United Airlines 2013 Annual Report Download - page 109

Table of Contents
In April 2013, United agreed to purchase 30 Embraer EMB175 aircraft. In August 2013, United entered into a CPA with Mesa Air Group, Inc. and Mesa
Airlines, Inc. (“Mesa”), a wholly-owned subsidiary of Mesa Air Group, Inc., for Mesa to operate these 30 Embraer EMB175 aircraft under the United
Express brand.
Our future commitments under our CPAs are dependent on numerous variables, and are therefore difficult to predict. The most important of these variables is
the number of scheduled block hours. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have set
forth below estimates of our future payments under the CPAs based on our assumptions. United’s estimates of its future payments under all of the CPAs do
not include the portion of the underlying obligation for any aircraft leased to ExpressJet or deemed to be leased from other regional carriers and facility rent that
are disclosed as part of aircraft and nonaircraft operating leases. For purposes of calculating these estimates, we have assumed (1) the number of block hours
flown is based on our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is higher, (2) that we will
reduce the fleet as rapidly as contractually 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 1.38% and 2.50% per year. These amounts
exclude variable pass-through costs such as fuel and landing fees, among others. Based on these assumptions as of December 31, 2013, our future payments
through the end of the terms of our CPAs are presented in the table below (in millions):
2014 $ 1,936
2015 1,747
2016 1,532
2017 1,449
2018 1,340
After 2018 3,410
$ 11,414
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 regional operators (whether as a result of changes in average daily utilization or otherwise) in
2014 would result in a corresponding change in annual cash obligations under the CPAs of approximately $159 million (8.2%).
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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.
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