Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management's Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q to enhance the understanding of our results of operations, financial condition and cash flows.

EXECUTIVE SUMMARY

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"). This Quarterly Report on Form 10-Q is a combined report of UAL and United, including their respective consolidated financial statements. 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.

The Company transports people and cargo through its mainline operations, which utilize jet aircraft with at least 126 seats, and regional operations, which utilize smaller aircraft that are operated under contract by United Express carriers. The Company serves virtually every major market around the world, either directly or through participation in Star Alliance®, the world's largest airline alliance.

Third Quarter 2021 Overview

Our business and operating results for 2021 continue to be significantly impacted by the novel coronavirus (COVID-19) pandemic. Given the impact of the pandemic on our business and operating results in 2020, we believe that a comparison of our results in 2021 to 2019 for certain key metrics in this financial overview discussion is more reflective of the impact of the COVID-19 pandemic.

The Company cut, relative to the third quarter of 2019, approximately 28% of its scheduled capacity for the third quarter of 2021 and expects its scheduled capacity in the fourth quarter of 2021 to be down approximately 23% versus the fourth quarter of 2019.

Operating revenue for the third quarter of 2021 decreased by $3.6 billion to $7.8 billion, or 31.9%, versus the third quarter of 2019. Operating revenue is expected to decrease between 25% and 30% in the fourth quarter of 2021 as compared to the same period in 2019.

Operating expense for the third quarter of 2021 decreased by $3.2 billion to $6.7 billion, or 32.2%, versus the third quarter of 2019.

Impact of the COVID-19 Pandemic and Outlook

The COVID-19 pandemic, together with the measures implemented or recommended by governmental authorities and private organizations in response to the pandemic, has had an adverse impact that has been material to the Company's business, operating results, financial condition and liquidity. The Company has seen increasing demand for travel both domestically and in countries where entry is permitted; however, as the situation surrounding the COVID-19 pandemic remains fluid, the pandemic has continued to negatively impact travel demand. It remains difficult to reasonably assess or predict the full extent of the ongoing impact of the COVID-19 pandemic on the Company's longer-term operational and financial performance, which will depend on a number of future developments, many of which are outside the Company's control, such as the ultimate duration of and factors impacting the recovery from the pandemic (including the efficacy and speed of vaccination programs in curbing the spread of the virus in different markets, the introduction and spread of new variants of the virus that may be resistant to currently approved vaccines and the continuation of existing or implementation of new government travel restrictions), the volatility of aircraft fuel prices, customer behavior changes and fluctuations in demand for air travel, among others. The Company's recovery from the COVID-19 pandemic has not followed a linear path, and due to the significant uncertainty that remains, its future operating performance, particularly in the short-term, may be subject to volatility. The Company is taking steps to be prepared for recovery as demand for travel continues to increase in line with recent customer booking trends, which include making certain investments in the recovery.

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Risks and uncertainties related to the COVID-19 pandemic are further described in Part II, Item 1A. Risk Factors— "The global pandemic resulting from a novel strain of coronavirus has had an adverse impact that has been material to the Company's business, operating results, financial condition and liquidity, and the duration and spread of the pandemic could result in additional adverse impacts. The outbreak of another disease or similar public health threat in the future could also have an adverse effect on the Company's business, operating results, financial condition and liquidity" in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

As the COVID-19 pandemic affected global aviation as well as major economic and financial markets, we have taken steps to mitigate the effects of the COVID-19 pandemic on our business and have remained focused on protecting the health and safety of our workforce and customers and transforming our customers' onboard experience in preparation for an eventual recovery from the COVID-19 pandemic:

Cost Reductions**.** The Company has identified approximately $2.2 billion of annual permanent structural cost reductions including improvements in labor efficiencies. During the first quarter of 2021, the Company offered voluntary leaves of absence to certain U.S.-based front-line employees. This program included (based on employee group, age and completed years of service) a partially-paid leave of absence with active health care coverage and travel privileges. Employees who separate from the Company after the end of such program receive certain separation benefits, such as post-employment health benefits and travel privileges. Approximately 4,500 employees elected to participate in this program, and it is expected that the majority of them will separate from employment at the end of their leave of absence. See Note 5 and Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on charges related to these programs.

Liquidity**.** The Company entered into a number of transactions to improve its liquidity and manage its capital. In the first nine months of 2021, the Company:

• issued, through a private offering to eligible purchasers, $4.0 billion in aggregate principal amount of two series of notes, consisting of $2.0 billion in aggregate principal amount of 4.375% senior secured notes due 2026 (the "2026 Notes") and $2.0 billion in aggregate principal amount of 4.625% senior secured notes due 2029 (the "2029 Notes" and, together with the 2026 Notes, the "Notes");

• entered into a new Term Loan Credit and Guaranty Agreement (the "New Term Loan Facility") initially providing term loans up to an aggregate amount of $5.0 billion and a new Revolving Credit and Guaranty Agreement (the "New Revolving Credit Facility" and, together with the New Term Loan Facility, the "New Loan Facilities") initially providing revolving loan commitments of up to $1.75 billion;

• repaid in full the $1.4 billion aggregate principal amount outstanding under the term loan facility (the "2017 Term Loan Facility") included in the Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (the "Existing Credit Agreement");

• repaid in full the $1.0 billion aggregate principal amount outstanding under the revolving credit facility (the "2017 Revolving Credit Facility") included in the Existing Credit Agreement;

• repaid in full the $520 million aggregate principal amount outstanding under the Loan and Guarantee Agreement, dated as of September 28, 2020, among United, UAL, the U.S. Treasury Department ("Treasury") and the Bank of New York Mellon, as administrative agent, as amended (the "CARES Act Loan"), which was entered into pursuant to the loan program established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act");

• entered into approximately $0.6 billion in new enhanced equipment trust certificates ("EETC"); and

• raised approximately $0.5 billion in net cash proceeds from the issuance and sale of UAL common stock.

In addition to the foregoing transactions, United entered into the following agreements with Treasury:

PSP2. On January 15, 2021, United entered into a Payroll Support Program Extension Agreement (the "PSP2 Agreement") with Treasury providing the Company with total funding of approximately $3.0 billion, pursuant to the Payroll Support Program established under Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021. These funds were used to pay for the wages, salaries and benefits of United employees, including the payment of lost wages, salaries and benefits to returning employees who were previously impacted by involuntary furloughs. Approximately $2.1 billion was provided as a direct grant and $870 million as indebtedness evidenced by a 10-year senior unsecured promissory note (the "PSP2 Note"). See Note 2 to the financial statements included in Part I, Item 1 of this report for additional information on the warrants issued in connection with the PSP2 Note and Note 8 of this report for a discussion of the PSP2 Note.

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PSP3. On April 29, 2021, in connection with the Payroll Support Program established under Section 7301 of the American Rescue Plan Act of 2021, United entered into a Payroll Support Program 3 Agreement (the "PSP3 Agreement") with Treasury providing the Company with total funding of approximately $2.8 billion. Approximately $2.0 billion was provided as a direct grant and $810 million as indebtedness evidenced by a 10-year senior unsecured promissory note (the "PSP3 Note"). These funds will be used by United exclusively for the continuation of payment of its employee wages, salaries and benefits. See Note 2 to the financial statements included in Part I, Item 1 of this report for additional information on the warrants issued in connection with the PSP3 Note and Note 8 of this report for a discussion of the PSP3 Note.

United Next. In the second quarter of 2021, United entered into firm narrow-body aircraft orders for 200 Boeing 737 MAX aircraft and 70 Airbus A321neo aircraft. The "United Next" plan will have a transformational effect on the customer experience and is expected to increase the total number of available seats per domestic departure by almost 30% by 2026 and significantly lower carbon emissions per seat. The new aircraft will come with a new signature interior that includes seat-back entertainment in every seat, larger overhead bins for every passenger's carry-on bag and the industry's fastest available in-flight WiFi, as well as a bright look-and-feel with LED lighting. The new aircraft will allow the Company to replace older, smaller mainline jets and at least 200 single-class regional jets with larger aircraft, which we expect will lead to significant sustainability benefits compared to older planes: an expected 11% overall improvement in fuel efficiency and an expected 17-20% lower carbon emission per seat compared to older planes.

Environmental Sustainability

During the third quarter of 2021, the Company entered into a non-binding off-take agreement for the purchase of sustainable aviation fuel with Alder Fuels LLC to advance its previously announced commitments of reducing its carbon emission footprint.

In 2020, United pledged to become 100% green by reducing, compared to 2019, its greenhouse gas emissions by 100% by 2050 without relying on voluntary carbon offsets, and in 2021, United pledged to reduce, compared to 2019, its carbon intensity by 50% by 2035.

Our current expectations described above are forward-looking statements and our actual results and timing may vary materially based on various factors that include, but are not limited to, those discussed below under "Forward-Looking Information" and in Part II, Item 1A. Risk Factors, in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

RESULTS OF OPERATIONS

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and nine months ended September 30, 2021 as compared to the corresponding periods in 2020.

Third Quarter 2021 Compared to Third Quarter 2020

The Company recorded net income of $473 million in the third quarter of 2021 as compared to a net loss of $1.8 billion in the third quarter of 2020. The Company considers a key measure of its performance to be operating income (loss), which was $1.0 billion of income for the third quarter of 2021, as compared to a $1.6 billion loss for the third quarter of 2020, an approximately $2.7 billion increase year-over-year, primarily as a result of improvements in demand for air travel. Significant components of the Company's operating results for the three months ended September 30 are as follows (in millions, except percentage changes):

						2021						2020						Increase (Decrease)						% Change
Operating revenue						$	7,750					$	2,489					$	5,261					211.4
Operating expense						6,713						4,104						2,609						63.6
Operating income (loss)						1,037						(1,615)						2,652						164.2
Nonoperating expense, net						(434)						(717)						(283)						(39.5)
Income tax expense (benefit)						130						(491)						621						NM
Net income (loss)						$	473					$	(1,841)					$	2,314					125.7

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Certain consolidated statistical information for the Company's operations for the three months ended September 30 is as follows:

			2021						2020						Increase (Decrease)						% Change
Passengers (thousands) (a)			32,145						9,739						22,406						230.1
Revenue passenger miles ("RPMs" or "traffic") (millions) (b)			41,031						10,613						30,418						286.6
Available seat miles ("ASMs" or "capacity") (millions) (c)			53,886						22,212						31,674						142.6
Passenger load factor (d)			76.1		%				47.8		%				28.3 pts.						N/A
Passenger revenue per available seat mile ("PRASM") (cents)			12.32						7.42						4.90						66.0
Average yield per revenue passenger mile ("Yield") (cents) (e)			16.18						15.54						0.64						4.1
Cargo revenue ton miles ("CTM") (millions) (f)			758						685						73						10.7
Cost per available seat mile ("CASM") (cents)			12.46						18.48						(6.02)						(32.6)
Average price per gallon of fuel, including fuel taxes			$	2.14					$	1.31					$	0.83					63.4
Fuel gallons consumed (millions)			800						387						413						106.7
Employee headcount, as of September 30			85,300						87,900						(2,600)						(3.0)
(a) The number of revenue passengers measured by each flight segment flown.
(b) The number of scheduled miles flown by revenue passengers.
(c) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(d) Revenue passenger miles divided by available seat miles.
(e) The average passenger revenue received for each revenue passenger mile flown.
(f) The number of cargo revenue tons transported multiplied by the number of miles flown.

Operating Revenue. The table below shows year-over-year comparisons by type of operating revenue for the three months ended September 30 (in millions, except for percentage changes):

			2021						2020						Increase (Decrease)						% Change
Passenger revenue			$	6,637					$	1,649					$	4,988					302.5
Cargo			519						422						97						23.0
Other operating revenue			594						418						176						42.1
Total operating revenue			$	7,750					$	2,489					$	5,261					211.4

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

			Increase (decrease) from 2020:
			Domestic						Atlantic						Pacific						Latin						Total
Passenger revenue (in millions)			$	3,599					$	658					$	112					$	619					$	4,988
Passenger revenue			288.8		%				361.5		%				115.5		%				499.2		%				302.5		%
Average fare per passenger			25.9		%				(14.8)		%				(9.1)		%				4.2		%				21.9		%
Yield			10.6		%				(8.7)		%				(3.7)		%				(2.0)		%				4.1		%
PRASM			67.6		%				91.9		%				33.6		%				40.3		%				66.0		%
Passengers			208.8		%				442.0		%				137.1		%				474.9		%				230.1		%
RPMs (traffic)			251.7		%				405.8		%				123.8		%				511.6		%				286.6		%
ASMs (capacity)			132.0		%				140.5		%				61.4		%				327.1		%				142.6		%
Passenger load factor (points)			28.0						35.0						9.5						22.6						28.3

Passenger revenue increased $5.0 billion, or 302.5%, in the third quarter of 2021 as compared to the year-ago period, primarily due to improvements in demand for air travel as COVID-19 vaccinations are increasingly available in the United States and certain other jurisdictions and as more governments are lifting travel and quarantine restrictions.

Cargo revenue increased $97 million, or 23.0%, in the third quarter of 2021 as compared to the year-ago period, primarily due to stronger yields on freight revenue and higher cargo tonnage from increased widebody departures of passenger flights.

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Other operating revenue increased $176 million, or 42.1%, in the third quarter of 2021 as compared to the year-ago period, primarily due to an increase in mileage revenue from non-airline partners, including the co-branded credit card partner, JPMorgan Chase Bank, N.A., and higher revenue from United Club lounges due to increased travelers' visits in the third quarter of 2021.

Operating Expenses. The table below includes data related to the Company's operating expenses for the three months ended September 30 (in millions, except for percentage changes):

			2021						2020						Increase (Decrease)						% Change
Salaries and related costs			$	2,487					$	2,229					$	258					11.6
Aircraft fuel			1,710						508						1,202						236.6
Depreciation and amortization			623						626						(3)						(0.5)
Landing fees and other rent			652						500						152						30.4
Regional capacity purchase			520						425						95						22.4
Aircraft maintenance materials and outside repairs			346						115						231						200.9
Distribution expenses			218						53						165						311.3
Aircraft rent			58						50						8						16.0
Special charges (credits)			(1,098)						(1,081)						17						NM
Other operating expenses			1,197						679						518						76.3
Total operating expenses			$	6,713					$	4,104					$	2,609					63.6

Salaries and related costs increased $258 million, or 11.6%, in the third quarter of 2021 as compared to the year-ago period, despite the 3.0% decrease in headcount, primarily due to several factors including an increase in front-line employees' wages from higher flight activity, prior year schedule reductions for management and administrative employees and prior year Company offered leaves of absence for front-line employees.

Aircraft fuel expense increased by $1.2 billion, or 236.6%, in the third quarter of 2021 as compared to the year-ago period, due to both higher average price per gallon of fuel and increased consumption. The table below presents the significant changes in aircraft fuel cost per gallon in the three months ended September 30, 2021 as compared to the year-ago period:

			(In millions)																		Average price per gallon
			2021						2020						% Change						2021						2020						% Change
Fuel expense			$	1,710					$	508					236.6		%				$	2.14					$	1.31					63.4		%
Fuel consumption (gallons)			800						387						106.7		%

Landing fees and other rent increased $152 million, or 30.4%, in the third quarter of 2021 as compared to the year-ago period, primarily due to an increase in capacity-based rent and landing fees.

Regional capacity purchase increased $95 million, or 22.4%, in the third quarter of 2021 as compared to the year-ago period, primarily due to increased regional flying and increased pass-through maintenance costs.

Aircraft maintenance materials and outside repairs increased $231 million, or 200.9%, in the third quarter of 2021 as compared to the year-ago period, primarily due to higher volumes of flying and the timing of heavy check maintenance events.

Distribution expenses increased $165 million, or 311.3%, in the third quarter of 2021 as compared to the year-ago period, primarily due to higher credit card fees and commissions and higher volume of global distribution fees as a result of the overall increase in passenger revenue.

Details of the Company's special charges (credits) include the following for the three months ended September 30 (in millions):

			2021						2020
CARES Act grant			$	(1,132)					$	(1,494)
Impairment of assets			46						38
Severance and benefit costs			5						350
(Gains) losses on sale of assets and other special charges			(17)						25
Special charges (credits)			$	(1,098)					$	(1,081)

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See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on the Company's special charges (credits).

Other operating expenses increased $518 million, or 76.3%, in the third quarter of 2021 as compared to the year ago period, primarily due to increased flight activity which resulted in an increase in our catering, airport ground handling, navigation fees, technology projects and crew-related expenses.

Nonoperating Income (Expense*).* The table below shows year-over-year comparisons of the Company's nonoperating income (expense) for the three months ended September 30 (in millions, except for percentage changes):

			2021						2020						Increase (Decrease)						% Change
Interest expense			$	(449)					$	(345)					$	104					30.1
Interest capitalized			18						16						2						12.5
Interest income			11						8						3						37.5
Unrealized gains (losses) on investments, net			(34)						15						(49)						NM
Miscellaneous, net			20						(411)						(431)						NM
Total			$	(434)					$	(717)					$	(283)					(39.5)

Interest expense increased $104 million, or 30.1%, in the third quarter of 2021 as compared to the year-ago period, primarily due to the issuance of additional debt in the current year to provide additional liquidity to the Company during the COVID-19 pandemic.

Unrealized losses on investments, net, was $34 million in the third quarter of 2021 as compared to gains of $15 million in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities. See Note 6 to the financial statements included in Part I, Item 1 of this report for information related to these equity investments.

Miscellaneous, net changed by $431 million in the third quarter of 2021 as compared to the year-ago period, primarily due to $415 million of special termination benefits and settlement losses related to furloughs and voluntary separation programs under the Company's defined benefit pension plan covering certain non-pilot U.S. employees and postretirement medical programs recorded in 2020. See Notes 5, 6, 7 and 9 to the financial statements included in Part I, Item 1 of this report for additional information.

Income Taxes. See Note 4 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.

First Nine Months 2021 Compared to First Nine Months 2020

The Company recorded a net loss of $1.3 billion in the first nine months of 2021 as compared to a net loss of $5.2 billion in the first nine months of 2020. The Company considers a key measure of its performance to be operating income (loss), which was a $614 million loss for the first nine months of 2021, as compared to a $4.2 billion loss for the first nine months of 2020, a $3.6 billion decrease year-over-year, primarily as a result of improvements in demand for air travel. Significant components of the Company's operating results for the nine months ended September 30 are as follows (in millions, except percentage changes):

						2021						2020						Increase (Decrease)						% Change
Operating revenue						$	16,442					$	11,943					$	4,499					37.7
Operating expense						17,056						16,167						889						5.5
Operating loss						(614)						(4,224)						(3,610)						(85.5)
Nonoperating expense, net						(1,098)						(2,225)						(1,127)						(50.7)
Income tax benefit						(394)						(1,277)						(883)						(69.1)
Net loss						$	(1,318)					$	(5,172)					$	(3,854)					(74.5)

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Certain consolidated statistical information for the Company's operations for the nine months ended September 30 is as follows:

			2021						2020						Increase (Decrease)						% Change
Passengers (thousands)			70,728						42,911						27,817						64.8
RPMs (millions)			86,793						56,812						29,981						52.8
ASMs (millions)			123,869						92,113						31,756						34.5
Passenger load factor			70.1		%				61.7		%				8.4 pts.						N/A
PRASM (cents)			10.75						10.20						0.55						5.4
Yield (cents)			15.35						16.54						(1.19)						(7.2)
CTM (millions)			2,415						1,876						539						28.7
CASM (cents)			13.77						17.55						(3.78)						(21.5)
Average price per gallon of fuel, including fuel taxes			$	1.98					$	1.65					$	0.33					20.0
Fuel gallons consumed (millions)			1,915						1,501						414						27.6
Employee headcount, as of September 30			85,300						87,900						(2,600)						(3.0)

Operating Revenue. The table below shows year-over-year comparisons by type of operating revenue for the nine months ended September 30 (in millions, except for percentage changes):

			2021						2020						Increase (Decrease)						% Change
Passenger revenue			$	13,319					$	9,395					$	3,924					41.8
Cargo			1,622						1,088						534						49.1
Other operating revenue			1,501						1,460						41						2.8
Total operating revenue			$	16,442					$	11,943					$	4,499					37.7

The table below presents selected passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

			Increase (decrease) from 2020:
			Domestic						Atlantic						Pacific						Latin						Consolidated
Passenger revenue (in millions)			$	3,553					$	57					$	(389)					$	703					$	3,924
Passenger revenue			56.5		%				4.3		%				(47.5)		%				72.3		%				41.8		%
Average fare per passenger			(5.6)		%				(16.5)		%				32.9		%				(20.6)		%				(14.0)		%
Yield			(8.3)		%				(21.1)		%				68.6		%				(12.1)		%				(7.2)		%
PRASM			14.7		%				(19.7)		%				(23.9)		%				(16.0)		%				5.4		%
Passengers			65.7		%				25.0		%				(60.5)		%				117.0		%				64.8		%
RPMs (traffic)			70.7		%				32.4		%				(68.9)		%				96.1		%				52.8		%
ASMs (capacity)			36.4		%				30.1		%				(31.0)		%				105.3		%				34.5		%
Passenger load factor (points)			15.8						1.0						(32.1)						(3.1)						8.4

Passenger revenue increased $3.9 billion, or 41.8%, in the first nine months of 2021 as compared to the year-ago period, primarily due to the increased availability of the COVID-19 vaccine and a recovery in the demand for air travel, as demonstrated by a 64.8% increase in passengers year-over-year.

Cargo revenue increased $534 million, or 49.1%, in the first nine months of 2021 as compared to the year-ago period, primarily due to strong yields of cargo-only flights as a result of increased demand for critical goods during the course of the COVID-19 pandemic.

Other operating revenue increased $41 million, or 2.8%, in the first nine months of 2021 as compared to the year-ago period, primarily due to the impact of the partial demand recovery on co-brand credit card spending and increased credit card acquisitions.

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Operating Expenses. The table below includes data related to the Company's operating expenses for the nine months ended September 30 (in millions, except for percentage changes):

			2021						2020						Increase (Decrease)						% Change
Salaries and related costs			$	6,987					$	7,354					$	(367)					(5.0)
Aircraft fuel			3,793						2,474						1,319						53.3
Depreciation and amortization			1,866						1,859						7						0.4
Landing fees and other rent			1,735						1,552						183						11.8
Regional capacity purchase			1,546						1,550						(4)						(0.3)
Aircraft maintenance materials and outside repairs			917						659						258						39.2
Distribution expenses			442						379						63						16.6
Aircraft rent			165						147						18						12.2
Special charges (credits)			(3,423)						(2,467)						956						NM
Other operating expenses			3,028						2,660						368						13.8
Total operating expenses			$	17,056					$	16,167					$	889					5.5

Salaries and related costs decreased $367 million, or 5.0%, in the first nine months of 2021 as compared to the year-ago period, primarily due to lower headcount as a result of various employee voluntary separation programs since the start of the COVID-19 pandemic and a $233 million increase in tax credits provided by the Employee Retention Credit under the CARES Act.

Aircraft fuel expense increased $1.3 billion, or 53.3%, in the first nine months of 2021 as compared to the year-ago period, primarily due to a higher average price per gallon of fuel and increased consumption. The table below presents the significant changes in aircraft fuel cost per gallon in the nine months ended September 30, 2021 as compared to the year-ago period:

			(In millions)																		Average price per gallon
			2021						2020						% Change						2021						2020						% Change
Fuel expense			$	3,793					$	2,474					53.3		%				$	1.98					$	1.65					20.0		%
Fuel consumption (gallons)			1,915						1,501						27.6		%

Landing fees and other rent increased $183 million, or 11.8%, in the first nine months of 2021 as compared to the year-ago period, primarily due to an increase in capacity-based rent and landing fees.

Aircraft maintenance materials and outside repairs increased $258 million, or 39.2%, in the first nine months of 2021 as compared to the year-ago period, primarily due to higher volumes of flying and increased heavy check maintenance events.

Distribution expenses increased $63 million, or 16.6%, in the first nine months of 2021 as compared to the year-ago period, primarily due to higher credit card fees and commissions and higher volume of global distribution fees as a result of the overall increase in passenger revenue. Distribution expenses were also impacted by the mix of leisure travel versus business travel, which requires the use of different distribution channels and forms of payment.

Details of the Company's special charges (credits) include the following for the nine months ended September 30 (in millions):

			2021						2020
CARES Act grant			$	(4,021)					$	(3,083)
Impairment of assets			105						168
Severance and benefit costs			433						413
(Gains) losses on sale of assets and other special charges			60						35
Special charges (credits)			$	(3,423)					$	(2,467)

See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on the Company's special charges (credits).

Other operating expenses increased $368 million, or 13.8%, in the first nine months of 2021 as compared to the year-ago period, primarily due to increases in ground handling, passenger services, and personnel-related costs from increased flying and higher expenditures on information technology projects.

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Nonoperating Income (Expense). The following table illustrates the year-over-year dollar and percentage changes in the Company's nonoperating income (expense) for the nine months ended September 30 (in millions, except for percentage changes):

			2021						2020						Increase (Decrease)						% Change
Interest expense			$	(1,228)					$	(712)					$	516					72.5
Interest capitalized			57						54						3						5.6
Interest income			30						45						(15)						(33.3)
Unrealized gains (losses) on investments, net			91						(295)						(386)						NM
Miscellaneous, net			(48)						(1,317)						(1,269)						(96.4)
Total			$	(1,098)					$	(2,225)					$	(1,127)					(50.7)

Interest expense increased $516 million, or 72.5%, in the first nine months of 2021 as compared to the year-ago period, primarily due to the issuance of additional debt in the current year period to provide additional liquidity to the Company during the COVID-19 pandemic.

Unrealized gains on investments, net, was $91 million in the first nine months of 2021 as compared to $295 million in unrealized losses in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities. See Note 6 to the financial statements included in Part I, Item 1 of this report for information related to these equity investments.

Miscellaneous, net decreased $1.3 billion in the first nine months of 2021 as compared to the year-ago period, primarily due to the $697 million of credit loss allowances associated with the Company's Term Loan Agreement, with, among others, BRW Aviation Holding LLC and BRW Aviation LLC, and the related guarantee recorded in the first quarter of 2020, and lower special termination benefits related to voluntary separation programs under the Company's defined benefit pension plan covering certain non-pilot U.S. employees and postretirement medical programs. See Notes 5, 6, 7 and 9 to the financial statements included in Part I, Item 1 of this report for additional information.

Income Taxes. See Note 4 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Current Liquidity

As of September 30, 2021, the Company had $19.4 billion in unrestricted cash, cash equivalents and short-term investments, as compared to $11.7 billion at December 31, 2020. We believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations, will be sufficient to satisfy our anticipated liquidity needs for the next twelve months, and we expect to meet our long-term liquidity needs with our anticipated access to the capital markets and projected cash from operations. We regularly assess our anticipated working capital needs, debt and leverage levels, debt maturities, capital expenditure requirements (including in connection with our capital commitments for our firm order aircraft) and future investments or acquisitions in order to maximize shareholder return, efficiently finance our ongoing operations and maintain flexibility for future strategic transactions. We also regularly evaluate our liquidity and capital structure to ensure financial risks, adequate liquidity access and lower cost of capital are efficiently managed. We expect to maintain an elevated level of liquidity in the near term as we navigate through the remainder of 2021, which may lead to the issuance of additional debt securities, the repurchase or redemption of debt securities prior to maturity or the issuance of common stock, as well as to the pursuit of financing options for our firm aircraft order and other related capital expenditures consistent with our historical practice prior to the onset of the COVID-19 pandemic. While we have been able to 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, we must return to profitability in order to service our debt and maintain appropriate liquidity levels for our long-term operating needs.

On January 15, 2021, United entered into the PSP2 Agreement with Treasury, providing the Company with total funding of approximately $3.0 billion, consisting of approximately $2.1 billion as a direct grant and $870 million as indebtedness evidenced by the PSP2 Note. See Note 8 to the financial statements included in Part I, Item 1 of this report for a discussion of the PSP2 Note.

On April 29, 2021, United entered into a PSP3 Agreement with Treasury, providing the Company with total funding of approximately $2.8 billion, consisting of approximately $2.0 billion as a direct grant and $810 million as indebtedness

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evidenced by the PSP3 Note. See Note 8 to the financial statements included in Part I, Item 1 of this report for a discussion of the PSP3 Note.

The New Revolving Credit Facility provides revolving loan commitments of up to $1.75 billion until April 21, 2025. No borrowings were outstanding under the New Revolving Credit Facility at September 30, 2021.

In addition, the Company has backstop financing commitments available from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions.

We have a significant amount of fixed obligations, including debt, leases of aircraft, airport and other facilities, and pension funding obligations. As of September 30, 2021, the Company had approximately $41.6 billion of debt, finance lease, operating lease and sale-leaseback obligations, including $3.3 billion that will become due in the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines.

Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or repurchase stock. As of September 30, 2021, UAL and United were in compliance with their respective debt covenants.

As of September 30, 2021, a substantial portion of the Company's assets, principally aircraft and certain related assets, its loyalty program, certain route authorities and airport slots, was pledged under various loan and other agreements. As of April 21, 2021, the Company pledged as collateral for the Notes and the New Loan Facilities the following: (i) all of United's route authorities granted by the U.S. Department of Transportation to operate scheduled service between any international airport located in the United States and any international airport located in any country other than the United States (except Cuba), (ii) United's rights to substantially all of its landing and take-off slots at foreign and domestic airports, including at John F. Kennedy International Airport, LaGuardia Airport and Ronald Reagan Washington National Airport (subject to certain exclusions), and (iii) United's rights to use or occupy space at airport terminals, each to the extent necessary at the relevant time for servicing scheduled air carrier service authorized by an applicable route authority.

See Note 8 to the financial statements included in Part I, Item 1 of this report for additional information on aircraft financing and other debt instruments.

As of September 30, 2021, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing") and Airbus S.A.S. ("Airbus") as presented in the table below:

												Scheduled Aircraft Deliveries
Aircraft Type						Number of Firm Commitments (a)						Last Three Months of 2021						2022						2023						After 2023
Airbus A321XLR						50						—						—						—						50
Airbus A321neo						70						—						—						16						54
Airbus A350						45						—						—						—						45
Boeing 737 MAX						371						4						48						114						205
Boeing 787						8						1						7						—						—
(a) United also has options and purchase rights for additional aircraft.

During the third quarter of 2021, the Company elected to accelerate the delivery of eight Boeing 737 MAX aircraft from 2023 to 2022. The aircraft listed in the table above are scheduled for delivery through 2030. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, or to the extent rights are exercised pursuant to the relevant agreements to modify the timing of deliveries, the amount and timing of the Company's future capital commitments could change.

United has an agreement to purchase ten used Airbus A319 aircraft, which it intends to sell, with expected delivery dates in 2021 and 2022.

In 2020, United entered into agreements with third parties to finance through sale and leaseback transactions new Boeing model 787 aircraft and Boeing model 737 MAX aircraft subject to purchase agreements between United and Boeing. In connection with the delivery of each aircraft from Boeing, United assigned its right to purchase such aircraft to the buyer, and simultaneous with the buyer's purchase from Boeing, United entered into a long-term lease for such aircraft with the buyer as lessor. Twenty Boeing model aircraft were delivered in the first nine months of 2021 under these transactions (and each is presently subject to

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a long-term lease to United). Remaining aircraft in the agreements are scheduled to be delivered in the last three months of 2021.

As of September 30, 2021, UAL and United have total capital commitments related to the acquisition of aircraft and related spare engines, aircraft improvements and non-aircraft capital commitments for approximately $34.5 billion, of which approximately $0.9 billion, $5.3 billion, $7 billion, $4.8 billion, $4.3 billion and $12.2 billion are due in the last three months of 2021, for the full years 2022, 2023, 2024, and 2025, and after 2025, respectively. To the extent the Company and Boeing agree to modify the timing of Boeing 737 MAX deliveries, the amount and timing of the Company's future capital commitments could change.

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			B+						Ba2						B+
United			B+						*						B+
* 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 enhanced equipment trust certificates ("EETCs"), term loans, and secured bond financings. Downgrades from current rating levels, among other things, could affect the fair market value of existing debt and restrict the availability and/or increase the cost of future financing for the Company.

Sources and Uses of Cash

Operating Activities. Cash flows provided by operations were $2.3 billion for the nine months ended September 30, 2021 compared to cash flows used in operations of $2.0 billion for the same period in 2020. The increase is primarily attributable to partial improvements in the demand for passenger travel as well as total government grant funding provided under the PSP2 Agreement and PSP3 Agreement of $4.1 billion, partially offset by continuing operating losses as a result of the COVID-19 pandemic.

Investing Activities. Capital expenditures were approximately $1.6 billion in each of the nine months ended September 30, 2021 and 2020. Capital expenditures for the nine months ended September 30, 2021 were primarily attributable to advance deposits for future aircraft purchases.

Financing Activities. Significant financing events in the nine months ended September 30, 2021 were as follows:

Debt, Finance Lease and Other Financing Liability Principal Payments. During the nine months ended September 30, 2021, the Company made payments for debt, finance leases, and other financing liabilities of $4.6 billion, primarily for repayments of $1.4 billion aggregate principal amount outstanding under the 2017 Term Loan Facility, $1.0 billion aggregate principal amount outstanding under the 2017 Revolving Credit Facility, and $520 million aggregate principal amount outstanding under the CARES Act Loan.

Debt Issuances. During the nine months ended September 30, 2021, United received and recorded:

• $870 million from the PSP2 Note;

• $600 million of proceeds as debt from the EETC pass-through trusts established in February 2021;

• $810 million from the PSP3 Note;

• $5.0 billion from the New Term Loan Facility; and

• $4.0 billion from the Notes.

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

Share Issuance. During the nine months ended September 30, 2021, the Company raised approximately $532 million in net cash proceeds from the issuance and sale of UAL common stock through "at the market offerings" under equity distribution agreements entered into in June 2020 and March 2021. During the quarter ended September 30, 2021, no shares were sold through "at the market offerings".

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Commitments, Contingencies and Liquidity Matters. As described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K"), the Company's liquidity may be adversely impacted by a variety of factors, including, but not limited to, pension funding obligations, reserve requirements associated with credit card processing agreements, guarantees, commitments, contingencies and the ongoing impact of the COVID-19 pandemic.

See the 2020 Form 10-K and Notes 5, 6, 7, 8 and 9 to the financial statements contained in Part I, Item 1 of this report for additional information.

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CRITICAL ACCOUNTING POLICIES

See "Critical Accounting Policies" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2020 Form 10-K.

FORWARD-LOOKING INFORMATION

This report contains certain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report, relating to, among other things, the potential impacts of the COVID-19 pandemic and steps the Company plans to take in response thereto and goals, plans and projections regarding the Company’s financial position, results of operations, market position, product development, ESG targets and business strategy. Such forward-looking statements are based on historical performance and current expectations, estimates, forecasts and projections about the Company’s future financial results, goals, plans and objectives and involve inherent risks, assumptions and uncertainties, known or unknown, including internal or external factors that could delay, divert or change any of them, that are difficult to predict, may be beyond the Company's control and could cause the Company's future financial results, goals, plans and objectives to differ materially from those expressed in, or implied by, the statements. Words such as "should," "could," "expects," "will," "plans," "intends," "anticipates," "indicates," "remains," "believes," "estimates," "may," "projects," "forecast," "guidance," "outlook," "goals", "targets" and other words and terms of similar meaning and expression are intended to identify forward-looking statements, although not all forward-looking statements contain such terms.

Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as conditional statements, 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 or regulation.

Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: the adverse impacts of the ongoing COVID-19 global pandemic, and possible outbreaks of another disease or similar public health threat in the future, on our business, operating results, financial condition, liquidity and near-term and long-term strategic operating plan, including possible additional adverse impacts resulting from the duration and spread of the pandemic; unfavorable economic and political conditions in the United States and globally; the highly competitive nature of the global airline industry and susceptibility of the industry to price discounting and changes in capacity; high and/or volatile fuel prices or significant disruptions in the supply of aircraft fuel; our reliance on technology and automated systems to operate our business and the impact of any significant failure or disruption of, or failure to effectively integrate and implement, the technology or systems; our reliance on third-party service providers and the impact of any significant failure of these parties to perform as expected, or interruptions in our relationships with these providers or their provision of services; adverse publicity, harm to our brand; reduced travel demand, potential tort liability and voluntary or mandatory operational restrictions as a result of an accident, catastrophe or incident involving us, our regional carriers, our codeshare partners, or another airline; terrorist attacks, international hostilities or other security events, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry; increasing privacy and data security obligations or a significant data breach; disruptions to our regional network and United Express flights provided by third-party regional carriers; the failure of our significant investments in other airlines, equipment manufacturers and other aviation industry participants to produce the returns or results we expect; further changes to the airline industry with respect to alliances and joint business arrangements or due to consolidations; changes in our network strategy or other factors outside our control resulting in less economic aircraft orders, costs related to modification or termination of aircraft orders or entry into less favorable aircraft orders, as well as any inability to accept or integrate new aircraft into our fleet as planned; our reliance on single suppliers to source a majority of our aircraft and certain parts, and the impact of any failure to obtain timely deliveries, additional equipment or support from any of these suppliers; the impacts of union disputes, employee strikes or slowdowns, and other labor-related disruptions on our operations; extended interruptions or disruptions in service at major airports where we operate; the impacts of seasonality and other factors associated with the airline industry; our failure to realize the full value of our intangible assets or our long-lived assets, causing us to record impairments; any damage to our reputation or brand image; the limitation of our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income for U.S. federal income tax purposes; the costs of compliance with extensive government regulation of the airline industry; costs, liabilities and risks associated with environmental regulation and climate change; the impacts of our significant amount of financial leverage from fixed obligations, the possibility we may seek material amounts of additional financial liquidity in the short-term and the impacts of insufficient liquidity on our financial condition and business; failure to comply with the covenants in the MileagePlus financing agreements, resulting in the possible acceleration of the MileagePlus indebtedness, foreclosure upon the collateral securing the

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MileagePlus indebtedness or the exercise of other remedies; failure to comply with financial and other covenants governing our other debt; changes in, or failure to retain, our senior management team or other key employees; current or future litigation and regulatory actions, or failure to comply with the terms of any settlement, order or arrangement relating to these actions; increases in insurance costs or inadequate insurance coverage; and other risks and uncertainties set forth under Part II, Item 1A., Risk Factors, of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, as well as other risks and uncertainties set forth from time to time in the reports we file with the U.S. Securities and Exchange Commission (the "SEC").

The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties. In addition, certain forward-looking outlook provided in this report relies on assumptions about the duration and severity of the COVID-19 pandemic, the timing of the return to a more stable business environment, the volatility of aircraft fuel prices, customer behavior changes and return in demand for air travel, among other things (together, the "Recovery Process"). If the actual Recovery Process differs materially from our assumptions, the impact of the COVID-19 pandemic on our business could be worse than expected, and our actual results may be negatively impacted and may vary materially from our expectations and projections. It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections, beliefs and assumptions upon which we base our expectations may change. For instance, forward capacity is matched with current observed bookings trends and published flight schedules for the quarter and we will monitor future demand and booking trends and adjust capacity, as needed. As such, our actual flown capacity may differ materially from currently published flight schedules or current estimations.