United Airlines 2008 Annual Report Download - page 105

Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). On January 20, 2006, the
Bankruptcy Court confirmed the Debtors’ Second Amended Joint Plan of Reorganization Pursuant to
Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of
Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1,
2006 (the “Effective Date”). Pursuant to the Plan of Reorganization, UAL issued new debt and equity
securities to certain of its creditors. On the Effective Date, the Company implemented fresh-start
reporting.
Significant Bankruptcy Matters Resolved in 2008. During 2008, the San Francisco International
Airport (“SFO”) municipal bond secured interest matter was resolved. HSBC Bank Inc. (“HSBC”), as
trustee for the 1997 municipal bonds related to SFO, had filed a complaint against United asserting a
security interest in United’s leasehold for portions of its maintenance base at SFO. HSBC alleged that it
was entitled to be paid the value of that security interest, which HSBC had once claimed was as much as
$257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a
matter of law HSBC’s $257 million claim. HSBC subsequently alleged that it was entitled to $154 million,
or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which
were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion
holding that the value of the security interest is approximately $27 million. United has accrued this
amount as its estimated obligation at December 31, 2008. During 2008, HSBC withdrew its appeal to the
Seventh Circuit Court of Appeals of the District Court’s affirmance of the October 2006 Bankruptcy
Court ruling. The matter is now final and United expects to pay the amount due to HSBC in 2009.
Significant Matters Remaining to be Resolved in Chapter 11 Cases. There is pending litigation before
the Bankruptcy Court regarding the extent to which the Los Angeles International Airport (“LAX”)
municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. At
December 31, 2006, United had accrued $60 million for this matter. Trial on this matter occurred during
April 2007 and the two parties filed post-trial briefs in the second quarter of 2007. In August 2007, the
Bankruptcy Court issued its written opinion holding that the value of the security interest is
approximately $33 million, which United had accrued at December 31, 2007 and 2008. The District
Court affirmed the Bankruptcy Court’s rulings and the trustee for the bondholders has appealed the
matter to the Seventh Circuit Court of Appeals, which is pending. See Claims Resolution Process, below,
for details of special items recognized in the Statements of Consolidated Operations for the SFO and
LAX matters.
Claims Resolution Process. As permitted under the bankruptcy process, the Debtors’ creditors filed
proofs of claim with the Bankruptcy Court. Through the claims resolution process, the Company
identified many claims which were disallowed by the Bankruptcy Court for a number of reasons, such as
claims that were duplicative, amended or superseded by later filed claims, were without merit, or were
otherwise overstated. Throughout the Chapter 11 proceedings, the Company resolved many claims
through settlement or objections ordered by the Bankruptcy Court. The Company will continue to settle
claims and file additional objections with the Bankruptcy Court.
With respect to unsecured claims, once a claim is deemed to be valid, either through the Bankruptcy
Court process or through other means, the claimant is entitled to a distribution of common stock in
UAL. Pursuant to the terms of the Plan of Reorganization, 115 million shares of common stock in UAL
have been authorized to be issued to satisfy valid unsecured claims. The Bankruptcy Court confirmed
the Plan of Reorganization and established January 20, 2006 as the record date for purposes of
establishing the persons that are claimholders of record to receive distributions. Approximately 113
million common shares have been issued and distributed to holders of valid unsecured claims between
February 2, 2006, the first distribution date established in the Plan of Reorganization, and December 31,
2008. As of December 31, 2008, approximately 46,000 valid unsecured claims aggregating to
approximately $29.3 billion in claim value had received those common shares to satisfy those claims.
There are 2.0 million remaining shares of UAL common stock held in reserve to satisfy all of the
remaining disputed and undisputed unsecured claim values, once the remaining claim disputes are
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