United Airlines 2010 Annual Report Download - page 155

more senior debt classes. These credit enhancements lower the Company’s total borrowing cost. The other
purpose of the pass-through trusts is to receive principal and interest payments on the equipment notes purchased
by the pass-through trusts from the Company and remit these proceeds to the pass-through trusts’ certificate
holders.
The Company does not invest in or obtain a financial interest in the pass-through trusts. Rather, the
Company has an obligation to make its interest and principal payments on their equipment notes held by the
pass-through trusts. The Company was not intended to have any voting or non-voting equity interest in the pass-
through trusts or to absorb variability from the pass-through trusts. Based on this analysis, the Company
determined that it is not required to consolidate the pass-through trusts.
See Note 17 for a discussion of the Company’s fuel consortia guarantees and United’s municipal bond
guarantees.
NOTE 17—COMMITMENTS AND CONTINGENCIES
General Guarantees and Indemnifications. In the normal course of business, the Company enters into
numerous real estate leasing and aircraft financing arrangements that have various guarantees included in the
contracts. These guarantees are primarily in the form of indemnities under which the Company typically
indemnifies the lessors and any tax/financing parties against tort liabilities that arise out of the use, occupancy,
operation or maintenance of the leased premises or financed aircraft. Currently, the Company believes that any
future payments required under these guarantees or indemnities would be immaterial, as most tort liabilities and
related indemnities are covered by insurance (subject to deductibles). Additionally, certain leased premises such
as fueling stations or storage facilities include indemnities of such parties for any environmental liability that
may arise out of or relate to the use of the leased premises.
Legal and Environmental Contingencies. The Company has certain contingencies resulting from litigation
and claims incident to the ordinary course of business. Management believes, after considering a number of
factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of
contingencies to which the Company is subject and prior experience, that the ultimate disposition of these
contingencies will not materially affect the Company’s consolidated financial position or results of operations.
The Company records liabilities for legal and environmental claims when a loss is probable and reasonably
estimable. These amounts are recorded based on the Company’s assessments of the likelihood of their eventual
disposition. The amounts of these liabilities could increase or decrease in the near term, based on revisions to
estimates relating to the various claims.
The Company believes that it will have no financial exposure for claims arising out of the events of
September 11, 2001 in light of the provisions of the Air Transportation Safety and System Stabilization Act of
2001, the resolution of the majority of the wrongful death and personal injury cases by settlement and the
withdrawal of all related proofs of claim from UAL Corporation’s Chapter 11 bankruptcy protection, and the
limitation of claimants’ recoveries to insurance proceeds.
Trans-Atlantic Joint Venture. In December 2010, pursuant to antitrust immunity approval granted by the
DOT, United, Continental, Air Canada and Lufthansa executed a revenue-sharing joint venture agreement
covering transatlantic routes. The joint venture is expected to deliver highly competitive flight schedules, fares
and service. The European Commission, which has been conducting a parallel review of the competitive effects
of the joint venture, similar to the DOT’s review, has not yet completed its review. The joint venture has a
revenue sharing structure that results in payments among participants based on a formula that compares current
period unit revenue performance on trans-Atlantic routes to a historic period or “baseline,” which is reset
annually. The payments are calculated on a quarterly basis and subject to a cap. In the fourth quarter of 2010,
upon executing the joint venture agreement, United and Continental recorded charges to other operating expense
of $65 million each related to their revenue sharing obligations for the first three quarters of 2010.
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