United Airlines 2012 Annual Report Download - page 139

Table of Contents
allowed under each CPA, (3) that aircraft utilization, stage length and load factors will remain constant, (4) that each carrier’s operational performance will
remain at historic levels and (5) that inflation is projected to be between 1.5% and 2.2% per year. Based on these assumptions as of December 31, 2012, our
future payments through the end of the terms of our CPAs are presented in the table below (in millions). These amounts exclude variable pass-through costs
such as fuel and landing fees, among others.
  
2013 $ 1,801 $ 931 $ 870
2014 1,604 781 823
2015 1,422 691 731
2016 1,187 481 706
2017 1,159 472 687
After 2017 2,376 947 1,429
$ 9,549 $ 4,303 $ 5,246
It is important to note that the actual amounts we pay to our regional operators under CPAs could differ materially from these estimates. For example, a 10%
increase or decrease in scheduled block hours for all of United’s and Continental’s regional operators (whether as a result of changes in average daily
utilization or otherwise) in 2013 would result in a corresponding change in annual cash obligations under the CPAs for UAL of approximately $76 million
(8.2%) and $72 million (8.2%), respectively.

Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the fair value of the entity’s net assets
exclusive of variable interests. A VIE can arise from items such as lease agreements, loan arrangements, guarantees or service contracts. An entity is a VIE if
(a) the entity lacks sufficient equity or (b) the entity’s equity holders lack power or the obligation and right as equity holders to absorb the entity’s expected
losses or to receive its expected residual returns. Therefore, if the equity owners as a group do not have the power to direct the entity’s activities that most
significantly impact its economic performance, the entity is a VIE.
If an entity is determined to be a VIE, the entity must be consolidated by the primary beneficiary. The primary beneficiary is the holder of the variable interests
that has the power to direct the activities of a VIE that (i) most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses
of or the right to receive benefits from the VIE that could potentially be significant to the VIE. Therefore, the Company must identify which activities most
significantly impact the VIE’s economic performance and determine whether it, or another party, has the power to direct those activities.
The Company’s evaluation of its association with VIEs is described below:
Aircraft Leases. We are the lessee in a number of operating leases covering the majority of our leased aircraft. The lessors are trusts established specifically to
purchase, finance and lease aircraft to us. These leasing entities meet the criteria for VIEs. We are generally not the primary beneficiary of the leasing entities if
the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or
similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. This is the case for many of
our operating leases; however, leases of approximately 11 United mainline jet aircraft and 73 Continental mainline jet aircraft contain a fixed-price purchase
option that allow United and Continental to purchase the aircraft at predetermined prices on specified dates during the lease term. Additionally, leases covering
substantially all of Continental’s 256 leased regional jet aircraft contain an option to purchase the aircraft at the end of the lease term at prices that, depending
on market conditions, could be below fair value. The Company has not consolidated the related trusts because, even taking into consideration these purchase
options, the Company is still not the primary beneficiary. The Company’s maximum exposure under these leases is the remaining lease payments, which are
reflected in future lease commitments in Note 15.
138