United Airlines 2010 Annual Report Download - page 64

Certain municipalities have issued municipal bonds on behalf of each of United and Continental to finance
the construction of improvements at airport-related facilities. United and Continental also each lease facilities at
airports where municipal bonds funded at least some of the construction of airport-related projects. As of
December 31, 2010, United guaranteed interest and principal payments of $270 million in principal amount of
Denver International Airport bonds (“Denver Bonds”) which are due in 2032, unless United elects not to extend
its equipment and ground lease in which case the bonds are due in 2023. The outstanding bonds and related
guarantee for Denver are not recorded in United’s financial statements because the related lease agreement is
accounted for as an operating lease with the associated rent expense recorded on a straight-line basis over the
expected lease term through 2032. The annual lease payments through 2023 and the final payment for the
principal amount of the Denver Bonds are included in the operating lease payments in the contractual obligations
table in Capital Commitments and Off-Balance Sheet Arrangements, above.
As of December 31, 2010, Continental is the guarantor of approximately $1.7 billion in aggregate principal
amount of tax-exempt special facilities revenue bonds and interest thereon, excluding the US Airways contingent
liability described below. These bonds, issued by various airport municipalities, are payable solely from
Continental’s rentals paid under long-term agreements with the respective governing bodies. The leasing
arrangements associated with approximately $1.5 billion of these obligations are accounted for as operating
leases, and the leasing arrangements associated with approximately $190 million of these obligations are
accounted for as capital leases.
Continental is contingently liable for US Airways’ obligations under a lease agreement between US
Airways and the Port Authority of New York and New Jersey related to the East End Terminal at
LaGuardia. These obligations include the payment of ground rentals to the Port Authority and the payment of
other rentals in respect of the full amounts owed on special facilities revenue bonds issued by the Port Authority
having an outstanding par amount of $95 million at December 31, 2010 and a final scheduled maturity in 2015. If
US Airways defaults on these obligations, Continental would be obligated to cure the default and would have the
right to occupy the terminal after US Airways’ interest in the lease had been terminated.
Increased Cost Provisions. In the Company’s financing transactions that include loans, the Company
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 in 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 certain mitigation obligations of the lenders. At December 31, 2010, UAL had $3.3 billion of floating
rate debt (consisting of United’s $2.3 billion and Continental’s $1.0 billion of floating rate debt) and $483
million of fixed rate debt (consisting of United’s $233 million and Continental’s $250 million of fixed rate debt),
with remaining terms of up to ten 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 ten years and an
aggregate carrying value of $3.7 billion (consisting of United’s $2.6 billion and Continental’s $1.1 billion of
carrying value), we bear 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.
Fuel Consortia. The Company participates in numerous fuel consortia with other 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, 2010, approximately $1.2
billion principal amount of such bonds were secured by significant fuel facility leases in which UAL participates,
as to which UAL and each of the signatory airlines have provided indirect guarantees of the debt. UAL’s
contingent exposure is approximately $276 million principal amount of such bonds based on its recent consortia
participation. As of December 31, 2010, United’s and Continental’s contingent exposure related to these bonds,
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