United Airlines 2012 Annual Report Download - page 145

Table of Contents
The obligations of UAL, United, Continental and Mileage Plus Holdings, LLC to Chase under the Co-Brand Agreement are joint and several. Certain of
United’s obligations under the Co-Brand Agreement in an amount not more than $850 million are secured by a junior lien in all collateral pledged by United
under its Amended Credit Facility. All of Continental’s obligations under the Co-Brand Agreement are secured by a junior lien in all collateral pledged by
Continental to secure its Senior Notes due 2015. United also provides a first priority lien to Chase on its MileagePlus assets to secure certain of its obligations
under the Co-Brand Agreement and its obligations under the new combined credit card processing agreement among Continental, United, Paymentech, LLC
and JPMorgan Chase. After Continental’s OnePass Program termination in March 2012, certain of the OnePass Program assets were added as collateral to the
Co-Brand Agreement. As a result of this termination, all OnePass related assets and liabilities were transferred from Continental to United.
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Intercompany transactions - United and Continental
United and Continental perform services for one another including various aircraft maintenance services, aircraft ground handling and aircraft fuel provisions
at certain airports. For the year ended December 31, 2012, United provided $558 million of services to Continental, and Continental provided $219 million
of services to United. Many of these transactions are routinely settled through the clearing house, which is customarily used in the monthly settlement of such
items. Transactions not settled through the clearing house are typically settled in cash on a quarterly basis. As of December 31, 2012, Continental had a net
current payable of $2.5 billion to United primarily related to the transfer of the current portion of the frequent flyer liability and the cash transfer from United
in conjunction with the conversion to the new passenger service system, as described below. In addition, Continental had a $270 million noncurrent payable
as of December 31, 2012 to United associated with the transfer of advanced purchase of miles to United as a result of the transition to the single loyalty
program described further below.
In November 2011, the Company received a single operating certificate from the Federal Aviation Administration. The Company plans to merge United Air
Lines, Inc. and Continental Airlines, Inc. into one legal entity in 2013. Once this legal merger occurs, the financial statements of United and Continental will be
combined at their historical cost for all periods presented beginning on October 1, 2010, the date on which Continental became a wholly-owned subsidiary of
UAL, and there will no longer be a requirement to separately report the historical financial statements of Continental. Intercompany receivables and payables
between United and Continental will be settled when United Air Lines, Inc. and Continental Airlines, Inc. merge into one legal entity.
Frequent flyer program transition
In the first quarter of 2012, the Company moved to a single loyalty program. Continental’s loyalty program formally ended in the first quarter of 2012, at
which point United automatically enrolled Continental OnePass program members in the MileagePlus program and deposited into those MileagePlus accounts
award miles equal to these members’ OnePass award miles balance. In March 2012, the related frequent flyer deferred revenue and advance purchase of miles
liabilities for the OnePass program was transferred to United with a corresponding liability recorded by Continental payable to United for assuming the
frequent flyer obligations. No gain or loss was incurred from the transaction as the liabilities were transferred at their respective net book value. The obligation
associated with this transfer will be settled by Continental through future redemptions by MileagePlus members on Continental operated flights.
Passenger service system and ticket stock integration
In March 2012, Continental and United converted to a single passenger service system, allowing the Company to operate using a single reservations system,
carrier code, flight schedule, website and departure control system. In conjunction with the conversion to a single passenger service system, all tickets are now
sold by United. As a result, the air traffic liability of Continental is diminishing as tickets previously sold by Continental are used or refunded and United’s
advanced ticket sales liability and associated cash receipts from the ticket sales will
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