in proceeds (of which 25% would, under the current terms,be used to pay down the Club Facility) and a one-time gain of approximately$155 million. We are currently in discussions with the Club Facility lendersto retain 100% of these proceeds. For further details, see "DIP Financing"in the Notes to Consolidated Financial Statements.
Outlook
        Information regarding guidancefor United's 2004 outlook can be obtained from UAL Corporation's QuarterlyReport on Form 10-Q for the quarter ended September 30, 2004.  
        Certain statements throughoutManagement's Discussion and Analysis of Financial Condition and Resultsof Operations are forward-looking and thus reflect the Company's currentexpectations and beliefs with respect to certain current and future eventsand financial performance. Such forward-looking statements are and willbe, as the case may be, subject to many risks and uncertainties relatingto the operations and business environments of the Company that may causeactual results to differ materially from any future results expressed orimplied in such forward-looking statements. Factors that could significantlyaffect revenues, expenses, costs and capacity include, without limitation,the following: the Company's ability to continue as a going concern; theCompany's ability to comply with the terms of the DIP financing or negotiatemodifications or amendments thereto as necessary; the Company's abilityto obtain court approval with respect to motions in the Chapter 11 proceedingprosecuted by it from time to time; the Company's ability to develop, prosecute,confirm and consummate one or more plans of reorganization with respectto the Chapter 11 cases; risks associated with third parties seeking andobtaining court approval to terminate or shorten the exclusive period forthe Company to propose and confirm one or more plans of reorganization;the potential adverse impact of the Chapter 11 cases on the Company's liquidityor results of operations; the appointment of a Chapter 11 trustee or conversionof the cases to Chapter 7; the costs and availability of financing; theCompany's ability to execute its business plan; the Company's ability toattract, motivate and/or retain key employees; the results of the Section1113 process and the ability to reach consensual resolution with the uniongroups; labor and other employee issues as a result of this process; theCompany's ability to attract and retain customers; demand for transportationin the markets in which the Company operates; general economic conditions;the effects of any hostilities or act of war or any terrorist attack; theability of other air carriers with whom the Company has 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;competitive pressures on pricing (particularly from lower-cost competitors);government legislation and regulation; and other risks and uncertaintiesset forth from time to time in United's reports to the United States Securitiesand Exchange Commission. Consequently, the forward-looking statements shouldnot be regarded as representations or warranties by the Company that suchmatters will be realized. The Company disclaims any intent or obligationto update or revise any of the forward-looking statements, whether in responseto 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 2003.
Interest Rate Risk -(In millions, except averagecontract rates)NotionalAverageEstimated AmountContract RateFair Value   (Pay)/Receive*Interest rate swap$ 1307.56%$ (29) 
Price Risk (Aircraft Fuel) - When market conditions indicate risk reductionis achievable, United enters into fuel option contracts to reduce its pricerisk exposure to jet fuel. The option contracts are designed to provideprotection against sharp increases in the price of aircraft fuel. As marketconditions change, so may United's hedging program. During the second quarterof 2004, we began hedging future aircraft fuel purchases for 2004.  September 30, 2004 (In millions, except averagecontract rates)NotionalAverageEstimated AmountContract RateFair Value   (Pay)/Receive*Purchased call options - Heatingoil$ 251 $ 1.21/gal$ 43 Sold put options - Heating oil$ (215)$ 1.03/gal$ - 
*Estimated fair values represent the amount United wouldpay/receive on September 30, 2004 to terminate the contracts.    
Item 4.  Controls and Procedures
        An evaluation was carriedout under the supervision and with the participation of the Company's management,including the Chief Executive Officer ("CEO") and Chief Financial Officer("CFO"), of the effectiveness of the Company's disclosure controls andprocedures as of September 30, 2004.  Based on that evaluation, theCompany's management, including the CEO and CFO, has concluded that theCompany's disclosure controls and procedures are effective. During thethird quarter of 2004, there was no change in the Company's internal controlover financial reporting that has materially affected, or is reasonablylikely to materially affect, the Company's internal control over financialreporting.  
PART II.  OTHER INFORMATION
Item 1. Legal Proceedings
        As disclosed in our quarterlyreport on Form 10-Q for the quarter ended June 30, 2004, on July 29, 2004,the International Association of Machinists and Aerospace Workers ("IAM")and certain IAM members filed complaints in the United States DistrictCourt for the Northern District of Illinois alleging breaches of fiduciaryduty by our chairman, president and chief executive officer and certainother officers in connection with the Company's decision not to make theJuly 2004 pension plan contribution and the amendment to its Club Facility.On July 30, 2004, the IAM files a similar suit in the United States DistrictCourt of New Jersey. In August 20, 2004, the Bankruptcy Court stayed thesematters and the United States District Court of New Jersey subsequentlydismissed the suit before it. Although currently stayed, the lawsuit inthe United States District Court for the Northern District of Illinoisis still pending.
 Item 6.  Exhibits and Reports on Form 8-K.(a)  Exhibits
A list of exhibits included as part of this Form 10-Q is set forth inan Exhibit Index that immediately precedes such exhibits.
(b)  There were no Form 8-Ks filed in the third quarterof 2004.  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 September 30, 2004 to be signed on its behalf by the undersignedthereunto duly authorized on the 8th day of November, 2004.    UNITED AIR LINES, INC. By:  /s/ Frederic F. BraceFrederic F. BraceExecutive Vice President andChief Financial Officer(principal financial officer)  By:  /s/ M. Lynn HughittM. Lynn HughittVice President and Controller(principal accounting officer)   Exhibit Index Exhibit No.Description     12.1Computation of Ratio of Earnings to Fixed Charges   31.1Certification of the Principal Executive OfficerPursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-OxleyAct of 2002)   31.2Certification of the Principal Financial OfficerPursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-OxleyAct of 2002)   32.1Certification of the Chief Executive OfficerPursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)   32.2Certification of the Chief Financial OfficerPursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)