United Airlines 2012 Annual Report Download - page 16

Table of Contents
The Company may not be able to maintain adequate liquidity.
The Company has a significant amount of financial leverage from fixed obligations, including aircraft lease and debt financings, leases of airport property
and other facilities, and other material cash obligations. In addition, the Company has substantial non-cancelable commitments for capital expenditures,
including the acquisition of new aircraft and related spare engines.
Although the Company’s cash flows from operations and its available capital, including the proceeds from financing transactions, have been sufficient to
meet these obligations and commitments to date, the Company’s future liquidity could be negatively impacted by the risk factors discussed in this Item 1A,
including, but not limited to, substantial volatility in the price of fuel, adverse economic conditions, disruptions in the global capital markets and catastrophic
external events.
If the Company’s liquidity is constrained due to the various risk factors noted in this Item 1A or otherwise, the Company’s failure to comply with certain
financial covenants under its financing and credit card processing agreements, timely pay its debts, or comply with other material provisions of its contractual
obligations could result in a variety of adverse consequences, including the acceleration of the Company’s indebtedness, increase of required reserves under
credit card processing agreements, the withholding of credit card sale proceeds by its credit card service providers and the exercise of other remedies by its
creditors and equipment lessors that could result in a material adverse effect on the Company’s financial position and results of operations. Furthermore,
constrained liquidity may limit the Company’s ability to withstand competitive pressures and limit its flexibility in responding to changing business and
economic conditions, including increased competition and demand for new services, placing the Company at a disadvantage when compared to its competitors
that have less debt, and making the Company more vulnerable than its competitors who have less debt to a downturn in the business, industry or the
economy in general.
The Company’s substantial level of indebtedness and non-investment grade credit rating, as well as market conditions and the availability of assets as
collateral for loans or other indebtedness, may make it difficult for the Company to raise additional capital to meet its liquidity needs on acceptable terms, or at
all.
See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further information regarding the Company’s
liquidity.
Certain of the Company’s financing agreements have covenants that impose operating and financial restrictions on the Company and its
subsidiaries.
Certain of the Company’s credit facilities and indentures governing its secured notes impose certain operating and financial covenants on the Company, on
United and its subsidiaries, or on Continental and its subsidiaries. Such covenants require the Company, United or Continental, as applicable, to maintain,
depending on the particular agreement, minimum fixed charge coverage ratios, minimum liquidity and/or minimum collateral coverage ratios. A decline in the
value of collateral could result in a situation where the Company, United or Continental, as applicable, may not be able to maintain the required collateral
coverage ratio. In addition, the credit facilities and indentures contain other negative covenants customary for such financings.
The Company’s ability to comply with these covenants may be affected by events beyond its control, including the overall industry revenue environment and
the level of fuel costs, and the Company may be required to seek waivers or amendments of covenants, repay all or a portion of the debt or find alternative
sources of financing. The Company cannot provide assurance that such waivers, amendments or alternative financing could be obtained or, if obtained,
would be on terms acceptable to the Company. If the Company fails to comply with these covenants and is unable to obtain a waiver or amendment, an event
of default would result which would allow the lenders, among other things, to declare outstanding amounts due and payable. The Company cannot provide
assurance that it would have sufficient liquidity to repay or refinance such amounts if they were to become due. In addition, an event of default or declaration
of acceleration under any of the credit facilities or indentures could also result in an event of default under certain of the Company’s other financing agreements
due to cross-default and cross-acceleration provisions.
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