Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

United Airlines Holdings, Inc. (together with its consolidated subsidiaries, "UAL" or the "Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, "United"). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United's operating revenues and operating expenses comprise nearly 100% of UAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words "we," "our," "us," and the "Company" in this report for disclosures that relate to all of UAL and United.

2019 Highlights

•	2019 net income was $3.0 billion, or $11.58 diluted earnings per share, as compared to $2.1 billion, or $7.67 diluted earnings per share, in 2018.

•	Revenue for 2019 increased $1.9 billion over 2018 due to a 3.5% growth in ASMs and a PRASM increase of 1.5% in 2019 compared to 2018.

•	In 2019, UAL repurchased approximately 19.2 million of its common stock for $1.6 billion. As of December 31, 2019, the Company had approximately $3.1 billion remaining to purchase shares under its share repurchase programs.

•	UAL ended 2019 with $6.9 billion in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short-term investments and available capacity under the revolving credit facility of its Amended and Restated Credit and Guaranty Agreement (as amended, the "Credit Agreement").

•	RPMs for 2019 increased 4.0% as compared to 2018, and ASMs increased 3.5% from the prior year, resulting in a load factor of 84.0% in 2019 versus 83.6% in 2018.

•	For 2019 and 2018, the Company recorded U.S. Department of Transportation on-time arrival rates of 77.9% and 79.8%, respectively, and mainline completion factors of 99.2%.

Results of Operations

The following discussion provides an analysis of our results of operations and reasons for material changes therein for 2019 as compared to 2018. See "Results of Operations" in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2018 Annual Report on Form 10-K, filed with the SEC on February 28, 2019 (the "2018 Annual Report"), for analysis of the 2018 results as compared to 2017.

Operating Revenue. The table below illustrates the year-over-year percentage change in the Company's operating revenues for the years ended December 31 (in millions, except percentage changes):

	2019				2018				Increase (Decrease)				% Change
Passenger revenue	$	39,625			$	37,706			$	1,919			5.1
Cargo	1,179				1,237				(58		)		(4.7	)
Other operating revenue	2,455				2,360				95				4.0
Total operating revenue	$	43,259			$	41,303			$	1,956			4.7

The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year changes:

		Increase (decrease) from 2018 (a):
		Domestic			Atlantic			Pacific			Latin			Total
Average fare per passenger		3.4	%		(1.9	)%		(4.0	)%		5.9	%		2.4	%
Passengers		2.1	%		6.5	%		4.0	%		3.9	%		2.6	%
RPMs (traffic)		3.5	%		6.9	%		2.4	%		4.0	%		4.0	%
ASMs (capacity)		3.8	%		5.8	%		0.5	%		2.9	%		3.5	%
Passenger load factor (points)		(0.2	)		0.8			1.5			0.9			0.4
(a) See Part II, Item 6. Selected Financial Data, of this report for the definition of these statistics.

Passenger revenue increased $1.9 billion, or 5.1%, in 2019 as compared to 2018, primarily due to a 4.0% increase in traffic, continuing strong domestic demand, improvements in average fares in the Latin and Domestic markets, and increases in ancillary fees driven by improved product offerings.

Cargo revenue decreased $58 million, or 4.7%, in 2019 as compared to 2018, primarily due to an approximately 3% decrease in cargo ton miles and a 2% decline in cargo ton mile yield.

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. The World Health Organization has declared COVID-19 to constitute a "Public Health Emergency of International Concern." On January 30, 2020, the U.S. Department of State issued a Level 4 "do not travel" advisory for China. The U.S. government has also implemented enhanced screenings, quarantine requirements and travel restrictions in connection with the COVID-19 outbreak. The Company has suspended its flights between the United States and each of Beijing, Chengdu, Shanghai and Hong Kong through April 24, 2020. These routes represented approximately 5% of the Company's 2020 planned capacity and the Company's other trans-Pacific routes represented an additional 10% of the Company's 2020 planned capacity. As of the date of this report, the Company is experiencing an approximately 100% decline in near-term demand to China and an approximately 75% decline in near-term demand on the rest of the Company's trans-Pacific routes. The extent of the impact of the COVID-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the impact of the COVID-19 on overall demand for air travel, all of which are highly uncertain and cannot be predicted. If traffic on the Company's trans-Pacific routes were to remain at these levels for an extended period, and/or routes in other parts of the Company's network begin to see significant declines in demand, our results of operations for full year 2020 may be materially adversely affected.

Operating Expense. The table below includes data related to the Company's operating expense for the years ended December 31 (in millions, except percentage changes):

	2019				2018				Increase (Decrease)				% Change
Salaries and related costs	$	12,071			$	11,458			$	613			5.3
Aircraft fuel	8,953				9,307				(354		)		(3.8	)
Regional capacity purchase	2,849				2,649				200				7.6
Landing fees and other rent	2,543				2,449				94				3.8
Depreciation and amortization	2,288				2,165				123				5.7
Aircraft maintenance materials and outside repairs	1,794				1,767				27				1.5
Distribution expenses	1,651				1,558				93				6.0
Aircraft rent	288				433				(145		)		(33.5	)
Special charges	246				487				(241		)		NM
Other operating expenses	6,275				5,801				474				8.2
Total operating expenses	$	38,958			$	38,074			$	884			2.3

Salaries and related costs increased $613 million, or 5.3%, in 2019 as compared to 2018, primarily due to higher contractual pay rates, higher benefit expenses, higher employee incentives and a 4.0% increase in average full-time equivalent employees. Employee incentives included $157 million increase in profit sharing in 2019 as compared to 2018.

Aircraft fuel expense decreased $354 million, or 3.8%, in 2019 as compared to 2018, primarily due to a 7.1% decrease in fuel prices, partially offset by a 3.5% increase in capacity. The table below presents the significant changes in aircraft fuel cost per

gallon for the years ended December 31 (in millions, except percentage changes and per gallon data):

		2019				2018				% Change
Fuel expense		$	8,953			$	9,307			(3.8	)
Total fuel consumption (gallons)		4,292				4,137				3.7
Average price per gallon		$	2.09			$	2.25			(7.1	)

Regional capacity purchase costs increased $200 million, or 7.6%, in 2019 as compared to 2018, primarily due to a rate increase under various capacity purchase agreements with regional carriers and a 4.1% increase in regional flying.

Depreciation and amortization increased $123 million, or 5.7%, in 2019 as compared to 2018, primarily due to the additions of new and used aircraft and new capital projects related both to infrastructure and information technology.

Aircraft rent decreased $145 million, or 33.5%, in 2019 as compared to 2018, primarily due to the purchase of leased aircraft and the conversion of certain operating leases to finance leases.

The table below presents special charges incurred by the Company during the years ended December 31 (in millions):

	2019				2018
Impairment of assets	$	171			$	377
Severance and benefit costs	16				41
Termination of an engine maintenance service agreement	—				64
(Gains) losses on sale of assets and other special charges	59				5
Total special charges	$	246			$	487

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Other operating expenses increased $474 million, or 8.2%, in 2019 as compared to 2018, primarily due to increased purchased services related to airport operations weather-related costs, technology initiatives, catering costs, facility projects and crew-related expenses.

Nonoperating Income (Expense). The following table illustrates the year-over-year dollar and percentage changes in the Company's nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):

	2019				2018				Increase (Decrease)				% Change
Interest expense	$	(731	)		$	(670	)		$	61			9.1
Interest capitalized	85				65				20				30.8
Interest income	133				101				32				31.7
Unrealized gains (losses) on investments, net	153				(5		)		158				NM
Miscellaneous, net	(27		)		(72		)		(45		)		(62.5	)
Total nonoperating expense, net	$	(387	)		$	(581	)		$	(194	)		(33.4	)

Interest expense increased $61 million, or 9.1%, in 2019 as compared to 2018, primarily due to the conversion of certain operating leases to finance leases and debt issued for the acquisition of new aircraft.

Interest income increased $32 million, or 31.7%, in 2019 as compared to 2018, primarily due to higher levels of cash balances throughout the year.

Unrealized gains (losses) on investments, net increased $158 million in 2019 as compared to 2018, primarily due to the change in market value of certain of its equity investments and derivative assets. See Notes 9 and 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Miscellaneous, net decreased $45 million, or 62.5%, in 2019 as compared to 2018, primarily due to more favorable foreign exchange rates and the remeasurement of postretirement plans due to a plan change.

Income Taxes. See Note 6 to the financial statements included in Part II, Item 8 of this report for information related to income taxes.

Liquidity and Capital Resources

As of December 31, 2019, the Company had $4.9 billion in unrestricted cash, cash equivalents and short-term investments, an increase of approximately $1.0 billion from December 31, 2018. The Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the Credit Agreement available for borrowings as of December 31, 2019.

We have a significant amount of fixed obligations, including debt, aircraft leases, leases of airport property and other facilities and pension funding obligations. At December 31, 2019, the Company had approximately $14.8 billion of debt and finance lease obligations, including $1.5 billion that are due within the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare engines. As of December 31, 2019, our current liabilities exceeded our current assets by approximately $6.7 billion. However, approximately $7.3 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.

For 2020, the Company expects approximately $7.0 billion of gross capital expenditures. See Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments.

As of December 31, 2019, a substantial portion of the Company's assets, principally aircraft, route authorities and airport slots, was pledged under various loan and other agreements. Collateral pledged under these loans continues to be sufficient to satisfy the loan covenants. We must sustain our profitability and/or access the capital markets to meet our significant long-term debt and finance lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines. See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company.

The following is a discussion of the Company's sources and uses of cash for 2019 as compared to 2018. See "Liquidity and Capital Resources" in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2018 Annual Report for a discussion of the Company's sources and uses of cash in 2018 as compared to 2017.

Operating Activities. Cash flow provided by operations for the year ended December 31, 2019 was $6.9 billion compared to $6.2 billion in the same period in 2018. The increase is primarily attributable to an increase in operating income which was $4.3 billion for 2019 as compared to $3.2 billion for 2018.

Investing Activities. The Company's capital expenditures were $4.5 billion and $4.1 billion in 2019 and 2018, respectively. The Company's capital expenditures for both years were primarily attributable to the purchase of aircraft, aircraft improvements, facility and fleet-related costs and the purchase of information technology assets.

In December 2019, United issued the AVH Convertible Loan. For additional information regarding the AVH Convertible Loan, see Note 8 to the financial statements included in Part II, Item 8 of this report.

In November 2018, United, as lender, entered into a Term Loan Agreement (the "BRW Term Loan Agreement") with, among others, BRW Aviation Holding LLC and BRW Aviation LLC ("BRW"), as guarantor and borrower, respectively. BRW Aviation Holding LLC and BRW are affiliates of Synergy Aerospace Corporation, and BRW is the majority shareholder of AVH. Pursuant to the BRW Term Loan Agreement, United provided to BRW a $456 million term loan (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH (which are eligible to be converted into the same number of preferred shares, which may be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE"), in exchange for 64.5 million ADRs) (such equity and shares, collectively, the "BRW Loan Collateral"). BRW is currently in default under the BRW Term Loan Agreement. The BRW Term Loan was made in conjunction with a revenue-sharing joint business agreement among United, Aerovías del Continente Americano S.A ("Avianca"), a subsidiary of AVH, and Copa as described in Part 1, Item 1 of this report. For additional information regarding the BRW Term Loan Agreement and related agreements, see Notes 8, 9 and 13 to the financial statements included in Part II, Item 8 of this report.

In April 2018, through a wholly-owned subsidiary, the Company invested $138 million in Azul Linhas Aéreas Brasileiras S.A. ("Azul") thus increasing its preferred equity stake in Azul to approximately 8% (representing approximately 2% of the total capital stock of Azul).

Financing Activities. Significant financing events in 2019 were as follows:

Share Repurchases. The Company used $1.6 billion of cash to purchase approximately 19.2 million shares of its common stock during 2019. In December 2017, UAL's Board of Directors authorized a $3.0 billion share repurchase program to acquire UAL's common stock. In July 2019, UAL's Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL's common stock. As of December 31, 2019, the Company had approximately $3.1 billion remaining to purchase shares under its share repurchase programs.

Debt Issuances. During 2019, United received and recorded $1.8 billion of proceeds as debt related to enhanced equipment trust certificate ("EETC") offerings created in 2019 to finance the purchase of aircraft. Also, United received and recorded $350 million of proceeds from the 4.875% Senior Notes due January 15, 2025 and borrowed approximately $105 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2019. As of December 31, 2019, United had recorded approximately $39 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex at Los Angeles International Airport.

Debt and Finance Lease Principal Payments. During the year ended December 31, 2019, the Company made debt and finance lease principal payments of $1.4 billion.

Significant financing events in 2018 were as follows:

Share Repurchases. The Company used $1.2 billion of cash to purchase approximately 17.5 million shares of its common stock during 2018.

Debt Issuances. During 2018, United received and recorded $1.2 billion of proceeds as debt related to EETC offerings created in 2018 to finance the purchase of aircraft. Also, United borrowed approximately $424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2018.

Debt and Finance Lease Principal Payments. During the year ended December 31, 2018, the Company made debt and finance lease principal payments of $1.8 billion.

For additional information regarding these Liquidity and Capital Resource matters, see Notes 2, 10, 11 and 13 to the financial statements included in Part II, Item 8 of this report. For information regarding non-cash investing and financing activities, see the Company's statements of consolidated cash flows.

Credit Ratings. As of the filing date of this report, UAL and United had the following corporate credit ratings:

	S&P		Moody's		Fitch
UAL	BB		Ba2		BB
United	BB		*		BB
*The credit agency does not issue corporate credit ratings for subsidiary entities.

These credit ratings are below investment grade levels; however, the Company has been able to secure financing with investment grade credit ratings for certain EETCs and term loans. Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company.

Other Liquidity Matters

Below is a summary of additional liquidity matters. See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments.

Pension and other postretirement plans	Note 7
Long-term debt and debt covenants	Note 10
Leases and capacity purchase agreements	Note 11
Commitments and contingencies	Note 13

Contractual Obligations. The Company's business is capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft. In the past, the Company has funded the acquisition of aircraft with cash, by using EETC financing, by entering into finance or operating leases, or through other financings. The Company also often enters into long-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities.

The table below provides a summary of the Company's material contractual obligations as of December 31, 2019 (in billions):

		2020				2021				2022				2023				2024				After 2024				Total
Long-term debt (a)		$	1.4			$	1.4			$	1.8			$	0.8			$	3.1			$	6.2			$	14.7
Finance lease obligations—principal portion		0.1				0.1				—				—				—				0.1				0.3
Total debt and finance lease obligations		1.5				1.5				1.8				0.8				3.1				6.3				15.0
Interest on debt and finance lease obligations (b)		0.6				0.5				0.4				0.4				0.3				0.7				2.9
Operating lease obligations		0.9				0.8				0.6				0.6				0.6				4.2				7.7
Regional CPAs (c)		2.9				2.9				2.4				1.5				1.3				4.7				15.7
Postretirement obligations (d)		0.1				0.1				0.1				0.1				0.1				0.3				0.8
Pension obligations (e)		—				—				—				—				0.4				0.6				1.0
Capital purchase obligations (f)		6.9				4.3				2.0				1.0				1.2				11.3				26.7
Total contractual obligations		$	12.9			$	10.1			$	7.3			$	4.4			$	7.0			$	28.1			$	69.8

(a) Long-term debt presented in the Company's financial statements is net of $181 million of debt discount, premiums and debt issuance costs which are being amortized over the debt terms. Contractual payments do not include the debt discount, premiums and debt issuance costs.

(b) Includes interest portion of finance lease obligations of $14 million in 2020, $11 million in 2021, $8 million in 2022, $6 million in 2023, $4 million in 2024 and $5 million thereafter. Interest payments on variable interest rate debt were calculated using London interbank offered rates ("LIBOR") applicable at December 31, 2019.

(c) Represents our estimates of future minimum noncancelable commitments under our CPAs and does not include the portion of the underlying obligations for aircraft and facility rent that is disclosed as part of operating lease obligations. Amounts also exclude a portion of United's finance lease obligation recorded for certain of its CPAs. See Note 11 to the financial statements included in Part II, Item 8 of this report for the significant assumptions used to estimate the payments.

(d) Amounts represent postretirement benefit payments through 2029. Benefit payments approximate plan contributions as plans are substantially unfunded.

(e) Represents an estimate of the minimum funding requirements as determined by government regulations for United's U.S. pension plans. Amounts are subject to change based on numerous assumptions, including the performance of assets in the plans and bond rates.

(f) Represents contractual commitments for firm order aircraft, spare engines and other capital purchase commitments. See Note 13 to the financial statements included in Part II, Item 8 of this report for a discussion of our purchase commitments.

Off-Balance Sheet Arrangements. An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support, or that engages in leasing, hedging or research and development arrangements. The Company's primary off-balance sheet arrangements include guarantees that are discussed below and variable-rate operating leases. See Note 11 to the financial statements included in Part II, Item 8 of this report for more information related to variable-rate operating leases.

Letters of Credit and Surety Bonds. As of December 31, 2019, United had cash collateralized $73 million of letters of credit, which generally have evergreen clauses and are expected to be renewed on an annual basis. As of December 31, 2019, United also had $414 million of surety bonds securing various obligations with expiration dates through 2023.

Guarantee of BRW Commitment. In connection with funding the BRW Term Loan Agreement, the Company entered into an agreement with Kingsland, pursuant to which, in return for Kingsland's pledge of its 144.8 million common shares of AVH (which are eligible to be converted into the same number of preferred shares, which may be deposited with the depositary for AVH's ADRs, the class of AVH securities that trades on the NYSE, in exchange for 18.1 million ADRs) and its consent to BRW's pledge of its AVH common shares to United under the BRW Term Loan Agreement and related agreements, United (1) granted to Kingsland the right to put its AVH common shares to United at market price on the fifth anniversary of the BRW Term Loan Agreement or upon certain sales of AVH common shares owned by BRW, including upon a foreclosure, and (2) guaranteed BRW's obligation to pay Kingsland the difference (which amount, if paid by United, will increase the BRW Term Loan by such amount) if the market price of AVH common shares on the fifth anniversary, or upon any such sale, as applicable, is less than $12 per ADR, for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary, or upon such sale, as applicable, of $217 million. In 2018, the Company recorded a liability of $31 million for the fair value of its guarantee to loan additional funds to BRW if required. Any such additional loans to BRW would be collateralized by BRW's AVH shares and other collateral.

Guarantee of Debt of Others. As of December 31, 2019, United is the guarantor of $132 million of aircraft mortgage debt issued by one of United's regional carriers. The aircraft mortgage debt is subject to increased cost provisions and the Company would potentially be responsible for those costs under the guarantees. The increased cost provisions in the $132 million of aircraft mortgage debt are similar to those in certain of the Company's debt agreements. See discussion under Increased Cost Provisions, below, for additional information on increased cost provisions related to the Company's debt.

EETCs. As of December 31, 2019, United had $9.6 billion principal amount of equipment notes outstanding issued under EETC financings. Generally, the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United's consolidated balance sheet because the proceeds held by the depositary are not United's assets. The total amount of EETC funds held in escrow was $328 million as of December 31, 2019. See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information.

Fuel Consortia. United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds, either special facilities lease revenue bonds or general airport revenue bonds, issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2019, approximately $1.9 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2019, the Company's contingent exposure was approximately $175 million principal amount of such bonds based on its recent consortia participation. The Company's contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2022 to 2051. The Company did not record a liability at the time these indirect guarantees were made.

Increased Cost Provisions. In United's financing transactions that include loans in which United is the borrower, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans with respect to which the interest rate is based on LIBOR, for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At December 31, 2019, the Company had $3.4 billion of floating rate debt with remaining terms of up to 11 years that are subject to these increased cost provisions. In several financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to 11 years and an aggregate balance of $3.2 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to customary exclusions.

Critical Accounting Policies

Critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions. The Company has prepared the financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates under different assumptions or conditions. The Company has identified the following critical accounting policies that impact the preparation of the financial statements.

Frequent Flyer Accounting. United's MileagePlus loyalty program builds customer loyalty by offering awards, benefits and services to program participants. Members in this program earn miles for travel on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can also earn miles by purchasing goods and services from our network of non-airline partners. We have contracts to sell miles to these partners with the terms extending from one to nine years. These partners include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government-imposed fees), discounted or upgraded air travel and non-travel awards.

Miles Earned in Conjunction with Travel. When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the travel occurs and defers a portion of the ticket sale representing the value of the related miles as a separate performance obligation. The Company determines the estimated selling price of travel and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro-rata basis. At the time of travel, the Company records the portion allocated to the miles to Frequent flyer deferred revenue on the Company's consolidated balance sheet and subsequently recognizes it into revenue when miles are redeemed for air travel and non-air travel awards.

Co-Brand Agreement. United has a significant contract (the "Co-Brand Agreement") to sell MileagePlus miles to its co-branded credit card partner JPMorgan Chase Bank, N.A. ("Chase"). Chase awards miles to MileagePlus members based on their credit card activity. United identified the following significant separately identifiable performance obligations in the Co-Brand Agreement:

•

MileagePlus miles awarded – United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel and non-travel award redemptions. The Company records Passenger revenue related to the travel awards when the transportation is provided and records Other revenue related to the non-travel awards when the goods or services are delivered. The Company records the cost associated with non-travel awards in Other operating revenue.

•	Marketing – United has a performance obligation to provide Chase access to United's customer list and the use of United's brand. Marketing revenue is recorded to Other operating revenue as miles are delivered to Chase.

•	Advertising – United has a performance obligation to provide advertising in support of the MileagePlus card in various customer contact points such as United's website, email promotions, direct mail campaigns, airport advertising and in-flight advertising. Advertising revenue is recorded to Other operating revenue as miles are delivered to Chase.

•	Other travel-related benefits – United's performance obligations are comprised of various items such as waived bag fees, seat upgrades and lounge passes. Lounge passes are recorded to Other operating revenue as customers use the lounge passes. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the associated travel.

We account for all the payments received (including monthly and one-time payments) under the Co-Brand Agreement by allocating them to the separately identifiable performance obligations. The fair value of the separately identifiable performance obligations is determined using management's estimated selling price of each component. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of the Co-Brand Agreement in order to determine the allocation of proceeds to each of the components to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated consideration from the Co-Brand Agreement on a prospective basis.

In February 2020, the Company announced that they had entered into a Third Amended and Restated Co-Branded Card Marketing Services Agreement (as amended from time to time, the "Agreement") with Chase. The Agreement, which replaces the Co-Brand Agreement, also extends the term into 2029 and modifies certain other terms. We will continue to account for the considerations received under the Agreement to the separately identifiable performance obligations using the estimated selling price allocation methodology explained above. In connection with the Agreement the Company, entered into an Amended and Restated Co-Branded Card Strategic Alliance Agreement with Visa U.S.A. Inc.

Estimate of Miles Not Expected to be Redeemed. The Company's estimated selling price of miles is based on an equivalent ticket value less breakage, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months' weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region. The estimated selling price of miles is adjusted by breakage that considers a number of factors, including redemption patterns of various customer groups. The Company's breakage model is based on the assumption that the likelihood that an account will redeem its miles can be estimated based on a consideration of the account's historical behavior. The Company uses a logit regression model to estimate the probability that an account will redeem its current miles balance. The Company reviews its breakage estimates annually based upon the latest available information. The Company's estimate of the expected breakage of miles requires significant management judgment. Current and future changes to breakage assumptions, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the program. For the portion of the outstanding miles that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining miles are redeemed.

The following table summarizes information related to the Company's Frequent flyer deferred revenue liability:

Frequent flyer deferred revenue at December 31, 2019 (in millions)		$	5,276
Percentage of miles earned not expected to be redeemed		14		%
Impact of 1% change in outstanding miles expected to be redeemed or weighted average ticket value on deferred revenue (in millions)		$	53

BRW Notes Receivable. The BRW Term Loan, currently in default, is secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH. In order to protect the value of its collateral, on May 24, 2019, United began to exercise certain remedies available to it under the terms of the BRW Term Loan Agreement and related documents. In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited ("Kingsland"), AVH's largest minority shareholder, was granted, in accordance with the agreements related to the BRW Term Loan Agreement, authority to manage BRW, which remains the majority shareholder of AVH. In addition, Kingsland is pursuing a foreclosure process which is expected to result in a judicially supervised sale of the collateral, following the grant of summary judgment by a New York state court on September 26, 2019.

United evaluated the $499 million carrying value of the BRW Term Loan as of December 31, 2019 using the fair value of the collateral and determined that the value of the collateral is sufficient to recover the carrying value of the BRW Term Loan. As a result, the Company concluded that the BRW Term Loan is not impaired. The carrying value of the BRW Term Loan represents the original loan amount plus accrued and unpaid interest and certain expenses associated with the loan origination.

The fair market value of AVH equity was estimated using an income approach and a market approach with equal weight applied to each approach. Under the income approach, the value was estimated by discounting expected future cash flows at a weighted average cost of capital to a single present value amount. Under the market approach, the value was estimated by reference to multiples of enterprise value to earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR") for a group of publicly-traded market comparable companies, along with AVH's own EBITDAR levels.

See Note 8 to the financial statements included in Part II, Item 8 of this report for additional information.

Indefinite-lived intangible assets. The Company has indefinite-lived intangible assets, including goodwill. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. An impairment occurs when the fair value of an intangible asset is less than its carrying value. The Company determines the fair value using a variation of the income approach known as the excess earnings method, which discounts an asset's projected future net cash flows to determine the current fair value. Assumptions used in the discounted cash flow methodology include a discount rate, which is based upon the Company's current weighted average cost of capital plus an asset-specific risk factor, and a projection of sales, expenses, gross margin, tax rates and contributory asset charges for several future years and a terminal growth rate. The assumptions used for future projections are determined based upon the Company's asset-specific forecasts along with the Company's strategic plan. These assumptions are inherently uncertain as they relate to future events and circumstances. Actual results will be influenced by the competitive environment, fuel costs and other expenses, and potentially other unforeseen events or circumstances that could have a material impact on future results.

See Note 1 and 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Forward-Looking Information

Certain statements throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report are forward-looking and thus reflect the Company's current expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to the Company's operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as "expects," "will," "plans," "anticipates," "indicates," "believes," "estimates," "forecast," "guidance," "outlook," "goals", "targets" and similar expressions are intended to identify forward-looking statements.

Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.

Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: our ability to execute our strategic operating plan, including our growth, revenue-generating and cost-control initiatives; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); risks of doing business globally, including instability and political developments that may impact our operations in certain countries; demand for travel and the impact that global economic and political conditions have on customer travel patterns; our capacity decisions and the capacity decisions of our competitors; competitive pressures on pricing and on demand; changes in aircraft fuel prices; disruptions in our supply of aircraft fuel; our ability to cost-effectively hedge against increases in the price of aircraft fuel, if we decide to do so; the effects of any technology failures, cybersecurity or significant data breaches; disruptions to services provided by third-party service providers; potential reputational or other impact from adverse events involving our aircraft or operations, the aircraft or operations of our regional carriers or our code share partners or the aircraft or operations of another airline; our ability to attract and retain customers; the effects of any terrorist attacks, international hostilities or other security events, or the fear of such events; the mandatory grounding of aircraft in our fleet; disruptions to our regional network; the

impact of regulatory, investigative and legal proceedings and legal compliance risks; the success of our investments in other airlines, including in other parts of the world; industry consolidation or changes in airline alliances; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; costs associated with any modification or termination of our aircraft orders; disruptions in the availability of aircraft, parts or support from our suppliers; our ability to maintain satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; labor costs; an outbreak of a disease that affects travel demand or travel behavior, such as the existing threat of COVID-19; the impact of any management changes; extended interruptions or disruptions in service at major airports where we operate; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements, environmental regulations and the United Kingdom's withdrawal from the European Union); the seasonality of the airline industry; weather conditions; the costs and availability of aviation and other insurance; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to comply with the terms of our various financing arrangements; our ability to realize the full value of our intangible assets and long-lived assets; any impact to our reputation or brand image and other risks and uncertainties set forth under Part I, Item 1A., Risk Factors, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.