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Rating Action:

MOODY'S RATES UNITED AIR LINES, INC. PASS THROUGH CERTIFICATES

27 Jul 2006
MOODY'S RATES UNITED AIR LINES, INC. PASS THROUGH CERTIFICATES

Approximately $3.2 Billion of Debt Securities Affected

New York, July 27, 2006 -- Moody's Investors Service assigned the following ratings to United Air Lines, Inc.'s ("United") Pass Through Trust Certificates, Series 2000-1, 2000-2 and 2001-1 (collectively the "Certificates"):

Series 2000-1

$233,244,336 Class A-1 Certificates: Ba3

$324,913,300 Class A-2 Certificates: Ba3

$186,368,450 Class B Certificates: B3

Series 2000-2

$260,322,870 Class A-1 Certificates: Ba2

$684,117,291 Class A-2 Certificates: Ba2

$266,663,000 Class B Certificates: B1

$148,577,000 Class C Certificates: Caa2

Series 2001-1

$204,981,915 Class A-1 Certificates: Ba2

$207,139,050 Class A-2 Certificates: Ba2

$295,462,107 Class A-3 Certificates: Ba2

$150,168,000 Class B Certificates: Ba3

$251,885,000 Class C Certificates: B2

$137,268,000 Class D Certificates: B3

The rating assignments represent a reestablishment of rating coverage of these instruments following United's emergence from bankruptcy and restructuring of the certificates. The previous ratings on these certificates were withdrawn in February, 2004 due to a lack of sufficient information to maintain the ratings during the bankruptcy process.

During the bankruptcy process United negotiated with certificate holders and amended the structure, terms and conditions of the equipment notes supporting certain enhanced equipment trust certificates ("EETC's"). The modifications made to the equipment notes included the abandonment of certain aircraft collateralizing the notes along with changes made to payment obligations and maturity dates. Additionally, under the restructured EETC's the liquidity facilities were terminated, which, in Moody's view makes the new structures similar to traditional equipment trust certificates ("ETC") and limits the magnitude of rating enhancement. Other enhancements were added which the ratings also reflect, including the cross-collateralization and cross-default terms associated with United's obligations, as well as terms which require that United perform certain maintenance obligations in a timely manner for its aircraft collateralizing the Certificates. The equipment notes continue to benefit from a security interest in the aircraft and it is the opinion of counsel to United that, with respect to the aircraft owned by United, the indenture trustee, as the secured party under each aircraft indenture, continues to be entitled to the benefits under section 1110 of the U.S. Bankruptcy Code.

With this restructuring, all three transactions experienced a post-triggering event waterfall, resulting in a sequential pay structure under which the senior tranches are to be paid in full before the junior tranches receive any funds. Accordingly, the assigned ratings reflect that the junior certificate holders may not receive ultimate payment of principal and interest in the event of default.

The aircraft portfolio in Series 2000-1 transaction, with a weighted average age of approximately 8.4 years, is comprised of 20 aircraft including 6 A320s, 7 B757-200s, 2 B767-200ER, 4 B777-200 (3 of which are ERs), and 1 747-400. During United's bankruptcy, 2 of the 777s were returned by United in August 2003 to the trustee. As of December 2004, these two aircraft were leased to Varig Brasil, a Brazilian airline, which itself has been operating in bankruptcy. As a result of Varig's bankruptcy, these two planes are to be returned to the trustee by the Brazilian bankruptcy court; however, there is currently no specified time frame in which these two planes are to be returned. The uncertainties of the outcome regarding these two aircraft create more volatility in the future cash flows for this transaction. The full repayment of Class B Certificates depends on the future recovery amount from these two leased planes which is reflected in the ratings assigned. As a result of the restructuring of the equipment notes underlying the Certificates, the expected maturities of the Certificates has changed. For the Class A-1 Certificates, the expected maturity date was changed to 2010 from 2014, reflecting the accelerated amortization under the sequential pay waterfall. The Class B Certificates expected maturities were extended to 2012 from 2011.

The aircraft portfolio collateralizing the Series 2000-2 transaction has a similar weighted average as that of the 2000-1 transaction, and consists of 35 aircraft, including 12 A319-100s, 5 A320-200s, 6 B757-200s, 3 B747-400s and 9 B777-200ERs. 2 B777 aircraft, after being returned by United, were leased to Air India in May 2005. The difference in the senior ratings of this transaction versus the 2000-1 transaction is attributable to lower LTV ratios. In addition, the retirement of the Class B Certificates at full amount does not rely on the cash flow of the leased aircraft to Air India in this transaction and positions the Class B Certificates at a relatively faster and more certain amortization schedule. The full repayment of Class C Certificates is highly dependent on the future sale value or the releasing amount of the two Air India planes upon either lease expiration or default. Expected maturity dates were also changed for this transaction in the restructuring process. For the Class A-2 Certificates, the expected maturity date was changed to 2010 from 2011, and the Class B Certificate expected maturities were extended to 2011 from 2009.

For the Series 2001-1 transaction, there are 29 aircraft that currently collateralize these certificates comprised of 10 A319, 6 A320, 5 B747, 5 B767 and 3 B777 aircraft. Moody's notes that during the bankruptcy process one B777 aircraft was sold, but that all remaining aircraft remain in operation as part of United's fleet. Additionally, the expected maturity dates were changed in the restructuring process. For the Class A Certificates, the expected maturity dates were changed to 2009 from 2013 (Class A-1 and A-3) and from 2008 (Class A-2). The Class B, C and D Certificates expected maturities were modified to 2010, 2011 and 2012, respectively, from the original maturities of 2011, 2008 and 2006, respectively.

For all transactions, it is the view of counsel to United that the new maturity dates for the restructured United equipment notes supporting the Certificates are now effectively the legal final distribution dates for the Certificates. Moody's ratings consider the value of the collateral as compared to the outstanding loan amounts (loan to value or LTV). Any decline in aircraft values occurring faster than the amortization of related debt could put downward pressure on the ratings. Additionally, the ratings assigned to the Certificates considers the ability of United (B2 Corporate Family rating) to make timely payment of interest and the ultimate payment of principal, under the restructured terms, at a date no later than the legal final distribution date. The ratings are also based upon the credit quality of United, as obligor, the expected future cash flow from the leased aircraft and the value of the aircraft collateralizing the Certificates. Any future changes in the underlying credit quality or ratings of United and/or material changes in the value of the underlying collateral (aircraft) could cause a change in the ratings assigned to the Certificates.

United Air Lines, Inc., and its parent company, UAL Corporation, are headquartered in Elk Grove Township, Illinois.

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

New York
Gregory D. Clifton
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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