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Rating Action:

MOODY'S REVIEWS DEBT RATINGS OF UAL CORP. FOR POSSIBLE DOWNGRADE (SENIOR IMPLIED AT B3)

13 Feb 2002

Approximately $15 Billion of Debt Securities Affected.

New York, February 13, 2002 -- Moody's Investors Service placed the ratings of UAL Corporation ('United') and its subsidiaries (B3 senior implied) under review for possible downgrade following yesterday's vote by the members of the IAM (International Association of Machinists and Aerospace Workers---United's mechanics' union) to reject a proposed new labor contract. The vote also authorized a strike at United, as early as February 20, if an agreement with the airline can not be reached. Although both management and labor have indicated their intention to continue negotiations, the rejection of the contract increases the potential for a labor action that could have severe negative implications for United's operations and as a result, its financial risk profile.

The review will focus on United's strategy to deal with the potential implications of the ongoing labor dispute with the IAM, and will consider the affects on United's cash flow and liquidity of under various scenarios which could emerge, including a negotiated settlement, a labor action or outright strike, or a government imposed contract. Moody's primary concerns relate to the potential cost to United of a work slowdown or a strike. United currently has substantial liquidity, including $2.6 billion of reported cash as of 12/31/01. However, in Moody's opinion, these resources will be needed to support the company as it addresses the range of business and financial challenges facing it and the airline industry in general. Additional demands created by a work action could significantly and negatively affect United's ability to recover from its current economic difficulties.

There are several potential scenarios which could emerge from the current labor dispute. Both the union and management have indicated willingness to reopen negotiations and there is currently a 30 day cooling off period in place. This period ends on February 20th. The most positive outcome would be an agreement between the union and management that is acceptable to the union and eliminates the potential for a costly work action. In this event, Moody's review could be concluded with a confirmation of United's existing ratings.

Less favorable outcomes include either be a strike, which could temporarily shut down the airline's operations, or an imposed agreement (under existing labor law, the US Congress could impose a contact recommended by the Presidential Emergency Board). The concern surrounding an imposed agreement is the possibility, raised by certain of the IAM's labor leaders, of a work to rule action by maintenance staff. Past such actions have been highly disruptive of airline operations.

Even in the best of times, labor disruptions at airlines are extremely demanding on liquidity and quickly affect cash flow and profitability. A high proportion of an airline's expenses are fixed in the short term and the cost of shutting down and restarting operations is enormous. Revenues also suffer both before a labor action, as passengers book on other carriers to avoid potential inconvenience, and for some time after the action as bookings take some time to recover. In the event of a strike or labor action, Moody's ratings could be downgraded, potentially by more than one ratings notch.

United has stated that it will, after resolving the contract with the IAM, focus on conversations with all of its labor groups to reduce its costs. Achieving such concessions from labor groups will be a critical part of United's recovery plan. Moody's believes that even if a recovery of airline bookings facilitates renewed revenue growth for United, the company's long term success will be contingent on its ability to achieve meaningful cost reductions. Among other things, this will entail continued discussions with all of the company's labor groups regarding the role they will play in this cost reduction effort. As a result, it is likely that even in the event of a rating confirmation, the outlook for United's ratings will remain negative. The ratings under review for possible downgrade are:

United Air Lines, Inc.

Senior Implied Rating, B3

Issuer Rating, Caa1

Senior unsecured, Caa1

Industrial Revenue Bonds, Caa1

Equipment Trust Certificates, B1

Enhanced Equipment Trust Certificates, Series 1997-1, Class A, Baa3

Enhanced Equipment Trust Certificates, Series 1997-1, Class B, Ba2

Enhanced Equipment Trust Certificates, Series 2000-1, Class A, Baa3

Enhanced Equipment Trust Certificates, Series 2000-1, Class B, Ba2

Enhanced Equipment Trust Certificates, Series 2000-2, Class A, Baa3

Enhanced Equipment Trust Certificates, Series 2000-2, Class B, Ba2

Enhanced Equipment Trust Certificates, Series 2000-2, Class C, Ba3

Enhanced Equipment Trust Certificates, Series 2001-1, Class A, Baa3

Enhanced Equipment Trust Certificates, Series 2001-1, Class B, Ba1

Enhanced Equipment Trust Certificates, Series 2001-1, Class C, Ba3

Enhanced Equipment Trust Certificates, Series 2001-1, Class D, B3

Shelf registration for senior secured debt, (P)B1; for senior unsecured debt, (P)Caa1; and for subordinated debt, (P)Caa2

Jets Equipment Trusts

Series 1994-A, Class A, Ba3; Class B, B2

Series 1995-A, Class A, Ba2; Class B, B1; Class C, B2

Series 1995-B, Class A, Ba2; Class B, B1; Class C, B2.

UAL Corporation

Conv. Preferred stock Ser. A, Ca

Cum. Preferred stock Ser. B, Ca

Shelf registration for senior unsecured, (P)Caa2; for subordinated debt, (P)Caa3; and for preferred stock, (P)Ca

UAL Corporation Capital Trust I: preferred stock, Caa3

UAL Corporation, headquartered in Elk Grove Village, Illinois and 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 REVIEWS DEBT RATINGS OF UAL CORP. FOR POSSIBLE DOWNGRADE (SENIOR IMPLIED AT B3)
No Related Data.
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