United Airlines 2009 Annual Report Download - page 20

Table of Contents
United entered into a new agreement with American Express on March 1, 2009 with an initial five year term. Under the agreement, in addition to certain
other risk protections provided to American Express, the Company will be required to provide reserves based primarily on its unrestricted cash balance and net
current exposure as of any calendar month-end measurement date, as summarized in the following table:
Total Unrestricted Cash Balance (a)
Required % of
Net Current
Exposure (b)
Less than $2.4 billion 15%
Less than $2.0 billion 25%
Less than $1.35 billion 50%
Less than $1.2 billion 100%
(a) Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by
the agreement.
(b) Net current exposure equals relevant advance ticket sales less certain exclusions, and as adjusted for specified amounts payable between United and the
processor, as further defined by the agreement.
The agreement with American Express permits the Company to provide certain replacement collateral in lieu of cash collateral, as long as the Company’s
unrestricted cash is above $1.35 billion. Such replacement collateral may be pledged for any amount of the required reserve up to the full amount thereof, with
the stated value of such collateral determined according to the agreement. Replacement collateral may be comprised of aircraft, slots and routes, real estate or
other collateral as agreed between the parties. Based on the Company’s unrestricted cash balance at December 31, 2009, the Company was not required to
provide any reserves under this agreement.
An increase in the future reserve requirements as provided by the terms of either, or both, of the Company’s material card processing agreements could
materially reduce the Company’s liquidity.
The Company may not be able to maintain adequate liquidity.
While the Company’s cash flows from operations and its available capital have been sufficient to meet its current operating expenses, lease obligations and
debt service requirements to date, the Company’s future liquidity could be negatively impacted by many factors including, but not limited to, substantial
volatility in the price of fuel, declines in passenger and cargo demand associated with the global recession and deterioration of global financial systems, and any
of our future commitments for the purchase of aircraft. During 2008 and 2009, the Company experienced reduced demand for its services due to the weak global
economy. Decreases in passenger and cargo demand resulting from a weak global economy resulted in both lower passenger volumes and lower ticket fares,
which adversely impacted our liquidity and may continue to adversely impact our results of operations and liquidity in 2010. In addition, the Company’s capacity
cuts completed in 2008 and 2009 may not be sufficient to address lower demand due to the weak global economy. See the risk factor entitled “Economic and
industry conditions constantly change and continued or worsening negative economic conditions in the United States and elsewhere may have a material adverse
effect on our business and results of operations,” below, for further discussion of the adverse impacts of the weak economy on our operations.
In addition, fuel prices continue to be extremely volatile which may negatively impact the Company’s liquidity in the future. Certain of the Company’s
fuel hedges require that it post cash collateral with applicable counterparties if crude oil prices fall below certain prices. The Company provided cash collateral of
$10 million to its fuel derivative counterparties as of December 31, 2009. See Note 12, “Fair Value Measurements and Derivative Instruments,” in the Footnotes.
The Company’s plans to address increased and volatile fuel prices and the weak global economy may not be successful in improving its results of
operations and liquidity. In addition, the implementation of certain of these
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