****UNITED STATES SECURITIESAND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-Q**
(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE           SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHESECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________
Commission file number 33-21220*
**UNITED AIR LINES, INC.**(Exact name of registrant as specified in its charter)
**Delaware****36-2675206**(Stateor other jurisdiction of(I.R.S.Employerincorporationor organization)IdentificationNo.)  **Location:1200 East Algonquin Road, Elk Grove Township, Illinois               60007****MailingAddress:  P. O. Box 66100, Chicago, Illinois                                       60666**(Addressof principal executive offices)                                                             (Zip Code)  **Registrant'stelephone number, including area code  (847) 700-4000**
   Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes   X       No
   Indicate the number of shares outstanding of each of the issuer's classesof common stock, as of the latest practicable date.  OutstandingatClassOctober24, 2003CommonStock ($5 par value)205
*  Registrantis the wholly owned subsidiary of UAL Corporation (File 1-6033). Registrant became subject to filing periodic reports under the SecuritiesExchange Act of 1934 as a result of a public offering of securities whichbecame effective June 3, 1988 (Registration Nos. 33-21220 and 22-18246).  
United Air Lines, Inc.and Subsidiary Companies Report on Form 10-Q
For the Quarter EndedSeptember 30, 2003
Index PARTI.FINANCIALINFORMATIONPage No.  Item1. Financial Statements  CondensedStatements of Consolidated Financial Position (Unaudited) - as of September30, 2003 and December 31, 20023  Statementsof Consolidated Operations (Unaudited) - for the three months and ninemonths ended September 30, 2003 and 20025  CondensedStatements of ConsolidatedCash Flows (Unaudited) -for the nine months ended September 30,2003 and 20027  Notesto Consolidated FinancialStatements (Unaudited)8 Item2. Management's Discussion and Analysis of           Financial Condition and Results of Operations19  Item3. Quantitative and Qualitative Disclosures About           Market Risk30    Item4. Controls and Procedures31PARTII.OTHERINFORMATION  Item6. Exhibits and Reports on Form 8-K32 Signatures33 ExhibitIndex34 PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    September 30December 31Assets20032002   Current assets:  Cash and cash equivalents$ 1,202 $ 718 Restricted cash629 450 Short-term investments109 311 Receivables, net890 704 Income tax receivables47 373 Inventories, net303 310 Prepaid expenses and other218217 3,3983,083   Operating property and equipment:  Owned17,999 19,540 Accumulated depreciation and amortization(4,975)(5,282) 13,02414,258   Capital leases2,529 2,573 Accumulated amortization(537)(494) 1,9922,079 15,01616,337   Other assets:  Long-term restricted cash- 116 Investments20 80 Intercompany receivables and loans13 - Intangibles, net382 384 Pension assets962 1,162 Aircraft lease deposits854 776 Prepaid rent127 338 Other, net854853 3,2123,709    $21,626$23,129   
See accompanying Notes to Consolidated Financial Statements.  
United Air Lines, Inc. and Subsidiary Companies(Debtor and Debtor-in-Possession)Condensed Statements of Consolidated Financial Position (Unaudited)(In Millions)
    September 30December 31Liabilities and Stockholder's Equity20032002   Current liabilities:  Current portions of long-term debt and  capital lease obligations$ 727 $ - Advance ticket sales1,479 1,021 Accrued salaries, wages and benefits1,281 1,490 Accounts payable363 280 Related party accounts payable38 - Other810883 4,6983,674   Long-term debt-700   Other liabilities and deferred credits:  Deferred pension liability5,918 4,661 Postretirement benefit liability1,934 1,809 Deferred income taxes259 225 Other403539 8,5147,234   Liabilities subject to compromise14,28513,975    Commitments and contingent liabilities (Seenote)     Preferred stock committed to Supplemental ESOP-2   Stockholder's equity:  Common stock at par- - Additional capital invested1,588 1,592 ESOP capital3,988 3,986 Retained deficit(6,211)(3,756)Accumulated other comprehensive income(3,622)(2,661)Receivables from affiliates(1,615)(1,615)Other1(2) (5,871)(2,456)    $21,626$ 23,129   
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 20032002Operating revenues:  Passenger - United Airlines$ 3,112 $ 3,143 Passenger - Regional Affiliates250 - Cargo145 166 Other 250336 3,7573,645Operating expenses:  Salaries and related costs1,210 1,821 Aircraft fuel514 532 Purchased services319 364 Aircraft rent151 208 Landing fees and other rent239 257 Depreciation and amortization263 240 Cost of sales189 292 Aircraft maintenance167 131 Regional affiliates313 - Commissions94 109 Other309 390 Special charge 26- 3,7944,344   Loss from operations(37)(699)   Other income (expense):  Interest expense(108)(157)Interest capitalized- 5Interest income14 28 Equity in earnings of affiliates(1)- Non-operating special charges(25)- Reorganization items, net(237)- Government compensation- 50 Miscellaneous, net(22)1 (379)(73)  Loss before income taxes(416)(772)Credit for income taxes-139   Net loss$ (416)$ (911)
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 20032002Operating revenues:  Passenger - United Airlines$ 8,285 $ 9,091 Passenger - Regional Affiliates250 - Cargo463 474 Other 901981 9,89910,546Operating expenses:  Salaries and related costs3,960 5,169 Curtailment charges152 - Aircraft fuel1,538 1,397 Purchased services963 1,067 Aircraft rent490 633 Landing fees and other rent714 759 Depreciation and amortization768 723 Cost of sales792 854 Aircraft maintenance399 428 Regional affiliates313 - Commissions239 347 Other926 1,111 Special charge26- 11,28012,488   Loss from operations(1,381)(1,942)   Other income (expense):  Interest expense(373)(453)Interest capitalized2 22 Interest income86 93 Equity in earnings of affiliates(4)2 Gain on sale of investment- 46 Non-operating special charges(162)- Reorganization items, net(884)- Government compensation300 130 Miscellaneous, net(39)(14) (1,074)(174)   Loss before income taxes(2,455)(2,116)Credit for income taxes-(346)Net loss$(2,455)$(1,770)
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                 2003               2002Cash and cash equivalents at beginning   of period, excluding restricted cash$ 718$ 1,504   Cash flows from operating activities749(858)   Cash flows from reorganization activities:  Reorganization items, net(884)- Transfer of Company lease certificates215 - Increase in liabilities497- Loss on disposition of property36- (136)-Cash flows from investing activities:  Additions to property and equipment(85)(110)Proceeds on disposition of property and  equipment120 363 Proceeds on sale of investments15 137 Increase in restricted cash(63)(333)Increase in related party receivables(13)(4)Decrease in short-term investments202 400 Increase in deferred financing costs(62)(34)Other, net835 122454Cash flows from financing activities:  Proceeds from DIP Financing138 - Proceeds from issuance of long-term debt- 946 Repayment of DIP Financing(111)- Repayment of long-term debt(210)(1,273)Principal payments under capital  lease obligations(86)(190)Dividend to parent company- (3)Decrease in short-term borrowings- (133)Decrease in related party debt(20)(10)Decrease in debt certificates under Companyleases- 290 Other, net3810 (251)(363)Increase in cash and cash equivalents484(767)   Cash and cash equivalents at end of period,  excluding restricted cash$ 1,202$ 737   Cash paid during the period for:  Interest (net of amounts capitalized)$ 276 $ 389 Income taxes$ - $ 54 Non-cash transactions:  Long-term debt incurred in connection  with additions to equipment and other assets$ 9 $ 706 Net unrealized gain (loss) on investments$ 3 $ (6)Increase (decrease) in pension intangible$ (200)$ 608 
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" or the "Company") is a wholly owned subsidiary of UAL Corporation("UAL").
Interim Financial Statements
        We prepared the consolidatedfinancial statements shown here as required by the Securities and ExchangeCommission ("SEC"). Some information and footnote disclosures normallyincluded in financial statements that meet generally accepted accountingprinciples have been condensed or omitted as permitted by the SEC. We believethat the disclosures presented here are not misleading. The financial statementsinclude all adjustments (which include only normal recurring adjustments,reorganization items and other special charges described below) that areconsidered necessary for a fair presentation of our financial positionand operating results. These financial statements should be read togetherwith the information included in our most recent Annual Report on Form10-K for the year 2002.
Voluntary Reorganization Under Chapter 11
        *Bankruptcy Proceedings.*OnDecember 9, 2002 (the "Petition Date"), UAL, United and 26 direct and indirectwholly owned subsidiaries filed voluntary petitions to reorganize theirbusinesses under Chapter 11 of the United States Bankruptcy Code in theUnited States Bankruptcy Court for the Northern District of Illinois, EasternDivision (the "Bankruptcy Court"). The Bankruptcy Court is jointly administeringthese cases as "In re: UAL Corporation, et al., Case No. 02-48191." Theconsolidated financial statements shown here include certain subsidiariesthat did not file to reorganize under Chapter 11. The assets and liabilitiesof these subsidiaries are not considered material to theConsolidatedFinancial Statements.
        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. All vendors are being paid for allgoods furnished and services provided after the Petition Date in the ordinarycourse of business. However, under Section 362 of the Bankruptcy Code,actions to collect most of our pre-petition liabilities are automaticallystayed. Most of these pre-petition liabilities will be settled under aplan of reorganization to be approved by the Bankruptcy Court.
        A pre-petition liabilitythat requires different treatment under the Bankruptcy Code relates tocertain qualifying aircraft, aircraft engines and other aircraft-relatedequipment that are leased or subject to a security interest or conditionalsale contract. Under Section 1110 of the Bankruptcy Code, actions to collectmost pre-petition liabilities of this nature are automatically stayed for60 days only, except under two conditions: (a) the debtor may extend the60-day period by agreement with the relevant financier and with court approval;or (b) the debtor may agree to perform all of the obligations under theapplicable financing and cure any defaults as required under the BankruptcyCode. If neither of these conditions is met, the financier may demand thereturn of the aircraft or take possession of the property and enforce anyof its contractual rights or remedies to sell, lease or otherwise retainor dispose of such equipment.
        In our case, the 60-day periodunder Section 1110 expired February 7, 2003. We have reached agreementswith a significant number of aircraft financiers to extend the automaticstay. We have also made elections with respect to other aircraft to cureall existing defaults and to pay the contract rates. With respect to certainother aircraft, however, United has taken no action. The applicable lessorsor lenders in those situations, therefore, are entitled to make a demandfor the return of such aircraft. Although we believe current market conditionsfor commercial aircraft make repossession unlikely, there can be no assurancethat United's lenders and lessors will not repossess any of the applicableaircraft. Repossession of a significant number of aircraft could resultin substantial disruptions to our operations and have a material adverseeffect on our business.
        Integral to our restructuringefforts is adjusting the size and composition of our fleet to reflect reducedmarket demand. To this end, we have rejected certain aircraft leases andreturned certain aircraft to the relevant financiers during the first ninemonths of the year, as authorized by Section 1110 of the Bankruptcy Code.We anticipate continuing to reject leases and return aircraft as we progressthrough the reorganization process.
        To successfully exit Chapter11, UAL must obtain confirmation by the Bankruptcy Court of a plan of reorganization.A plan of reorganization would, among other things, resolve our pre-petitionobligations, set forth UAL's revised capital structure and establish UAL'scorporate governance subsequent to exit from bankruptcy. On March 21, 2003,the Bankruptcy Court approved the extension to October 2003 of the Company's"exclusive period" during which UAL is the only party permitted to filea plan of reorganization. On September 19, 2003, the Bankruptcy Court approvedan additional five-month extension of our exclusive period to March 8,2004. The decision as to when we will file a plan of reorganization dependson the timing and outcome of numerous ongoing matters in the Chapter 11process. We expect to file a plan of reorganization that provides for UAL'semergence from bankruptcy, but there can be no assurance that the BankruptcyCourt will confirm a plan of reorganization or that any such plan willbe implemented successfully.
        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 us and the Creditors' Committee could protractthe Chapter 11 process, hinder our ability to operate during the Chapter11 process, and delay our emergence from Chapter 11.
***       **DIP Financing.*Inconnection with the Chapter 11 filings, UAL arranged a debtor-in-possessionsecured financing ("DIP Financing"). The DIP Financing consists of twofacilities, a $300 million facility provided by Bank One N.A. ("Bank OneFacility") and a $1.2 billion facility provided by J.P. Morgan Chase Bank,Citicorp USA, Inc., Bank One, N.A., and The CIT Group/Business Credit,Inc. ("Club Facility"). As of September 30, 2003, we had borrowed $300million under the Bank One Facility and $427 million under the Club Facility.The borrowings under the Bank One Facility are due in five equal monthlyinstallments beginning in March 2004 and the Club Facility matures on July1, 2004.
*        Financial StatementPresentation.*We have prepared the accompanying consolidated financialstatements in accordance with American Institute of Certified Public Accountants'Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entitiesin Reorganization Under the Bankruptcy Code," and on a going-concern basis,which assumes continuity of operations, realization of assets and satisfactionof liabilities in the ordinary course of business.
        SOP 90-7 requires that thefinancial statements for periods subsequent to a Chapter 11 filing separatetransactions and events that are directly associated with the reorganizationfrom the ongoing operations of the business. Accordingly, all transactions(including, but not limited to, all professional fees, realized gains andlosses, and provisions for losses) directly associated with the reorganizationand restructuring of the business are reported separately in the financialstatements. The Statements of Consolidated Financial Position distinguishpre-petition liabilities subject to compromise both from those pre-petitionliabilities that are not subject to compromise and from post-petition liabilities.Liabilities subject to compromise are reported at the amounts expectedto be allowed by the Bankruptcy Court, even if they may be settled forlesser amounts.
        In addition, as a resultof the Chapter 11 filings, the realization of assets and satisfaction ofliabilities, 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, the forthcoming plan of reorganization could materially changethe amounts and classifications in the historical consolidated financialstatements.
        Pursuant to the BankruptcyCode, we have filed schedules with the Bankruptcy Court identifying ourassets and liabilities as of the Petition Date, while our creditors havebeen able to file proofs of claim with the Bankruptcy Court. The totalamount of claims filed with the Bankruptcy Court far exceeds our estimateof ultimate liability. We believe that many of these claims are invalidbecause they are duplicative, are based upon contingencies that have notoccurred, or are otherwise overstated. Differences in amount between claimsfiled by creditors and liabilities shown in our records are being investigatedand resolved in connection with our claims resolution process. That processhas commenced and, in light of the number of claims asserted, will takesignificant time to complete. For this reason, the ultimate number andallowed amounts of such claims cannot yet be determined.
New Accounting Pronouncements
        In January 2003, the FinancialAccounting Standards Board ("FASB") issued Interpretation 46, "Consolidationof Variable Interest Entities" ("FIN 46"), which requires the "primarybeneficiary" of a VIE to:1)    include the VIE's assets, liabilities and operatingresults in its consolidated financial statements;
2)    disclose information about the VIE's assets andliabilities, and the nature, purpose and activities of consolidated VIEsin its financial statements; and
3)    disclose information about the nature, purposeand activities for unconsolidated VIEs in which a company holds a significantvariable interest.
        FIN 46 is effective immediatelyfor any interests acquired after January 31, 2003 and effective beginningin the third quarter of 2003 for all definite VIEs acquired before February1, 2003. In October 2003, the FASB deferred the effective date for applyingthe provisions of FIN 46 until the end of the fourth quarter of 2003 forinterests held by public entities in VIEs or potential VIEs created beforeFebruary 1, 2003.
        We have reviewed the newcapacity purchase agreements entered into after February 1, 2003 with UnitedExpress regional carriers and determined the agreements fall under thepurview of FIN 46. However, we have determined that we are not the "primarybeneficiary" of these agreements and therefore have not consolidated theentities in our financial statements. We are still evaluating the impactof FIN 46 on our financial statements for VIEs or potential VIEs createdbefore February 1, 2003.
        We have identified the followingas potential VIEs (created before January 31, 2003), but are still evaluatingthe legal structure, operational results and the cash flow of each to determineif we are the primary beneficiary:- Aircraft operating leases where the lessor is a trust established specificallyto purchase, finance and lease the aircraft and United has a fixed-pricepurchase option to purchase the aircraft at predetermined prices duringor at the end of the lease term.
- Airport operating leases where United guarantees the underlying municipalor governmental debt held by public bondholders, where no one public bondholderowns more than 50% of the debt and the lessor is a trust established specificallyto finance and lease the facilities.
- Fuel facilities where United guarantees the majority of the underlyingdebt and United consumes over 50% of the fuel facility capacity.
- Capacity purchase arrangements with certain regional airlines which specifylimits on the regional carrier's operating margin, and over 50% of theregional carriers capacity directly benefits United.
Future guidance and/or clarification of the complex issues imposed by FIN46 could potentially change our initial assessment of the potential VIEsidentified above.
        In the third quarter of 2003,we adopted Statement of Financial Accounting Standards ("SFAS") No. 150,"Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity" ("SFAS No. 150"). SFAS No. 150 establishes standardsfor classifying and measuring as liabilities certain financial instrumentsthat have characteristics of both debt and equity. SFAS No. 150 is effectivefor all such financial instruments created or modified after May 31, 2003and otherwise is effective at the beginning of the first interim periodbeginning after June 15, 2003. The adoption of SFAS No. 150 was immaterialto the Company's financial statements.
Termination of ESOP
        On June 26 2003, we terminatedthe Employee Stock Ownership Plan ("ESOP"), following the publication ofa regulation by the Internal Revenue Service that would permit the distributionof the remaining ESOP shares to plan participants without jeopardizingUnited's ability to utilize its net operating loss tax benefits.
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 SFAS No. 123, "Accounting for Stock-BasedCompensation," the Company's net loss would have been reported as the proforma amounts shown below: (In millions, except per share)Three MonthsNine Months  Ended September 30Ended September 30        2003        2002       2003        2002Net loss, as reported$ (416)$ (911)$(2,455)$(1,770)Less: Total compensation expensedetermined under    fair value method (net of taxin 2002)(5)(4)(15)(13) $ (421)$ (915)$(2,470)$(1,783)     
Income Taxes
        We have determined that itis more likely than not that our gross deferred tax assets, net of valuationallowances at September 30, 2003, will be realized through the reversalsof existing deferred tax credits.
        For 2003, United has a zeropercent effective tax rate. Beginning in the third quarter of 2002, weestablished a valuation allowance against our net deferred tax asset. Asof September 30, 2003, our valuation allowance totaled $2.1 billion.
Restricted Cash
        At September 30, 2003, Unitedhad $629 million in restricted cash, representing security for worker compensationobligations, security deposits for airport leases and reserves with institutionsthat process the Company's sales.
Liabilities Subject to Compromise
         Liabilities subjectto compromise refers to liabilities which will be accounted for under aplan of reorganization, including claims incurred prior to the PetitionDate. These amounts result from known or potential claims to be resolvedthrough the Chapter 11 process. These claims remain subject to future adjustments.Adjustments may result from negotiations, actions of the Bankruptcy Court,rejection of executory contracts and unexpired leases, the determinationas to the value of any collateral securing claims, proofs of claim or otherevents. To date, such adjustments, as reflected in reorganization expense,have been material and we anticipate that future adjustments will be materialas well. Payment terms for these amounts will be established in connectionwith the Chapter 11 process.
         At September 30, 2003,we had liabilities subject to compromise of approximately $14.3 billionconsisting of the following:  (In millions)  Long-term debt, including accruedinterest$ 7,784  Aircraft-related accruals anddeferred gains2,947  Capital lease obligations, includingaccrued interest2,211  Accounts payable329  Intercompany payables and loans277  Other 737  $ 14,285
United Express
         United has marketingagreements under which independent regional carriers, flying under theUnited Express ("UAX") name, feed passengers to other United-branded flights.During the third quarter of 2003, we reached agreements with several UAXcarriers, including SkyWest, Air Wisconsin and Mesa Air Group to operateselect portions of our United Express service.
        Historically, we have paidthese carriers on a fee-per-departure basis and included the revenues derivedfrom them in passenger revenue, net of expenses. However, our revised agreementswith these UAX carriers change the previous fee-per-departure arrangementto a fixed rate and capital reimbursement arrangement. Thus, in accordancewith Emerging Issues Task Force No. 01-08, "Determining Whether an ArrangementContains a Lease" ("EITF 01-08"), we have concluded that the revised agreementsare operating leases as the agreements:
               1)  identify "right of use" of a specific type and number of aircraftover a stated period of time; and
               2)  give United the right to set the pricing, schedules and routesof aircraft specified in the agreements, as well as to direct the carriers'operating policies    and procedures.
        EITF 01-08 is effective fornew arrangements or arrangements modified after the beginning of the thirdquarter of 2003. Accordingly, based on the terms in the new agreements,we have begun recording revenues and expenses related to these UAX carriersat gross, rather than net.
        We have been unsuccessfulin negotiating a new, similar arrangement with Atlantic Coast Airlines("ACA"). Thus, we continue to include the revenues and expenses relatedto ACA net in passenger revenues.
        Amounts included in passengerrevenues for the three- and nine-month periods (which represent only theACA relationship in third quarter 2003 and all UAX carriers in prior periods)were as follows:   Net revenues (net expenses)(in millions)Three MonthsNine Months Ended September 30Ended September 30       2003        2002        2003           2002United Express revenues$ 177 $ 311 $ 854 $ 970 United Express expenses(207)(383)(1,021)(1,162)Net amount in passenger revenues$ (30)$ (72)$ (167)$ (192)
Segment Information
         United has a globalroute network 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 revenues and expenses (as incorporatedin our consolidated financial statements) to these segments as follows: (In Millions)Three Months Ended September 30, 2003     Reportable North  LatinSegment AmericaPacificAtlanticAmerica       TotalRevenue$2,594 $ 560 $ 494 $ 109 $3,757 Loss before income taxes, special     charges and reorganization items$ (93)$ (34)$ 11 $ (12)$ (128)  (In Millions)Three Months Ended September 30, 2002     Reportable North  LatinSegment AmericaPacificAtlanticAmerica        TotalRevenue$  2,343 $  657 $ 536 $ 109 $  3,645 Loss before income taxes     and government compensation$ (584)$(136)$ (61)$ (41)$ (822)  (In Millions)Nine Months Ended September 30, 2003     Reportable North  LatinSegment AmericaPacificAtlanticAmerica        TotalRevenue$  6,713 $ 1,514 $ 1,351 $ 321 $9,899 Loss before income taxes, special     charges, government compensation,      curtailment charge and     reorganization items$(1,017)$ (305)$ (126) $ (83)$(1,531)   (In Millions)Nine Months Ended September 30, 2002     Reportable North  LatinSegment AmericaPacificAtlanticAmerica       TotalRevenue$ 6,892 $ 1,852$ 1,437 $  365 $ 10,546 Loss before income taxes, gainson      sales and government compensation$(1,519) $ (406) $ (235) $(132) $ (2,292)     ThreeMonthsNineMonths EndedSeptember 30EndedSeptember 30(InMillions)        2003      2002      2003     2002Totalloss for reportable segments$(128)$(822)$(1,531)$(2,292)Curtailmentcharge- - (152)- Specialcharges (51)- (188)- Reorganizationitems, net(237)- (884)- Governmentcompensation- 50 300 130 Gainon sale ---46Totalloss before income taxes and     cumulativeeffect of accounting change$(416)$(772)$(2,455)$(2,116)
Other Comprehensive Income Totalcomprehensive income (loss)ThreeMonthsNineMonths EndedSeptember 30EndedSeptember 30(InMillions)         2003        2002      2003        2002Netloss$(416)$(911)$(2,455)$(1,770)Unrealizedgains (losses) - 11 3 (6)Minimumpension liability adjustment--(964)(57)Totalcomprehensive loss$(416)$(900)$(3,416)$(1,833)
Reorganization Items
        In connection with our Chapter11 filings, we recognized $237 million and $884 million of largely non-cashreorganization expenses in the third quarter and first nine months of 2003,respectively. These include the following:  (In millions)Three MonthsNine Months  Ended September 30, 2003 Aircraft rejection charges$ 170 $ 449  Transfer of lease certificates- 215  Professional fees37 112  Severance and employee retention33 81  Interest income(3)(7) Other -34  $ 237$ 884    
        Aircraft rejection chargesinclude our estimate of claims resulting from United's rejection of certainaircraft leases and return of aircraft as part of the bankruptcy process.
        In the first quarter of 2003,we renegotiated certain off-balance sheet leases as part of the Section1110 process. Under the terms of the revised leases, we surrendered ourinvestment in the junior portion of the original lease debt to the originalequity participant. As a result, our investment in the corresponding leasecertificates was reduced to zero, resulting in a $215 million non-cashcharge in reorganization items.
Special Charges
         *Aircraft Impairment*.As a result of our 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.
         *Curtailment Charge.*Due to the ratification of new labor contracts for our major employee groupsand significant levels of employee attrition, we revalued some of our pensionplans and all of our postretirement plans during the second quarter 2003.
        The significant actuarialassumptions used for the revaluation of the plans were unchanged from December31, 2002, except for the discount rate and weighted average salary scale.The discount rate was decreased from 6.75% at December 31, 2002 to 6.50%for the April 1 revaluation, to 6.25% for the May 1 revaluation and to6.00% for the June 1 revaluation, reflecting changes in the interest rateenvironment. Given contractual changes, the weighted average salary scalewas decreased from 4.3% to 3.3%.
        The revaluation of the plansresulted in special termination and curtailment charges of $152 millionin the second quarter of 2003. In addition, as a direct result of the revaluationof the pension plans, stockholders' equity and pension intangible assetswere reduced by $964 million and $200 million, respectively. These changesto the pension and postretirement plans also resulted in a reduction toour annual expenses of approximately $550 million.
        *Air Canada.*On April 1, 2003, Air Canada filed for protection under the Companies'Creditors Arrangement Act ("CCAA") of the Canada Business Corporation Act.During the first quarter of 2003, the Company recorded a non-operatingspecial charge of $137 million in connection with Air Canada's CCAA filing.The charge included $46 million for the impairment of our investment inAir Canada preferred stock and $91 million to record a liability resultingfrom our guarantee of Air Canada debt. We consider this liability to bea pre-petition obligation and accordingly, have classified it in liabilitiessubject to compromise.
        In addition, we hold theequity interest on three Airbus A330 aircraft leased to Air Canada. Ournet investment in this transaction is approximately $88 million. If AirCanada rejects these leases, we most likely would incur a write-off ofmost or all of the transaction's value.
Reconciliation of Accruals
        Special charges recordedin 2001, 2002 and 2003, resulted in the creation of additional liabilitiesfor reduction in force and early termination fees. Following is a reconciliationof these liabilities as of September 30, 2003:    Reduction in forceEarly termination fees Balance at December 31, 2002$ 67$ 162 Accruals--  Payments(26)-  Balance at March 31, 2003$ 41$ 162 Accruals39- Payments(32)-  Balance at June 30, 2003$ 48$ 162 Accruals20- Payments(25)-  Balance at September 30, 2003$ 43$ 162
Government Compensation
        On April 16, 2003, the EmergencyWartime Supplemental Appropriations Act ("Wartime Act") was signed intolaw. The legislation includes approximately $3 billion of direct compensationfor U.S. airlines. Of the total, $2.4 billion compensates air carriersfor lost revenues and costs related to aviation security (including $100million for reinforcing cockpit doors); passenger and air carrier securityfees were suspended from June 1 through September 30, 2003; and government-providedwar-risk insurance was extended for one year to August 2004.
        In addition, the WartimeAct requires that the total compensation of the two most highly compensatedexecutives of certain airlines (including United) be limited, during theperiod between April 1, 2003 and April 1, 2004, to the salary they werepaid in 2002. We have executed a contract with the government agreeingto comply with these limits. Any violation of this provision will requireus to repay the government the amount of compensation we received for airlinesecurity fees described above. We do not anticipate any difficulties incomplying with this provision and believe the likelihood of repaying thegovernment is remote.  In May 2003, we received approximately $300million in compensation under the Wartime Act and in September 2003, wereceived an additional $14 million for cockpit door reinforcement.
        As part of the Air TransportationSafety and System Stabilization Act of 2001 enacted in response to theevents of September 11, 2001, the federal government made $5.0 billionin compensation available to the airline industry. In the first nine monthsof 2002, we received $130 million (considered non-operating income) underthis legislation.
Related Party Transactions
        United recognized the followingamounts related to transactions with UAL Loyalty Services, Inc. ("ULS")in 2003 and 2002: (inmillions)ThreeMonthsNine Months EndedSeptember 30EndedSeptember 30     2003           2002      2003        2002Revenues$106 $77 $ 300 $242 Commissionexpense and purchased services(10)(10)(30)(42)InterestIncome11 16 32 47 
        As a result of the bankruptcyfiling, all intercompany accounts receivable were reclassified to United'sequity and all intercompany accounts payable were reclassified to liabilitiessubject to compromise as of the Petition Date.
Contingencies and Commitments
         United has certaincontingencies resulting from litigation and claims (including environmentalissues) encountered in 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 we are subjectand prior experience, that the ultimate disposition of these contingencieswill not materially affect United's consolidated financial position orresults of operations.
         At September 30, 2003,commitments for the purchase of property and equipment, principally aircraft,approximated $1.6 billion, after deducting advance payments. Since September11, 2001, we have reached agreements with the aircraft manufacturers enablingus to delay delivery of future orders. Since resetting our fleet plan iscritical to our overall restructuring, we continue to hold discussionsregarding these deliveries. Our current commitments would require the paymentof an estimated $0.1 billion during the remainder of 2003 (all for non-aircraftcapital acquisitions), $0.4 billion in each of 2005 and 2006, and $0.7billion in 2007 and thereafter for the purchase of A319, A320 and B777aircraft. It is likely that the amount and timing of these obligationswill change as a result of our negotiations with aircraft manufacturers. 
Item 2.  Management's Discussion and Analysis of FinancialCondition and Results of Operations
Chapter 11 Reorganization
        *Bankruptcy Proceedings.*OnDecember 9, 2002, UAL, United and 26 of its subsidiaries filed voluntarypetitions to reorganize their businesses under Chapter 11 of the UnitedStates Bankruptcy Code. For further details regarding the Chapter 11 Cases,see "Voluntary Reorganization Under Chapter 11" in the Notes to ConsolidatedFinancial Statements.
        With the exception of ournon-filing subsidiaries, we continue to operate our businesses as "debtors-in-possession"under the jurisdiction 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. Most of these pre-petition liabilities will be settled under aplan of reorganization to be approved by the Bankruptcy Court. A pre-petitionliability that requires different treatment under Section 1110 of the BankruptcyCode relates to certain qualifying aircraft, aircraft engines and otheraircraft-related equipment that are leased or subject to a security interestor conditional sale contract. For further information on Section 1110 andits impact on the Company, see "Voluntary Reorganization Under Chapter11" in the Notes to Consolidated Financial Statements.
        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, set forth UAL's revised capital structure and establish UAL'scorporate governance subsequent to exit from bankruptcy. We currently anticipatethat we will seek financing at exit to repay our DIP Financing and createa stable capital structure for the Company going forward. Exit financingwould be part of our plan of reorganization. The decision as to when wewill file a plan of reorganization depends on the timing and outcome ofnumerous ongoing matters in the Chapter 11 process. We expect to file aplan of reorganization that provides for United's emergence from bankruptcy,but there can be no assurance that the Bankruptcy Court will confirm aplan of reorganization or that the plan will be implemented successfully.
        At this time, it is not possibleto predict the effect of the Chapter 11 reorganization process on our businessor when United may emerge from Chapter 11.  Our future results dependon the timely and successful confirmation and implementation of a planof reorganization. The rights and claims of various creditors and securityholders will be determined by the plan as well.  At this time we canmake no prediction concerning how each of these claims will be valued inthe bankruptcy proceedings. We believe that UAL's equity securities havelittle or no value and it is highly likely that the equity in UAL willbe canceled under any plan of reorganization that we propose. For thisreason, we urge that caution be exercised with respect to existing andfuture claims or investments in any UAL security.
        *Other RestructuringIssues - Pensions.* The combination of 45-year low interest rates,poor stock market performance and pension benefit improvements have causedmany U.S. pension funds, including ours, to become underfunded. This situationis exacerbated because government funding requirements obligate us to pay,on a going-forward basis, a special funding surcharge, referred to as a"deficit reduction contribution" ("DRC"), that is imposed when a pensionplan's funding status drops below 90%. This would require us to make significantaccelerated contributions to our pension plans. As described below in "Liquidityand Capital Resources," we currently estimate that we could be requiredto contribute approximately $4.8 billion to the defined benefit pensionplan trusts by the end of 2008. As part of our bankruptcy reorganization,we must address the underfunded status of United's U.S. pension plans.We are working in several areas to address this issue. On October 10, 2003,we filed with the IRS multiple applications for pension funding waiversfor all of our U.S. defined benefit pension plans. The waiver applicationsmust be approved by the IRS and such approval, if any, is expected to takesix to eight months. If approved, the waivers would allow us to reschedulethe required contributions over a five-year period.
        In addition, we continueto work closely with other airlines, airline unions and the AFL-CIO insupport of a pension reform proposal that would allow companies affectedby the DRC requirements to defer certain accelerated pension funding contributionsand smooth out minimum funding requirements over a longer period of timethan provided by the current law. We are also advocating for legislation(already approved by the U.S. House of Representatives) that would re-setthe interest rates that are used to determine corporate funding requirementsfor pension obligations.
        We are also actively exploringadditional options that could ease the temporary cash flow requirementscaused by accelerated pension contributions under the current laws andregulations. Our ultimate goal is to ensure United's financial stabilityas we exit from bankruptcy. In the event that these steps are not successfulor are insufficient to address the funding issues in planning for exitfrom bankruptcy, we may need to take additional measures designed to helpstabilize United's financial condition.
Results of Operations
*        Summary of Results*.The air travel business is subject to seasonal fluctuations. United's operationsare often adversely affected by winter weather and our first- and fourth-quarterresults normally reflect reduced travel demand. Historically, operatingresults are better in the second and third quarters.
       For the past two years, we haveexperienced greater fluctuations in unit revenue than the rest of the industry.Immediately following the September 11 terrorist attacks, United had amore significant decline in unit revenue than the industry overall. Inearly 2002, our year-over-year unit revenues began improving each month,rising from a 14% decline in January to a 4% decline in May, improvingUnited's position relative to the industry. However, these gains stalledduring 2002's third and fourth quarters as demand continued to be weakand yields declined. As is typical with a company in bankruptcy, we experiencedunder-performance in revenues following the Chapter 11 filings in Decemberof 2002. This under-performance accelerated in the first quarter of 2003.Overall weak economic conditions, the outbreak of war in Iraq and aggressivefare competition with low-cost competitors contributed to a 9% drop inpassenger unit revenue in the first quarter of 2003 as compared to thesame period of 2002.
        During the second quarterof 2003, our revenues were hurt by the outbreak of Severe Acute RespiratorySyndrome, as well as the continued weak economic conditions, the ongoingwar in Iraq, lingering customer concerns about our financial stabilityand continued aggressive fare competition with low-cost competitors. Therefore,we reduced our April schedule by 8% and our May schedule by another 4%,compared to what we had previously planned, with reductions concentratedin the Pacific and Atlantic regions. Simultaneously, we instituted a numberof pricing and inventory actions to maximize yield in this environmentof reduced capacity. Additionally, to improve our value to our core marketof business customers, we began promotions such as "Fly Three, Fly Free"in which passengers who buy three tickets get a fourth ticket free (withthe exception of applicable taxes and fees). As a result of these actions,we began to see positive trends in May and June, and passenger unit revenueswent from a 17% year-over-year decline in April to a modest year-over-yearimprovement in June. Overall, we experienced a 4% decrease in passengerunit revenue in the second quarter of 2003 versus the same period of 2002.By comparison, unit revenue for the industry was flat quarter over quarter.
        As we approached the thirdquarter of 2003, it became evident that summer demand would be strong andindustry capacity would fall short of this demand. To capitalize on thissituation, we took additional actions to ensure we would capture a revenuepremium commensurate with our superior product and service levels. We havealso reviewed and restructured many of our business fares to increase revenueby stimulating traffic and we continued our aggressive marketing campaignto re-engage customers by introducing additional promotions such as "Go,Go, Stay" for leisure customers. As a result, passenger unit revenues increasedby as much as 15% in August of 2003, with a year-over-year increase of12% for the third quarter. This compares to an industry average increaseof 7% year-over-year.
        United had an operating lossof $(37) million in the third quarter of 2003, compared to an operatingloss of $(699) million in the third quarter of 2002. United's net lossin the third quarter of 2003 was $(416) million, compared to $(911) millionin the same period of 2002. In the third quarter of 2002, we recorded avaluation allowance of $418 million against our net deferred tax asset.As a result, for 2003, United has a zero percent effective tax rate; comparativeamounts for 2002 are shown net of tax.
        During the third quarterof 2003, we began recording revenues and expenses related to certain UnitedExpress carriers at gross, rather than net. See "United Express" in theNotesto Consolidated Financial Statements.
        The third quarter 2003 resultsinclude $237 million in reorganization items recorded in connection withour bankruptcy proceedings, $26 million for aircraft impairment chargesin operating expense and $25 million for aircraft write-downs in non-operatingexpense. The third quarter 2002 results include $50 million from the AirTransportation Safety and System Stabilization Act of 2001. See "SpecialCharges" in the Notes to Consolidated Financial Statements.
        In the first nine monthsof 2003, United's loss from operations was $(1.4) billion, compared to$(1.9) billion in the first nine months of 2002. United's net loss in thefirst nine months of 2003 was $(2.5) billion, compared to $(1.8) billionin the same period of 2002. The 2002 net loss benefited from an incometax credit of $346 million.
        In addition to the itemsdescribed above for the third quarter, the 2003 loss includes a $152 millioncurtailment charge in operating expense and $137 million in non-operatingspecial charges related to our investment in Air Canada and an additional$647 million in reorganization items. See "Special Charges" in the Notesto Consolidated Financial Statements. In addition, the 2002 loss includesa gain of $46 million on the sale of our remaining investment in CendantCorporation.
        Additionally, we received$300 million in direct government compensation under the 2003 EmergencyWartime Supplemental Appropriations Act in the second quarter of 2003 and$80 million under the Air Transportation Safety and System StabilizationAct of 2001 in the second quarter of 2002.
        Specific factors affectingour consolidated operations for the third quarter and first nine monthsof 2003 are described below.
        *Third Quarter 2003Compared with Third Quarter 2002.*  Operating revenues increased$112 million (3%) and United's revenue per available seat mile (unit revenue)excluding regional affiliates increased 9% to 9.95 cents. To balance marketplacedemand levels, we pulled down our schedule and reduced available seat milesby 12% from 2002. In spite of these lower capacity levels, passenger revenuesdecreased only 1% ($31 million) as we achieved a record load factor of80.2% and increased yield by 5% to 10.90 cents. The following analysisby 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(10%)(3%)7%Pacific(19%)(13%)1%Atlantic(11%)(8%)1%Latin America(13%)(1%)(1%)System(12%)(6%)5%
        Cargo revenues decreased$21 million (13%) due to a 23% decrease in cargo ton miles, despite a 13%increase in yield. Other operating revenues decreased $86 million (26%)as the result of an $89 million decrease in fuel sales to third parties.
        Operating expenses decreased$550 million (13%) and United's cost per available seat mile (unit cost)excluding regional affiliates decreased 9%, from 10.90 cents to 9.88 cents.Salaries and related costs decreased $611 million (34%) primarily as aresult of new labor agreements for all employee groups. In addition tolower salary and benefit levels, these changes enabled us to improve productivity(as measured by available seat miles per employee) by 13% and thus reducepersonnel through retirements, attrition and furloughs. Aircraft fuel decreased$18 million (3%) as a 14% decline in consumption was offset by a 13% increasein the average cost of fuel from 80.2 cents to 90.4 cents a gallon. Purchasedservices decreased $45 million (12%) primarily as a result of volume-drivendecreases in GDS (global distribution systems) and credit card discountfees. Similarly, commissions also decreased $15 million (14%) on lowercommissionable revenues. Aircraft rent decreased $57 million (27%) dueto the restructuring of aircraft financings as part of the Section 1110process in bankruptcy. Depreciation and amortization increased $23 million(10%) due to a $45 million loss on the sale of a B747 aircraft, which waspartially offset by decreases resulting from restructured aircraft financingsrelated to our bankruptcy filings. Cost of sales decreased $103 million(35%) primarily due to lower fuel sales to third parties. Aircraft maintenanceincreased $36 million (27%) due to increases in purchased maintenance,including outsourcing and maintenance materials. Other expenses decreased$81 million (21%) due to decreases in crew layover expenses, as well asvolume-driven food and beverage costs.
        Other non-operating expenseamounted to $117 million in the third quarter of 2003, compared to $123million in the third quarter of 2002, excluding non-operating special charges,reorganization items and government assistance. Interest expense decreased$49 million (31%) as we have discontinued recording interest expense onall unsecured pre-petition debt. Interest income decreased $14 million(50%) due to lower investment balances and decreased interest rates. Miscellaneous,net increased $23 million primarily as a result of increased financingfees associated with the DIP Financing.
        *Nine Months 2003 Comparedwith Nine Months 2002.*  Operating revenues decreased $647million (6%) and United's revenue per available seat mile (unit revenue)excluding regional affiliates increased slightly to 9.46 cents. Passengerrevenues decreased $806 million (9%) due to a 6% decrease in revenue passengermiles and a 3% decrease in yield to 10.55 cents. United's available seatmiles across the system decreased 9% over the first nine months of 2002;however, passenger load factor increased 2.2 points to 76.3%. 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(6%)-%(6%)Pacific(15%)(20%)(2%)Atlantic(10%)(9%)(2%)Latin America(15%)(6%)(10%)System(9%)(6%)(3%)
        Cargo revenues decreased$11 million (2%) due to a 14% decrease in cargo ton miles, partially offsetby a 13% increase in yield. Other operating revenues decreased $80 million(8%) primarily due to decreases in maintenance sales and a $47 milliondecrease in fuel sales to third parties.
        Operating expenses decreased$1.2 billion (10%) and United's cost per available seat mile (unit cost)excluding regional affiliates decreased 4%, from 11.20 cents to 10.75 cents.Salaries and related costs decreased $1.2 billion (23%) primarily as aresult of new labor agreements for all employee groups, as well as decreasesin personnel as a result of furloughs. The 2003 amount also includes aone-time benefit of $102 million for the reversal of a contractual paymentto certain employees and changes in vacation accruals as a result of newlower pay rates for all union groups that were part of contract renegotiations.Aircraft fuel increased $141 million (10%), as an 11% decrease in consumptionwas more than offset by a 24% increase in the average cost of fuel from75.4 cents to 93.6 cents a gallon. Aircraft rent decreased $143 million(23%) due to the restructuring of aircraft financings as part of the Section1110 process in bankruptcy. Depreciation and amortization increased $45million (6%) due to an $86 million loss on the sale of two B747 aircraft,which was offset by decreases to amortization expense for airport slotsthat were fully amortized in June 2002 and decreases to provisioning forobsolescence on expendables. Cost of sales decreased $62 million (7%) primarilydue to lower fuel sales to third parties. Aircraft maintenance decreased$29 million (7%) due to decreases in engine and aircraft repair volumesas a result of reduced flying. Commissions decreased $108 million (31%)primarily as a result of our discontinuing the payment of base commissionson all tickets issued in the U.S. and Canada effective March 20, 2002,as well as a decrease in commissionable revenues. Other expenses decreased$185 million (17%) due to decreases in crew layover expenses, as well asvolume-driven food and beverage costs.
        Other non-operating expenseamounted to $328 million in the first nine months of 2003, compared to$350 million in the first nine months of 2002, excluding reorganizationitems, non-operating special charges, government assistance and the gainon sale of our investment in Cendant. Interest expense decreased $80 million(18%) as we have discontinued recording interest expense on all unsecuredpre-petition debt. Interest capitalized decreased $20 million (91%) asa result of lower advance payments on the acquisition of aircraft. Includedin interest income was $41 million in interest income on IRS tax refundsreceived in the second quarter of 2003. Excluding the interest income onthe refunds, interest income decreased $48 million (52%) due to lower investmentbalances and decreased interest rates. Miscellaneous, net increased $25million primarily as a result of increased financing fees associated withthe DIP Financing.
Liquidity and Capital Resources
        United's total of cash, cashequivalents and short-term investments, including restricted cash, was$1.9 billion at September 30, 2003, compared to $1.5 billion at December31, 2002.
        Property additions, includingaircraft and aircraft spare parts, amounted to $85 million. In the firstnine months of 2003, we acquired one B757 aircraft off lease, sold twoB747 aircraft and rejected one B757, four B777, one A320, five B747 andnine B737 aircraft under Section 1110 of the Bankruptcy Code. In addition,six B767 aircraft were transferred to non-operating status.
        Financing activities includedprincipal payments under debt and capital lease obligations of $210 millionand $86 million, respectively. These amounts represent payments made underSection 1110 elections for liabilities subject to compromise. During thefirst quarter of 2003, we drew down $92 million in cash under the DIP Financing.
        During the second quarterof 2003, we sold one B747 aircraft for net proceeds of $54 million. Theproceeds were used to pay down the DIP Financing, enabling us to draw downanother $31 million under the DIP Financing and issue $2 million in lettersof credit. During the third quarter of 2003, we sold an additional B747aircraft for net proceeds of $51 million enabling us to further pay downthe DIP Financing.
        In April 2003, we received$365 million from the Internal Revenue Service after resolving certainincome tax refund claims.
        The Emergency Wartime SupplementalAppropriations Act of 2003 ("Wartime Act") was enacted in April 2003 andincluded approximately $3 billion of financial aid for U.S. air carriers,including United. (See "Government Compensation" in the Notes to ConsolidatedFinancial Statements.) In May 2003, we received $300 million in compensationunder the Wartime Act. In September 2003, we received an additional $14million related to cockpit door reinforcement.
        Including the governmentcompensation and tax refunds, we had cash flow from operations of $749million for the first nine months of 2003. Excluding these amounts, ourcash flow from operations was $84 million, an improvement of nearly $1billion as compared to the first nine months of 2002.
        As of September 30, 2003,we had $629 million in restricted cash. The cash largely represents 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 may be requiredto post additional cash collateral to support such obligations in the future.
        We did not make any cashcontributions to our defined benefit pension plan trusts for U.S. basedemployees in 2001, 2002 or in the first three quarters of 2003. In lieuof making cash contributions, we utilized a portion of our credit balance(the cumulative difference between the prior year's minimum required contributionsand actual contributions) to meet the minimum required contribution. OnOctober 10, 2003, we filed with the IRS multiple applications for pensionfunding waivers for all of United's U.S. defined benefit pension plans,which would allow us to reschedule our contributions. See "Other RestructuringIssues - Pensions."
        We have a remaining creditbalance that is available to be used in the latter part of 2003; however,once the credit balance is fully utilized, in the absence of any additionalpension funding relief, substantial contributions will be required. Weestimate, based on current market conditions and benefit plans, that wecould be required to contribute approximately $4.8 billion to our domesticdefined benefit pension plan trusts by the end of 2008. This is higherthan previous estimates primarily due to updated demographics and changedassumptions concerning the long-term interest rate forecast. However, futurefunding requirements depend upon factors such as interest rates, fundedstatus, regulatory requirements and the level and timing of asset returnscompared to those of expected benefit disbursements. Significant futurechanges to the Company's demographic mix or pension plans could also impactfuture funding requirements. As a result, actual future contributions maydiffer materially.
        At September 30, 2003, commitmentsfor the purchase of property and equipment, principally aircraft, approximated$1.6 billion, after deducting advance payments. Of this amount, an estimated$0.1 billion is expected to be spent during the remainder of 2003. Forfurther details, see "Contingencies and Commitments" in the Notes toConsolidated Financial Statements.
Labor Agreements
        In March and April 2003,United employees represented by various unions ratified tentative agreementsbetween the Company and their unions to modify existing collective bargainingagreements ("CBAs"). All of these agreements became effective on May 1,2003 and are six years in duration. When combined with expected averageannual savings of approximately $300 million in salaried and managementcosts (achieved through wage and staffing reductions as well as benefitchanges), these agreements are expected to reduce our average annual costsby approximately $2.5 billion per year versus the previous contracts (basedon the size of the airline at the time of the negotiations). In additionto reductions in pay, all of the contracts allow for improving productivity(through changes to work rules) and for changes in employees' medical plans,including increases to co-payments. These changes, combined with overallheadcount reductions, enabled us to reduce salaries and related costs by$611 million (34%) and improve productivity by 13% in the third quarter2003 as compared to third quarter 2002.
        Other work-group specificchanges are described below:
        On April 11, 2003, the AirLine Pilots Association, International ("ALPA") ratified a previously announcedtentative agreement on a restructured CBA. The new CBA reduces pay andbenefits and, through work-rule changes, improves productivity by an averageof approximately $1.1 billion per year versus the previous contract. Aspart of these changes, pilots' retirement benefits have been reduced througha decrease in the Company's contribution to the pilots' defined contributionplan and a reduction in the benefit formula for their defined benefit plan.The agreement also provides for significantly enhanced flexibility withrespect to regional jets and code share arrangements. In addition, theagreement provides for ALPA to retain a seat on UAL's Board of Directorsfor the duration of the new CBA.
        On April 29, 2003, Unitedflight attendants ratified a tentative agreement between the Company andthe Association of Flight Attendants ("AFA") on a restructured CBA, whichis expected to reduce our average annual costs by approximately $300 millionversus the previous CBA. As part of these changes, future retirement benefitsfor flight attendants have been reduced through changes in the AFA pensionplan.
         On April 29, 2003,United employees represented by the International Association of Machinistsand Aerospace Workers ("IAM") District Lodge 141 ratified an agreementbetween the Company and the IAM on four restructured CBAs as well as ona restructured CBA for employees of our subsidiary Mileage Plus, Inc. Theagreements reduce average annual costs by approximately $450 million versusthe previous CBAs. On April 29, 2003, employees represented by IAM DistrictLodge 141M ratified agreements between the Company and the IAM on threerestructured CBAs. The agreements will reduce average annual costs by approximately$350 million versus the previous CBAs. These agreements also provide Unitedincreased flexibility to outsource and provides for the IAM to retain aseat on UAL's Board of Directors for the duration of the new CBA. In July2003, the National Mediation Board announced that United's mechanics andrelated employees, who were previously represented by the IAM, had votedto change their union representation to the Aircraft Mechanics FraternalAssociation. This change in representation will not affect the terms orduration of the CBA agreement ratified in April.
        On April 11, 2003, United'sdispatchers represented by the Professional Airline Flight Control Association("PAFCA") ratified a tentative agreement between PAFCA and the Companyon a restructured CBA, which is expected to reduce average annual costsby approximately $4 million versus the previous CBA. The restructured CBAalso transfers dispatchers to the management, administrative and publiccontact pension plan. On March 23, 2003, United meteorologists representedby the Transport Workers Union ("TWU") ratified a tentative agreement betweenTWU and the Company on a restructured CBA which is expected to reduce averageannual costs by approximately $1 million versus the previous CBA.
        In addition, all of the agreementsprovide for various common features. These include a Company-wide success-sharingprogram that provides the opportunity for payouts tied to our level ofprofitability and performance. The agreements also provide us with an opportunityto introduce a low-cost operation. As a result, we are developing plansto roll out a low-cost operation ("LCO") with an initial first-year fleetsize of approximately 40 aircraft (all redeployed from United's currentfleet) serving key leisure markets. In September 2003, we announced thatthat LCO would launch, serving seven cities from Denver in February 2004.
        UAL has also agreed to includein its plan of reorganization provisions for each relevant employee groupto receive a distribution of the equity, securities or other considerationprovided to the general unsecured creditors. In addition, in all of ouremployee contracts we have agreed that any plan of reorganization we proposeor support will provide the relevant employee group with a distributionof the above-described equity, securities or other consideration (as comparedto the total distribution provided to all employee groups) that matchesthe proportion of each employee groups' contribution to total employeecost reductions.
Facilities
        At September 30, 2003, therewere approximately $1.7 billion in special facilities revenue bonds ("municipalbonds") outstanding that were issued on behalf of United to build or improveairport-related facilities. The Company leases facilities at airports pursuantto lease agreements where municipal bonds funded at least some of the airport-relatedprojects. In connection with the financing agreements entered into by Unitedwith the issuance of these bonds, we are required to make payments in amountssufficient to cover the interest semi-annually, with principal payableupon maturity.
         Under the BankruptcyCode, we are not permitted to make payments on unsecured pre-petition debtwithout first notifying our creditors and receiving the approval of theBankruptcy Court. Since we have been advised that our municipal bonds maybe unsecured (or in certain instances, partially secured) pre-petitiondebt, we cannot make payments on these bonds without first meeting therequirements outlined above.****For this reason, we have classifiedall of the municipal bonds on our balance sheet as liabilities subjectto compromise.
         Section 365 of theBankruptcy Code requires that we meet all of our post-petition obligationsfor unexpired leases of non-residential real property in a timely manner.We believe that we are in compliance with all payment obligations underour lease agreements relating to airports where we have not rejected ourlease and have municipal bonds outstanding. However, we have not made anddo not intend to make debt service payments or any other payment on accountof any of the municipal bonds issued on behalf of the Company relatingto domestic airport financings. As a result, under certain of our airportlease agreements, we may be considered in default due to non-payment ofthe debt and therefore subject to the default provisions of our lease agreementswith the airports. Possible consequences could include loss of our statusas a signatory airline (resulting in increased rents and landing fees)and loss of our exclusive space agreements.
        We have taken a number ofsteps to reduce the risks associated with non-payment on the municipalbonds. On September 18, 2003, we filed a complaint for declaratory judgmentfor all seven municipal bond issues relating to our facilities at the ChicagoO'Hare International Airport ("O'Hare"), seeking, among other things, adeclaration that a certain cross-default provision in the O'Hare airportlease is unenforceable. At this time, the City of Chicago has not answeredthe complaint.
        Previously, 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, the San Francisco International Airport, and the Los Angeles InternationalAirport. In each case, we are seeking clarification of our obligationsunder the applicable municipal bonds, and the protection of our rightsconcerning related airport lease agreements at the applicable airport untilthe Bankruptcy Court decides the merits of the complaints.
        Subsequently, the BankruptcyCourt entered an order that requires each of the defendants in these actionsto give us a 15-day notice and cure period before taking any action toterminate any of our rights concerning these airport leases until suchtime as the Bankruptcy Court enters final orders on United's declaratoryjudgment actions. The Bankruptcy Court has conducted a hearing on motionsfor summary judgment filed by various parties.
         Pending the BankruptcyCourt's ruling, we are unable to predict what, if any, action might betaken in the future by either the bondholders or the airport authoritiesas a result of United's failure to pay these obligations as contractuallyrequired. However, we believe that the Bankruptcy Court's orders substantiallyreduce the risk of any declared default by providing us an opportunityto make required payments and preserve our rights under the leases.
United Express Contracts
        During the third quarterof 2003, we reached agreements with several of our United Express carriers,including SkyWest, Air Wisconsin and Mesa Air Group, to operate selectportions of our United Express service.
        We have been unsuccessful,however, in reaching a similar agreement with Atlantic Coast Airlines,Inc. ("ACA"), currently United's largest United Express carrier. Althoughour existing agreement with ACA is effective until 2010, ACA announcedon July 28, 2003, that it anticipates that its relationship with Unitedwill end, and that it intends to establish a new, independent low-fareairline based at Washington Dulles International Airport.
        Despite our efforts to negotiatea competitive agreement with ACA, we have been unable to do so. As a result,we are exploring alternatives to replace the service currently providedby ACA. Failure to reach a cost-competitive agreement with ACA or anothercarrier in a timely manner could have an adverse impact on our future financialresults.
Subsequent Events
        On October 27, 2003, we enteredinto a jet fuel supply agreement with Morgan Stanley Capital Group Inc.that provides for the supply to the Company of jet fuel and the maintenanceof jet fuel inventories at specified airport locations. We expect thatconsummation of the transactions contemplated in the jet fuel supply agreementwill enable us to reduce our working capital requirements by approximately$230 million from winter peak requirements. This agreement was approvedby the Bankruptcy Court.
Outlook
        Information regarding guidancefor United's 2003 outlook can be obtained from UAL Corporation's Reporton Form 10-Q for the quarter ended September 30, 2003.
        Certain statements throughoutManagement'sDiscussion and Analysis of Financial Condition and Results of Operationsare forward-looking and thus reflect the Company's current expectationsand beliefs with respect to certain current and future events and financialperformance. Such forward-looking statements are and will be, as the casemay be, subject to many risks and uncertainties relating to our operationsand business environments that may cause actual results to differ materiallyfrom any future results expressed or implied in such forward-looking statements.Factors that could significantly affect expenses, unit costs, load factor,capacity, working capital, and fuel costs include, without limitation,the following: our ability to continue as a going concern; our abilityto operate pursuant to the terms of the DIP Financing; our ability to obtaincourt approval with respect to motions in the Chapter 11 proceeding prosecutedby us from time to time; our ability to develop, prosecute, confirm andconsummate one or more plans of reorganization with respect to the Chapter11 process; risks associated with third parties seeking and obtaining courtapproval to terminate or shorten our exclusive period to propose and confirmone or more plans of reorganization, for the appointment of a Chapter 11trustee or to convert the cases to Chapter 7 cases; the potential adverseimpact of the Chapter 11 filings on our liquidity or results of operations;the costs and availability of financing; our ability to execute our businessplan; our ability to attract, motivate and/or retain key employees; ourability to attract and retain customers; demand for transportation in themarkets in which we operate; general economic conditions; the effects ofany hostilities or act of war or any terrorist attack; the ability of otherair carriers with whom we have alliances or partnerships to provide theservices contemplated by the respective arrangements with such carriers;the costs and availability of aircraft insurance; the costs of aviationfuel; the costs associated with security measures and practices; competitivepressures on pricing (particularly from lower-cost competitors); governmentlegislation and regulation; and other risks and uncertainties set forthfrom time to time in United's reports to the United States Securities andExchange Commission. Consequently, the forward-looking statements shouldnot be regarded as representations or warranties by the Company that suchmatters will be realized. We disclaim any intent or obligation to updateor revise any of the forward-looking statements, whether in response tonew information, unforeseen events, changed circumstances or otherwise.  
Item 3.Quantitative and Qualitative Disclosures About MarketRisk
          For informationregarding the Company's exposure to certain market risks, see Item 7A.Quantitative and Qualitative Disclosures About Market Risk in United'sAnnual Report on Form 10-K for the year 2002.
Interest Rate Risk -(Inmillions, except average contract rates)NotionalAverageEstimated AmountContractRateFairValue   (Pay)/Receive*Interestrate swap$ 1307.56%$ (29) 
*Estimated fair values represent the amount United wouldpay/receive on September 30, 2003 to terminate the contracts. 
Item 4.  Controls and Procedures
        An evaluation was carried out under the supervision and with the participationof the Company's management, including the Chief Executive Officer ("CEO")and Chief Financial Officer ("CFO"), of the effectiveness of the Company'sdisclosure controls and procedures as of September 30, 2003.  Basedon that evaluation, the Company's management, including the CEO and CFO,has concluded that the Company's disclosure controls and procedures areeffective. During the third quarter of 2003, there was no change in theCompany's internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, the Company's internalcontrol over financial reporting.  
PART II.  OTHER INFORMATION
Item 6.  Exhibitsand 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 quarter of 2003.    SIGNATURES
              Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this quarterly report on Form 10-Q for the quarterended September 30, 2003 to be signed on its behalf by the undersignedthereunto duly authorized on the 30th day of October, 2003.   UNITED AIR LINES,INC. By:  /s/Frederic F. BraceFrederic F. BraceExecutive VicePresident andChief FinancialOfficer(principal financialofficer)  By:  /s/ M. Lynn HughittM. Lynn HughittVice President and Controller(principal accounting officer)      Exhibit Index ExhibitNo.Description    12.1Computationof 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 OfficerPursuantto 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of2002)  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 OfficerPursuantto 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)       

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