ITEM 5.            OTHER EVENTS.

         On September 11, 2001, two United Airlines ("United") aircraft were hijackedand destroyed in terrorist attacks on The World Trade Center in New YorkCity and in a crash near Johnstown, Pennsylvania.  On the same day,two American Airlines aircraft were also hijacked and used in terroristattacks on The World Trade Center and the Pentagon.  In addition tothe loss of all passengers and crew on board the aircraft, these attacksresulted in untold deaths and injuries to persons on the ground and massiveproperty damage.  In the immediate aftermath of the attacks, the FederalAviation Administration ("FAA") closed U.S. airspace to civilian aircraftfor several days.

         On September 15, United announced that it was reducing its worldwide scheduleby 20 percent based on system-wide available seat miles in direct responseto the current and anticipated adverse impact on air travel due to theterrorist attack.  United subsequently announced that it would takefurther steps to reduce its capacity to meet continued soft demand fortravel.  Commencing on November 1, United's new schedule will consistof 26 percent fewer available seat miles and 31 percent fewer departures,both compared to levels prior to September 11.  The November cutswill allow for the early retirement of United's entire Boeing 727-200 and737-200 fleets.

         On September 19, United announced that it will furlough approximately 20,000employees in response to reduced flight schedules in the wake of the September11 terrorist attacks.

         On September 19, Moody's Investors Service announced that it lowered United'ssenior unsecured debt ratings from Ba1 to B2.  In addition, Standard& Poor's announced that it lowered United's senior unsecured debt ratingsfrom BB+ to BB-.  The long-term corporate credit ratings of Unitedremain on Standard & Poor's CreditWatch with negative implicationsand Moody's has retained the credit ratings of United on review for possibledowngrade.

         On September 27, UAL announced that its Board of Directors indefinitelysuspended the quarterly cash dividend on the company's common stock. The Company also announced that the Board approved the suspension of theCEO, James Goodwin's compensation through year-end and Board members willalso forego compensation for the remainder of the year.

         United also announced changes to its operations.  As of October 31,United will transition operations from United Airlines to United Express,its regional partner carrier, in six U.S. cities.  Also effectiveOctober 31, United will discontinue the United Shuttle brand and incorporateShuttle flights into its mainline and United Express service this fallas a result of less demand for high utilization, quick turnaround flightsin United's system.

         United's aircraft liability insurance coverage for claims caused by actsof war, terrorism, sabotage, hijacking and other similar perils was canceledeffective September 26, 2001.  United obtained replacement coverage,although it will be charged significantly higher premiums for this replacementcoverage, and this new coverage is in a substantially reduced amount forclaims not involving aircraft passengers.  The FAA is providing excessliability coverage for third party war risk liability for losses to personsother than passengers up to two times the airline's limit of liabilityavailable prior to September 11, 2001.  This coverage expires 30 daysafter the date of the policy, or upon five days' written notice from theFAA.  Although United expects the FAA to continue to renew such coverageuntil such time as commercial insurers make available coverage on reasonableterms and conditions, there can be no assurance the FAA will do so.

         On September 22, the President signed the Air Transportation Safety andSystem Stabilization Act (the "Act").  The Act is intended to compensatevictims of the terrorist attacks as well as air carriers for losses incurredas a result of such attacks.  Among other things, the Act provides(1) for the payment of an aggregate of $5 billion to air carriers for lossesincurred as a result of the ground stop order issued by the Secretary ofTransportation on September 11 and incremental losses incurred by air carriersthrough December 31, 2001 as a direct result of the terrorist attacks;(2) that the liability of any air carrier, including United, for all claimsarising out of the terrorist attacks will not be greater than the limitsof the liability coverage maintained by that carrier, (3) for the issuanceof loan guarantees of up to an aggregate of $10 billion in debt of aircarriers, such guarantees to be backed by the full faith and credit ofthe Federal government, (4) the authority of the Secretary of Transportationto  reimburse air carriers  for the increase in insurance premiumsfor coverage through October 1, 2002 and, in the discretion of the Secretaryof Transportation,  limits the liability of air carriers to $100 millionfor liability arising out of future terrorist acts in the 180 days afterthe date of the Act;  (5) a compensation program for victims and theirrelatives; (6) for an extension of the due date for payment of excise taxes;and (7) that communities that had air service before September 11 continueto receive adequate air service.

         In addition, the Act provides that liability for all claims, whether forcompensatory or punitive damages, arising from the terrorist-related eventsof September 11, 2001 against any air carrier shall not be in an amountgreater than the limits of the liability coverage maintained by the aircarrier.  Air carriers accepting the benefits of loan guarantees maybe required to enter into an agreement with the Federal government pursuantto which the government could participate in gains of such air carriers,including through the issuance of warrants, options or other equity-linkedinstruments.  Such air carriers would also be prohibited from increasingthe total compensation of their most highly paid employees (except thosecovered under a collective bargaining agreement) during two years endingSeptember 11, 2003.  The government is expected to issue regulationssetting forth the procedures and minimum requirements for the issuanceof the loan guarantees.  There can be no assurance that United willbe able to obtain the benefit of such loan guarantees on favorable terms,or at all.  Although United has received $390 million out of an expected$800 million in compensation under the first provision described aboveof the Act, it believes such amount will be less than the losses it hasincurred as a result of the ground stop order.

         The impact of the events of September 11, 2001 on United and the sufficiencyof its financial resources to absorb that impact will depend on a numberof factors, including the following: (1) the adverse impact of the terroristattacks on the economy in general; (2) the likelihood air travel demandremains at current levels or further declines; (3) United's ability toreduce its operating costs and conserve its financial resources, takinginto account any increased costs it will incur as a consequence of theattacks, including those referred to below; (4) the higher costs associatedwith new airline security directives and any other increased regulationof air carriers; (5) the significantly higher costs of aircraft insurancecoverage for future claims caused by acts of war, terrorism, sabotage,hijacking and other similar perils, and the extent to which such insurancewill continue to be available; (6) the ability of United to reduce coststo a level that takes into account the size of its operation; (7) United'sability to raise financing in light of the various factors referred toin this paragraph; (8) the price of jet fuel; (9) the number of crew memberswho may be called for duty in the reserve forces of the armed servicesand the resulting impact on United's ability to operate as planned; (10)the extent of uncompensated economic losses to United from the FAA's shutdownof the U.S. air traffic system; (11) any resulting declines in the valuesof the aircraft in United's fleet; and (12) the extent of the benefitsreceived by United under the Act, taking into account any challenges toand interpretations or amendments of the Act.

         At this point, United is unable to estimate the impact on it of the eventsof September 11, 2001 and their consequences and the sufficiency of itsfinancial resources to absorb that impact.  However, given the magnitudeof these unprecedented events and the possible subsequent effects, Unitedexpects that the adverse impact to its financial condition, its operationsand its prospects will be material.

         Information included in the above is forward-looking and involve risksand uncertainties that could result in actual results differing materiallyfrom expected results.  Forward-looking statements represent the Company'sexpectations and beliefs concerning future events, based on informationavailable to the Company as of the date of this filing.  Some factorsthat could significantly impact the statements above include, without limitation,the factors listed in the paragraphs above; airline pricing environment;industry capacity decisions; competitors' route decisions; the ultimateoutcome of existing litigation; the success of the Company's cost-reductionefforts; the cost of crude oil and jet fuel; the results of union contractnegotiations and their impact on labor costs and operations; operationaldisruptions as a result of bad weather, air traffic control-related difficultiesand labor issues; actions of the U.S., foreign and local governments; foreigncurrency exchange rate fluctuations; the economic environment of the airlineindustry and the economic environment in general.

        Investors should not place undue reliance on the forward-looking informationcontained herein, which speaks only as of the date of this filing. The Company disclaims any intent or obligation to update or alter any ofthe forward-looking statements whether in response to new information,unforeseen events, changed circumstances or otherwise.
 
 

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