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Rating Action:

MOODY'S INVESTORS SERVICE CONFIRMED THE DEBT RATINGS OF UAL CORPORATION -- SENIOR UNSECURED OF UNITED AIRLINES INC. AT Ba1

08 Aug 2001

Approximately $12.9 Billion of Debt Securities Affected.

New York, August 08, 2001 -- Moody's Investors Service confirmed the debt ratings of UAL Corporation (UAL) and United Airlines, Inc. The senior unsecured debt rating of United Airlines Inc. is confirmed at Ba1. The rating confirmation is based on Moody's belief that despite recent operating difficulties, UAL maintains a strong fundamental business position in the airline industry that should enable it to rebuild debt protection measurements once industry conditions improve. Moody's noted that during the near term, softness in business travel and weak passenger yields will limit the company's ability to absorb the higher labor costs stemming from recent labor settlements. Consequently, UAL's earnings and cash flow measurements will be below historic norms. Nevertheless, UAL's existing cash liquidity and relatively unencumbered balance sheet provide it with a degree of financial flexibility to weather the current difficult operating environment. The rating outlook is negative reflecting the challenges facing management in rebuilding the airline's performance standards and absorbing higher labor costs within the current weak business environment. Absent a material improvement in cash flow generation and debt protection measurements, the ratings would come under greater downward pressure. This confirmation completes Moody's review of UAL's debt ratings.

The ratings confirmed are:

United Air Lines, Inc.: Issuer rating and senior unsecured rating at Ba1; Bank Credit Facility at Ba1

Equipment Trust Certificates at Baa2;

Enhanced Equipment Trust Certificates:

Series 2000-1, Class A at Aa3, and Class B at A2

Series 2000-2, Class A at Aa3, Class B at A2 and Class C at A3

Shelf registration for senior secured debt, at (P) Baa2; and senior subordinated debt at (P)Ba2;

Jets Equipment Trusts

Series 1994-A, Class A at A3, Class B at Baa2 and the junior class at Baa3

Series 1995-A, Class A at A2, Class B at Baa1, Class C at Baa2 and the junior class at Baa3

Series 1995-B, Class A at A2, Class B at Baa1, Class C at Baa2 and the junior class at Baa3

IRB's at Ba1

UAL Corporation: Shelf registration for senior unsecured debt at (P) Ba2 and preferred stock, at (P) B1; subordinated debt at B1; and preferred stock, at B1

UAL Corporation Capital Trust I: preferred stock, at Ba3.

According to Moody's, UAL's recent performance reflects the significant financial difficulties which are affecting the entire airline industry. Despite relatively strong passenger load factors, principally driven by leisure travel during the summer months, a weakening economic environment and a sharp falloff in business travel have adversely affected revenue generation and eroded yields. At United this resulted in a 13% decline in unit passenger revenues on a year over year basis during the second quarter. Against this backdrop, the company has also had to absorb relatively high fuel costs and a sharp increase in labor expenses stemming from its recent settlement with its pilots and mechanics. The company has warned of continued weak earnings for the balance of the year.

As a result of these negative economic and operational conditions, UAL has experienced several quarters of negative free cash flow (after capital expenditures and debt repayments) and continued erosion of its debt protection measures. Moody's expects the negative trend to continue for the next few years.

UAL has aggressively responded to these challenging conditions, and has reduced its planned capacity additions (measured by available seat miles) and is using its flexibility to remove older high-operating-cost aircraft from its fleet. The company is also decreasing fleet utilization to match current demand and re-deploying its capacity to Regional Jets. United has also accelerated retirement of B727s and deferred delivery of new aircraft.

The company also benefits from a strong route structure both in the US and around the world and a strong brand name. The company continues to have, directly and through its dominant Star Alliance structure, one of the broadest and most extensive route structures in the world. United benefits from the combination of a strong presence in both the Atlantic and Pacific as well as the size and breadth of its presence in the US. Additionally, the company has some degree of financial flexibility through its ability to use approximately $6 billion of unencumbered assets to support liquidity and get the company through the current difficult period.

In spite of the efforts undertaken by the company and the financial flexibility provided by its unencumbered assets, Moody's emphasizes that a continued trend of negative free cash flow at United - which will require greater leverage of its balance sheet - will drive further rating downgrades.

UAL Corporation, headquartered in Elk Grove Village, Illinois is the parent of United Airlines, Inc. the second largest air carrier in the world.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Richard Bittenbender
VP - Senior Credit Officer
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

MOODY'S INVESTORS SERVICE CONFIRMED THE DEBT RATINGS OF UAL CORPORATION -- SENIOR UNSECURED OF UNITED AIRLINES INC. AT Ba1
No Related Data.
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