CALCULATION OF REGISTRATION FEE

 

 

 

(1) The filing fee of $21,744.53 is calculated in accordance with Rule 457(r) of the Securities Act of 1933.

 

Filed Pursuant to Rule (424)(b)(2)
Registration No. 333-158781

PROSPECTUS SUPPLEMENT TO PROSPECTUS, DATED APRIL 24, 2009

 

$389,687,000

 

 

2009-1 PASS THROUGH TRUST

PASS THROUGH CERTIFICATES, SERIES 2009-1

 

The Continental Airlines Class A Pass Through Certificates, Series 2009-1, are being offered under this prospectus supplement. The certificates represent interests in a trust to be established in connection with this offering. The proceeds from the sale of certificates will initially be held in escrow, and interest on the escrowed funds will be payable semiannually on January 8 and July 8, commencing January 8, 2010. The trust will use the escrowed funds to acquire equipment notes. The equipment notes will be issued by Continental Airlines and will be secured by 12 Boeing aircraft currently owned by Continental and five new Boeing aircraft scheduled for delivery from July to September, 2009. Payments on the equipment notes held in the trust will be passed through to the holders of certificates of the trust.

 

Interest on the equipment notes will be payable semiannually on each January 8 and July 8 after issuance. Principal payments on the equipment notes are scheduled on January 8 and July 8 in certain years, beginning on January 8, 2010.

 

Goldman Sachs Bank USA will provide a liquidity facility for the certificates in an amount sufficient to make three semiannual interest payments.

 

The certificates will not be listed on any national securities exchange.

 

Investing in the certificates involves risks. See “Risk Factors” on page S-16.

 

 

 

The underwriters will purchase all of the certificates if any are purchased. The aggregate proceeds from the sale of the certificates will be $389,687,000. Continental will pay the underwriters a commission of $5,845,305. Delivery of the certificates in book-entry form only will be made on or about July 1, 2009.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Joint Structuring Agents & Joint Bookrunners

 

 

Joint Bookrunner

 

CALYON SECURITIES

 

The date of this prospectus supplement is June 16, 2009.

 

PRESENTATION OF INFORMATION

 

These offering materials consist of two documents: (a) this Prospectus Supplement, which describes the terms of the certificates that we are currently offering, and (b) the accompanying Prospectus, which provides general information about our pass through certificates, some of which may not apply to the certificates that we are currently offering. The information in this Prospectus Supplement replaces any inconsistent information included in the accompanying Prospectus.

 

We have given certain capitalized terms specific meanings for purposes of this Prospectus Supplement. The “Index of Terms” attached as Appendix I to this Prospectus Supplement lists the page in this Prospectus Supplement on which we have defined each such term.

 

At various places in this Prospectus Supplement and the Prospectus, we refer you to other sections of such documents for additional information by indicating the caption heading of such other sections. The page on which each principal caption included in this Prospectus Supplement and the Prospectus can be found is listed in the Table of Contents below. All such cross references in this Prospectus Supplement are to captions contained in this Prospectus Supplement and not in the Prospectus, unless otherwise stated.

 

TABLE OF CONTENTS

 

Prospectus Supplement

 

Prospectus

 

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may be used only where it is legal to sell these securities. The information in this document may be accurate only on the date of this document.

 

PROSPECTUS SUPPLEMENT SUMMARY

 

Summary of Terms of Certificates

Aggregate Face Amount		$389,687,000
Interest Rate		9.000%
Ratings:
Moody’s		Baa2
Standard & Poor’s		A-
Initial Loan to Aircraft Value (cumulative)(1)		54.0%
Highest Loan to Aircraft Value (cumulative)(2)		54.0%
Expected Principal Distribution Window (in years)		0.5 - 7.0
Initial Average Life (in years from Issuance Date)		5.9
Regular Distribution Dates		January 8 and July 8
Final Expected Distribution Date		July 8, 2016
Final Maturity Date		January 8, 2018
Minimum Denomination		$1,000
Section 1110 Protection		Yes
Liquidity Facility Coverage		3 semiannual interest payments

(1)		This percentage is calculated as of January 8, 2010, the first Regular Distribution Date. In calculating these percentages, we have assumed that the financings of all aircraft hereunder are completed prior to such date and that the aggregate appraised value of such aircraft is $706,843,478 as of such date. The appraised value is only an estimate and reflects certain assumptions. See “Description of the Aircraft and the Appraisals — The Appraisals”.
(2)		See “— Loan to Aircraft Value Ratios”.

 

Equipment Notes and the Aircraft

										Principal Amount
		Registration		Manufacturer’s				Delivery		of Equipment				Appraised
Aircraft Type(1)		Number		Serial Number				Month		Notes				Value(2)
Boeing 777-224ER		N77006			29476			December 1998		$	41,734,000			$	75,880,000
Boeing 777-224ER		N78009			29479			April 1999			41,366,000				75,210,000
Boeing 777-224ER		N78013			29861			September 1999			43,478,000				79,050,000
Boeing 757-224		N34131			28971			June 1998			13,992,000				25,440,000
Boeing 757-224		N33132			29281			June 1998			13,262,000				24,113,333
Boeing 737-924ER		N37437			33532			July 2009			28,258,000				53,800,000
Boeing 737-924ER		N78438			33533			July 2009			28,258,000				53,800,000
Boeing 737-924ER		N57439			33534			August 2009			28,258,000				53,800,000
Boeing 737-924ER		N45440			33535			August 2009			28,258,000				53,800,000
Boeing 737-924ER		N53441			30131			August 2009			28,258,000				53,800,000
Boeing 737-824		N26232			28942			June 1999			14,834,000				26,970,000
Boeing 737-824		N35236			28801			September 1999			15,510,000				28,200,000
Boeing 737-824		N14240			28952			October 1999			15,510,000				28,200,000
Boeing 737-724		N24729			28945			July 1999			12,225,000				22,226,667
Boeing 737-724		N16732			28948			August 1999			11,913,000				21,660,000
Boeing 737-724		N14735			28950			September 1999			12,181,000				22,146,667
Boeing 737-724		N24736			28803			September 1999			12,392,000				22,530,000

(1)		The indicated registration number, manufacturer’s serial number and delivery month for each Boeing 737-924ER aircraft reflect our current expectations, although these may differ for the actual aircraft financed hereunder. The deadline for purposes of financing an Aircraft pursuant to this Offering is December 31, 2009. The financing of each currently-owned Aircraft pursuant to this Offering is expected to be effected after the existing security interest on such Aircraft has been discharged, and the financing of each Boeing 737-924ER Aircraft is expected to be effected at delivery of such Aircraft by Boeing to Continental. The actual delivery date for any Boeing 737-924ER aircraft may be subject to delay or acceleration. See “Description of the Aircraft and the Appraisals — Timing of Financing the Aircraft”. Continental has certain rights to substitute other Boeing 737-924ER aircraft if the scheduled delivery date of any of the seven Boeing 737-924ER aircraft eligible to be financed pursuant to this Offering is delayed for more than 30 days after the month scheduled for delivery or beyond the delivery deadline. See “Description of the Aircraft and the Appraisals — Substitute Aircraft”.
(2)		The appraised value of each Aircraft set forth above is the lesser of the average and median values of such Aircraft as appraised by three independent appraisal and consulting firms. In the case of the Boeing 737-924ER Aircraft, such appraisals indicate appraised base value, projected as of the scheduled delivery month of the applicable Aircraft, and in the case of the other Aircraft, such appraisals indicate appraised base value, adjusted for the maintenance status of the applicable Aircraft. These appraisals are based upon varying assumptions and methodologies. An appraisal is only an estimate of value and should not be relied upon as a measure of realizable value. See “Risk Factors — Risk Factors Relating to the Certificates and the Offering — The Appraisals Are Only Estimates of Aircraft Value”. The appraised value of each other Boeing 737-924ER aircraft that Continental may choose to finance pursuant to this Offering is higher than or equal to the appraised value of each of the Aircraft of the same model listed above. See “Description of the Aircraft and the Appraisals — The Appraisals”.

 

Loan to Aircraft Value Ratios

		Assumed
Regular		Aggregate
Distribution Date		Aircraft Value(1)				Outstanding Balance(2)				LTV(3)
January 8, 2010		$	706,843,478			$	381,809,938				54.0	%
July 8, 2010			693,060,289				373,935,209				54.0
January 8, 2011			679,277,101				366,060,480				53.9
July 8, 2011			665,493,912				355,419,244				53.4
January 8, 2012			651,710,723				344,775,758				52.9
July 8, 2012			637,927,535				334,132,272				52.4
January 8, 2013			624,144,346				323,488,785				51.8
July 8, 2013			610,361,158				312,845,299				51.3
January 8, 2014			596,208,168				301,998,423				50.7
July 8, 2014			581,501,310				290,846,918				50.0
January 8, 2015			564,665,928				278,524,726				49.3
July 8, 2015			547,633,343				266,094,072				48.6
January 8, 2016			530,600,758				253,663,418				47.8
July 8, 2016			513,568,173				0				0.0

(1)		We have assumed that all Aircraft will be financed under this Offering prior to January 8, 2010, and that the initial appraised value of each Aircraft, determined as described under “— Equipment Notes and the Aircraft”, declines by approximately 3% per year for the first 15 years after the year of delivery of such Aircraft and 4% per year for any subsequent year prior to the final expected Regular Distribution Date. Other rates or methods of depreciation may result in materially different LTVs. We cannot assure you that the depreciation rate and method used for purposes of the table will occur or predict the actual future value of any Aircraft. See “Risk Factors — Risk Factors Relating to the Certificates and the Offering — The Appraisals Are Only Estimates of Aircraft Value”.
(2)		In calculating the outstanding balances of the Certificates, we have assumed that the Trust will acquire the Equipment Notes for all Aircraft. Outstanding balances as of each Regular Distribution Date are shown after giving effect to distributions expected to be made on such distribution date.
(3)		The LTVs were obtained for each Regular Distribution Date by dividing (i) the expected outstanding balance of the Certificates after giving effect to the distributions expected to be made on such distribution date, by (ii) the assumed value of all of the Aircraft on such date based on the assumptions described above. For purposes of these calculations, it has been assumed that the first five Boeing 737-924ER aircraft of the seven Boeing 737-924ER aircraft from which Continental may choose are financed hereunder. The outstanding balances and LTVs will change if the Trust does not acquire Equipment Notes with respect to all the Aircraft. The LTVs will change if the Trust acquires Equipment Notes with respect to the other Boeing 737-924ER aircraft that Continental may choose.

 

Cash Flow Structure

(1)		Each Aircraft will be subject to a separate Indenture.
(2)		The Liquidity Facility will be sufficient to cover three consecutive semiannual interest payments with respect to the Certificates, except that the Liquidity Facility will not cover interest on the Deposits.
(3)		The proceeds of the offering of the Certificates will initially be held in escrow and deposited with the Depositary, pending financing of each Aircraft pursuant to this Offering. The Depositary will hold such funds as interest-bearing Deposits. The Trust will withdraw funds from the Deposits to purchase Equipment Notes from time to time as each Aircraft is financed. The scheduled payments of interest on the Equipment Notes and on the Deposits, taken together, will be sufficient to pay accrued interest on the outstanding Certificates. If any funds remain as Deposits at the Delivery Period Termination Date, such funds will be withdrawn by the Escrow Agent and distributed to the holders of the Certificates, together with accrued and unpaid interest thereon. No interest will accrue with respect to the Deposits after they have been fully withdrawn.

 

The Offering

Certificates Offered		Class A Pass Through Certificates, Series 2009-1, which will represent fractional undivided interests in the Trust.
Use of Proceeds		The proceeds from the sale of the Certificates will initially be held in escrow and deposited with the Depositary, pending financing of each Aircraft under this Offering. The Trust will withdraw funds from the escrow to acquire Equipment Notes as these Aircraft are financed. The Equipment Notes will be issued to generate cash for Continental’s general corporate purposes from 12 Boeing aircraft currently owned by Continental and to finance the purchase by Continental of five new Boeing aircraft.
Subordination Agent, Trustee, Paying Agent and Loan Trustee		Wilmington Trust Company.
Escrow Agent		Wells Fargo Bank Northwest, National Association.
Depositary		The Bank of New York Mellon.
Liquidity Provider		Goldman Sachs Bank USA. The Liquidity Provider’s payment obligations will be guaranteed by The Goldman Sachs Group, Inc.
Trust Property		The property of the Trust will include:
		• Equipment Notes acquired by the Trust.
		• All monies receivable under the Liquidity Facility.
		• Funds from time to time deposited with the Trustee in accounts relating to the Trust, including payments made by Continental on the Equipment Notes held in the Trust.
Regular Distribution Dates		January 8 and July 8, commencing on January 8, 2010.
Record Dates		The fifteenth day preceding the related Distribution Date.
Distributions		The Trustee will distribute all payments of principal, premium (if any) and interest received on the Equipment Notes held in the Trust to the holders of the Certificates, subject to prior payment of certain amounts then due to the Liquidity Provider or the Trustee.
		Scheduled payments of principal and interest made on the Equipment Notes will be distributed on the applicable Regular Distribution Dates.
		Payments of principal, premium (if any) and interest made on the Equipment Notes resulting from any early redemption of such Equipment Notes will be distributed on a special distribution date after not less than 15 days’ notice from the Trustee to Certificateholders.
Control of Loan Trustee		The holders of at least a majority of the outstanding principal amount of Equipment Notes issued under each Indenture will be entitled to direct the Loan Trustee under such Indenture in taking action as long as no Indenture Default is continuing thereunder. If an Indenture Default is continuing, subject to certain conditions, the “Controlling Party” will direct the Loan Trustee under such Indenture (including in exercising remedies, such as accelerating such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes).

		The Controlling Party will be:
		• The Trustee.
		• Under certain circumstances, and notwithstanding the foregoing, the Liquidity Provider.
		In exercising remedies during the nine months after the earlier of (a) the acceleration of the Equipment Notes issued pursuant to any Indenture or (b) the bankruptcy of Continental, the Equipment Notes and the Aircraft subject to the lien of such Indenture may not be sold for less than certain specified minimums.
Liquidity Facility		Under the Liquidity Facility, the Liquidity Provider will, if necessary, make advances in an aggregate amount sufficient to pay interest on the Certificates on up to three successive semiannual Regular Distribution Dates at the applicable interest rate. Drawings under the Liquidity Facility cannot be used to pay any amount in respect of the Certificates other than interest and will not cover interest payable on amounts held in escrow as Deposits with the Depositary.
		Upon each drawing under the Liquidity Facility to pay interest on the Certificates, the Subordination Agent will reimburse the Liquidity Provider for the amount of such drawing. Such reimbursement obligation and all interest, fees and other amounts owing to the Liquidity Provider under the Liquidity Facility and certain other agreements will rank senior to the Certificates in right of payment.
Escrowed Funds		Funds in escrow for the Certificateholders will be held by the Depositary as Deposits relating to the Trust. The Trustee may withdraw these funds from time to time to purchase Equipment Notes prior to the deadline established for purposes of this Offering. On each Regular Distribution Date, the Depositary will pay interest accrued on the Deposits at a rate per annum equal to the interest rate applicable to the Certificates. The Deposits cannot be used to pay any other amount in respect of the Certificates.
Unused Escrowed Funds		All of the Deposits held in escrow may not be used to purchase Equipment Notes by the deadline established for purposes of this Offering. This may occur because of delays in the financing of Aircraft or other reasons. See “Description of the Certificates — Obligation to Purchase Equipment Notes”. If any funds remain as Deposits after such deadline, the funds held as Deposits will be withdrawn by the Escrow Agent and distributed, with accrued and unpaid interest, to the Certificateholders after at least 15 days’ prior written notice. See “Description of the Deposit Agreement — Unused Deposits”.
Obligation to Purchase Equipment Notes		The Trustee will be obligated to purchase the Equipment Notes issued with respect to each Aircraft pursuant to the Note Purchase Agreement. Continental will enter into a secured debt financing with respect to each Aircraft pursuant to financing agreements substantially in the forms attached to the Note Purchase Agreement. The terms of such financing agreements must not vary the Required Terms set forth in the Note Purchase Agreement. In addition, Continental must certify to the Trustee that any substantive modifications do not materially and adversely affect the Certificateholders. Continental must also obtain

		written confirmation from each Rating Agency that the use of financing agreements modified in any material respect from the forms attached to the Note Purchase Agreement will not result in a withdrawal, suspension or downgrading of the rating of the Certificates. The Trustee will not be obligated to purchase Equipment Notes if, at the time of issuance, Continental is in bankruptcy or certain other specified events have occurred. See “Description of the Certificates — Obligation to Purchase Equipment Notes”.
Issuances of Additional Class of Certificates		After the Delivery Period Termination Date, an additional single class of pass through certificates of a separate pass through trust may be issued from time to time. These pass through certificates will evidence fractional undivided ownership interests in a new series of subordinated equipment notes with respect to some or all of the Aircraft. The holders of any such additional pass through certificates will have the right to purchase all of the Certificates under certain circumstances after a bankruptcy of Continental at the outstanding principal balance of the Certificates plus accrued and unpaid interest and other amounts due to Certificateholders, but without a premium. Consummation of any such issuance of additional pass through certificates will be subject to satisfaction of certain conditions, including receipt of confirmation from the Rating Agencies that it will not result in a withdrawal, suspension or downgrading of the Certificates. See “Possible Issuance of Additional Junior Certificates”.
Equipment Notes
(a) Issuer		Continental.
(b) Interest		The Equipment Notes will accrue interest at the rate per annum for the Certificates set forth on the cover page of this Prospectus Supplement. Interest will be payable on January 8 and July 8 of each year, commencing on the first such date after issuance of such Equipment Notes. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months.
(c) Principal		Principal payments on the Equipment Notes are scheduled on January 8 and July 8 in certain years, commencing on January 8, 2010.
(d) Redemption		Aircraft Event of Loss. If an Event of Loss occurs with respect to an Aircraft, all of the Equipment Notes issued with respect to such Aircraft will be redeemed, unless Continental replaces such Aircraft under the related financing agreements. The redemption price in such case will be the unpaid principal amount of such Equipment Notes, together with accrued interest, but without any premium.
		Optional Redemption. Continental may elect to redeem all of the Equipment Notes issued with respect to an Aircraft prior to maturity, provided that all outstanding Equipment Notes with respect to all other Aircraft are simultaneously redeemed. The redemption price in such case will be the unpaid principal amount of such Equipment Notes, together with accrued interest and Make-Whole Premium.
(e) Security		The Equipment Notes issued with respect to each Aircraft will be secured by a security interest in such Aircraft.

(f) Cross-collateralization		The Equipment Notes held in the Trust will be cross-collateralized. This means that any proceeds from the exercise of remedies with respect to an Aircraft will be available to cover shortfalls then due under Equipment Notes issued with respect to the other Aircraft. In the absence of any such shortfall, excess proceeds will be held by the relevant Loan Trustee as additional collateral for such other Equipment Notes.
(g) Cross-default		There will be cross-default provisions in the Indentures. This means that if the Equipment Notes issued with respect to one Aircraft are in default, the Equipment Notes issued with respect to the remaining Aircraft will also be in default, and remedies will be exercisable with respect to all Aircraft.
(h) Section 1110 Protection		Continental’s outside counsel will provide its opinion to the Trustee that the benefits of Section 1110 of the U.S. Bankruptcy Code will be available with respect to the Equipment Notes.
Certain Federal Income Tax Consequences		Each person acquiring an interest in Certificates generally should report on its federal income tax return its pro rata share of income from the Deposits and income from the Equipment Notes and other property held by the Trust. See “Certain U.S. Federal Income Tax Consequences”.
Certain ERISA Considerations		Each person who acquires a Certificate will be deemed to have represented that either: (a) no employee benefit plan assets have been used to purchase or hold such Certificate or (b) the purchase and holding of such Certificate are exempt from the prohibited transaction restrictions of ERISA and the Code pursuant to one or more prohibited transaction statutory or administrative exemptions. See “Certain ERISA Considerations”.
Rating of the Certificates		It is a condition to the issuance of the Certificates that they be rated not less than Baa2 by Moody’s and A- by Standard & Poor’s.
		A rating is not a recommendation to purchase, hold or sell Certificates, since such rating does not address market price or suitability for a particular investor. There can be no assurance that such ratings will not be lowered, suspended or withdrawn by a Rating Agency after the Certificates have been issued.

								Standard &
				Moody’s				Poor’s
Threshold Rating for the Depositary		Short Term			P-1				A-1+

Depositary Rating		The Depositary meets the Depositary Threshold Rating requirement.

								Standard &
				Moody’s				Poor’s
Threshold Rating for the Liquidity Provider		Short Term			P-1				A-1

Liquidity Provider Rating		The Goldman Sachs Group, Inc., an affiliate of the Liquidity Provider, meets the Liquidity Threshold Rating requirement and will guarantee the payment obligations of the Liquidity Provider under the Liquidity Facility.

 

SUMMARY FINANCIAL AND OPERATING DATA

		Three Months
		Ended March 31,								Year Ended December 31,
		2009				2008				2008				2007				2006				2005				2004
		(In millions except per share data and ratios)
Statement of Operations Data(1):
Operating revenue		$	2,962			$	3,570			$	15,241			$	14,232			$	13,128			$	11,208			$	9,899
Operating expenses			3,017				3,636				15,555				13,545				12,660				11,247				10,137
Operating income (loss)			(55	)			(66	)			(314	)			687				468				(39	)			(238	)
Income (loss) before cumulative effect of change in accounting principle			(136	)			(127	)			(586	)			439				361				(75	)			(393	)
Cumulative effect of change in accounting principle			—				—				—				—				(26	)			—				—
Net income (loss)			(136	)			(82	)			(586	)			439				335				(75	)			(393	)
Earnings (loss) per share:
Basic:
Income (loss) before cumulative effect of change in accounting principle		$	(1.10	)		$	(0.82	)		$	(5.54	)		$	4.53			$	4.05			$	(1.06	)		$	(5.96	)
Cumulative effect of change in accounting principle			—				—				—				—				(0.29	)			—				—
Net income (loss)		$	(1.10	)		$	(0.82	)		$	(5.54	)		$	4.53			$	3.76			$	(1.06	)		$	(5.96	)
Diluted:
Income (loss) before cumulative effect of change in accounting principle		$	(1.10	)		$	(0.82	)		$	(5.54	)		$	4.05			$	3.51			$	(1.08	)		$	(6.02	)
Cumulative effect of change in accounting principle			—				—				—				—				(0.23	)			—				—
Net income (loss)		$	(1.10	)		$	(0.82	)		$	(5.54	)		$	4.05			$	3.28			$	(1.08	)		$	(6.02	)
Ratio of Earnings to Fixed Charges(2)			—				—				—				1.42				1.25				—				—

(1)		Includes the following special income (expense) items:

(2)		For purposes of calculating this ratio, earnings consist of income before income taxes and cumulative effect of changes in accounting principles adjusted for undistributed income of companies in which Continental has a minority equity interest plus interest expense (net of capitalized interest), the portion of rental expense representative of interest expense and amortization of previously capitalized interest. Fixed charges consist of interest expenses, the portion of rental expense representative of interest expense, the amount amortized for debt discount, premium and issuance expense and interest previously capitalized. For the three months ended March 31, 2009 and 2008, and the years ended December 31, 2008, 2005 and 2004, earnings were inadequate to cover fixed charges and the coverage deficiency was $135 million, $131 million, $702 million, $109 million and $496 million, respectively.

		As of
		March 31,				As of December 31,
		2009				2008				2007				2006				2005				2004
		(In millions)
Balance Sheet Data:
Unrestricted cash, cash equivalents and short-term investments		$	2,648			$	2,643			$	2,803			$	2,484			$	1,957			$	1,458
Total assets			12,772				12,686				12,105				11,308				10,529				10,511
Long-term debt and capital lease obligations			5,360				5,353				4,337				4,820				5,010				5,113
Stockholders’ equity			153				123				1,569				386				273				209

		Three Months Ended
		March 31,								Year Ended December 31,
		2009				2008				2008				2007				2006				2005				2004
Mainline Operations:
Passengers (thousands)(1)			10,562				12,197				48,682				50,960				48,788				44,939				42,743
Revenue passenger miles (millions)(2)			17,690				19,923				82,806				84,309				79,192				71,261				65,734
Available seat miles (millions)(3)			23,352				25,278				102,527				103,139				97,667				89,647				84,672
Cargo ton miles (millions)			200				261				1,005				1,037				1,075				1,018				1,026
Passenger load factor(4):
Mainline			75.8	%			78.8	%			80.8	%			81.7	%			81.1	%			79.5	%			77.6	%
Domestic			79.7	%			81.9	%			83.3	%			83.9	%			83.6	%			81.2	%			77.4	%
International			72.1	%			75.6	%			78.2	%			79.4	%			78.2	%			77.5	%			77.9	%
Passenger revenue per available seat mile (cents)			9.41				10.60				11.10				10.47				9.96				9.32				8.82
Total revenue per available seat mile (cents)			10.83				11.93				12.51				11.65				11.17				10.46				9.83
Average yield per revenue passenger mile (cents)(5)			12.43				13.45				13.75				12.80				12.29				11.73				11.37
Average fare per revenue passenger		$	209.94			$	221.87			$	232.26			$	214.06			$	201.81			$	188.67			$	177.90
Cost per available seat mile, including special charges (cents)			10.56				11.79				12.44				10.83				10.56				10.22				9.84
Special charges (credits) per available seat mile (cents)			0.02				(0.03	)			0.15				0.01				0.03				0.07				0.16
Average price per gallon of fuel, including fuel taxes		$	1.83			$	2.80			$	3.27			$	2.18			$	2.06			$	1.78			$	1.19
Fuel gallons consumed (millions)			333				375				1,498				1,542				1,471				1,376				1,333
Aircraft in fleet at end of period(6)			354				372				350				365				366				356				349
Average length of aircraft flight (miles)			1,502				1,457				1,494				1,450				1,431				1,388				1,325
Average daily utilization of each aircraft (hours)(7)			10:22				11:11				11:06				11:34				11:07				10:31				9:55
Regional Operations:
Passengers (thousands)(1)			3,846				4.243				18,010				17,970				18,331				16,076				13,739
Revenue passenger miles (millions)(2)			2,100				2,357				9,880				9,856				10,325				8,938				7,417
Available seat miles (millions)(3)			2,971				3,098				12,984				12,599				13,251				11,973				10,410
Passenger load factor(4)			70.7	%			76.1	%			76.1	%			78.2	%			77.9	%			74.7	%			71.3	%
Passenger revenue per available seat mile (cents)			14.11				17.54				18.14				17.47				17.15				15.67				15.09
Average yield per revenue passenger mile (cents)(5)			19.96				23.05				23.83				22.33				22.01				20.99				21.18
Aircraft in fleet at end of period(6)			280				269				282				263				282				266				245
Consolidated Operations:
Passengers (thousands)(1)			14,408				16,440				66,692				68,930				67,119				61,015				56,482
Revenue passenger miles (millions)(2)			19,790				22,280				92,686				94,165				89,517				80,199				73,151
Available seat miles (millions)(3)			26,323				28,376				115,511				115,738				110,918				101,620				95,082
Passenger load factor(4)			75.2	%			78.5	%			80.2	%			81.4	%			80.7	%			78.9	%			76.9	%
Passenger revenue per available seat mile (cents)			9.94				11.36				11.89				11.23				10.82				10.07				9.51
Average yield per revenue passenger mile (cents)(5)			13.23				14.47				14.82				13.80				13.41				12.76				12.36

(1)		The number of revenue passengers measured by each flight segment flown.
(2)		The number of scheduled miles flown by revenue passengers.
(3)		The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(4)		Revenue passenger miles divided by available seat miles.
(5)		The average passenger revenue received for each revenue passenger mile flown.
(6)		Excludes aircraft that were removed from service. Regional aircraft include aircraft operated by all carriers under capacity purchase agreements with Continental, but exclude any aircraft operated by ExpressJet Airlines outside the scope of the ExpressJet capacity purchase agreement with Continental.
(7)		The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).

 

Fuel prices or disruptions in fuel supplies could have a material adverse effect on us

 

Expenditures for fuel and related taxes represent one of the largest costs of operating our business. These costs include fuel costs on flights flown for us under capacity purchase agreements. Our operations depend on the availability of jet fuel supplies, and our results are significantly impacted by changes in jet fuel prices, which have been extremely volatile in the last 18 months. Jet fuel prices decreased precipitously in the last six months of 2008 after increasing significantly in 2007 and achieving record levels in mid-2008.

 

Although we experienced some success in raising ticket prices and adding or increasing other fees during part of 2008, we were unable to increase our revenue sufficiently to keep pace with the escalating fuel prices and suffered a substantial loss in 2008. If fuel prices rise significantly from their current levels, we may be unable to increase fares or other fees sufficiently in the current financial environment to offset fully our increased fuel costs.

 

We routinely hedge a portion of our future fuel requirements to protect against rising fuel costs. However, there can be no assurance that, at any given point in time, our hedge contracts will provide any particular level of protection against increased fuel costs or that our counterparties will be able to perform under our hedge contracts, such as in the case of a counterparty’s bankruptcy. Additionally, a deterioration in our financial condition could negatively affect our ability to enter into new hedge contracts in the future.

 

Significant declines in fuel prices (such as those experienced in the last six months of 2008) may increase the costs associated with our fuel hedging arrangements to the extent we have entered into swaps or collars. Swaps and the put option sold as part of a collar obligate us to make payments to the counterparty upon settlement of the contracts if the price of the commodity hedged falls below the agreed-upon amount. Declining crude oil prices have resulted in us being required to post significant amounts of collateral to cover potential amounts owed with respect to contracts that have not yet settled. Additionally, lower fuel prices may result in increased industry capacity and lower fares, especially to the extent that reduced fuel costs justify increased utilization by airlines of less fuel efficient aircraft that are unprofitable during periods of higher fuel prices.

 

Fuel prices could increase dramatically and supplies could be disrupted as a result of international political and economic circumstances, such as increasing international demand resulting from a global economic recovery, conflicts or instability in the Middle East or other oil producing regions and diplomatic tensions between the United States and oil producing nations, as well as OPEC production decisions, disruptions of oil imports, environmental concerns, weather, refinery outages or maintenance and other unpredictable events.

 

Further volatility in jet fuel prices or disruptions in fuel supplies, whether as a result of natural disasters or otherwise, could have a material adverse effect on our results of operations, financial condition and liquidity.

 

We have decided to change our global airline alliance, which could involve significant transition and integration risks

 

During 2008, we entered into framework agreements with United Air Lines, Inc. (“United”), Lufthansa and Air Canada, each a member of Star Alliance, pursuant to which we are winding down and exiting our participation in our current alliance, SkyTeam, and plan to join United, Lufthansa and Air Canada (and other member airlines) in Star Alliance. This change from SkyTeam to Star Alliance could involve significant transition and integration risks, both because we are required to end our participation in SkyTeam and wind down our existing SkyTeam relationships prior to our being able to participate in Star Alliance and because we may incur costs and/or a loss of revenue (or a delay in anticipated increased revenue from the new alliance) in connection with these changes. The significant transition and integration risks include:

 

 

 

In addition, the full implementation of some of the arrangements contemplated by our framework agreements requires the approval of domestic and foreign regulatory agencies. These agencies may deny us necessary approvals, delay certain approvals or, in connection with granting any such approvals, impose requirements, limitations or costs on us or on Star Alliance members, or require us or them to divest slots, gates, routes or other assets. Such actions may impair the value to us of entering the alliance or make participation in the alliance by us or them unattractive and, in certain cases, could prevent us from consummating the transactions contemplated by the framework agreements.

 

If any of these risks or costs materialize, they could have a material adverse effect on our business, results of operations and financial condition.

 

The troubled global capital markets coupled with our high leverage may affect our ability to satisfy our significant financing needs or meet our obligations

 

As is the case with many of our principal competitors, we have a high proportion of debt compared to our capital. We have a significant amount of fixed obligations, including debt, aircraft leases and financings, leases of airport property and other facilities and pension funding obligations. At March 31, 2009, we had approximately $5.9 billion of long-term debt and capital lease obligations, including $2.6 billion that will come due by the end of 2011.

 

In addition, we have substantial non-cancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare engines. To meet these obligations, we must access the global capital markets and/or achieve and sustain profitability. Due to the troubled global capital markets, however, we may be unable to obtain financing or otherwise access the capital markets on favorable terms.

 

Credit rating downgrades could have a material adverse effect on our liquidity

 

Reductions in our credit ratings may increase the cost and reduce the availability of financing to us in the future. We do not have any debt obligations that would be accelerated as a result of a credit rating downgrade. However, we would have to post additional collateral under our credit card processing agreements with Chase Bank USA, N.A. (“Chase”) and American Express and under our workers’ compensation program if our debt rating falls below specified levels.

 

Failure to meet our financial covenants would adversely affect our liquidity

 

Our credit card processing agreement with Chase (the “Chase processing agreement”) contains financial covenants which require, among other things, that we post additional cash collateral if we fail to maintain (1) a minimum level of unrestricted cash, cash equivalents and short-term investments, (2) a minimum ratio of unrestricted cash, cash equivalents and short-term investments to current liabilities of 0.25 to 1.0 or (3) a minimum senior unsecured debt rating of at least Caa3 and CCC− from Moody’s and Standard & Poor’s, respectively. If a covenant trigger under the Chase processing agreement results in our posting additional collateral under that agreement, we would also be required to post additional collateral under our credit card processing agreement with American Express.

The amount of additional cash collateral that we may be required to post in the event of our failure to comply with the financial covenants described above, which is based on our then-current air traffic liability exposure (as defined in each agreement), could be significant.

 

Depending on our unrestricted cash, cash equivalents and short-term investments balance at the time, the posting of a significant amount of cash collateral could cause our unrestricted cash and short-term investments balance to fall below the minimum balance of $1.0 billion required under our $350 million secured term loan facility, resulting in a default under that facility. The posting of such additional collateral under these circumstances and/or the acceleration of amounts borrowed under our secured term loan facility (or other remedies pursued by the lenders thereunder) would likely have a material adverse effect on our financial condition.

 

We are currently in compliance with all of the covenants under these agreements.

 

Our obligations for funding our defined benefit pension plans are affected by factors beyond our control

 

We have defined benefit pension plans covering substantially all of our U.S. employees other than employees of Chelsea Food Services and CMI. The timing and amount of our funding requirements under these plans depend upon a number of factors, including labor negotiations and changes to pension plan benefits as well as factors outside of our control, such as the number of retiring employees, asset returns, interest rates and changes in pension laws. Changes to these and other factors, such as liquidity requirements, that can significantly increase our funding requirements could have a material adverse effect on our financial condition.

 

Delays in scheduled aircraft deliveries may adversely affect our international growth

 

Our future success depends, in part, on continuing our profitable international growth. Because all of our long-range aircraft are already fully utilized, we will need to acquire additional long-range aircraft to continue our projected international growth. Although we have contractual commitments to purchase the long-range aircraft that we currently believe will be necessary for our international growth, significant delays in their deliveries have occurred, adversely affecting our planned international growth. If significant delays in the deliveries of these new aircraft continue to occur, we would need to either further curtail our international growth or try to make alternate arrangements to acquire aircraft, possibly on less financially favorable terms, including higher ownership and operating costs.

 

Labor disruptions could adversely affect our operations

 

Although we enjoy generally good relations with our employees, we can provide no assurance that we will be able to maintain these good relations in the future or avoid labor disruptions, including a strike. Many of our collective bargaining agreements have amendable dates that began in December 2008, including those with the unions representing our pilots and mechanics. We are currently in talks with representatives of the applicable unions. We cannot predict the outcome of these negotiations, and any labor disruption, including a strike, that results in a prolonged significant reduction in flights would have a material adverse effect on our results of operations and financial condition.

 

Our labor costs may not be competitive

 

Labor costs constitute a significant percentage of our total operating costs. All of the major hub-and-spoke carriers with whom we compete have achieved significant labor cost reductions, whether in or out of bankruptcy. We believe that our wages, salaries and benefits cost per available seat mile, measured on a stage length adjusted basis, is higher than that of many of our competitors. These higher labor costs may adversely affect our ability to achieve and sustain profitability while competing with other airlines that have achieved lower relative labor costs. Additionally, we cannot predict the outcome of our ongoing negotiations with our unionized workgroups, although significant increases in the pay and benefits resulting from new collective bargaining agreements could have a material adverse effect on us.

If we experience problems with certain of our third party regional operators, our operations could be materially adversely affected

 

All of our regional operations are conducted by third party operators on our behalf, primarily under capacity purchase agreements. Due to our reliance on third parties to provide these essential services, we are subject to the risks of disruptions to their operations, which may result from many of the same risk factors disclosed in this Prospectus Supplement. In addition, we may also experience disruption to our regional operations if we terminate the capacity purchase agreement with one or more of our current operators and transition the services to another provider. As our regional segment provides revenue to us directly and indirectly (by providing flow traffic to our hubs), a significant disruption to our regional operations could have a material adverse effect on our results of operations and financial condition.

 

Interruptions or disruptions in service at one of our hub airports could have a material adverse effect on our operations

 

We operate principally through our hub operations at metropolitan New York’s Newark Liberty International Airport, Houston’s George Bush International Airport, Cleveland’s Hopkins International Airport and Guam’s A.B. Won Pat International Airport. Substantially all of our flights either originate from or fly into one of these locations, contributing to a large amount of “origin and destination” traffic. A significant interruption or disruption in service at one of our hubs resulting from air traffic control delays, weather conditions or events, growth constraints, relations with third party service providers, failure of computer systems, labor relations, fuel supplies, terrorist activities or otherwise could result in the cancellation or delay of a significant portion of our flights and, as a result, our business could be materially adversely affected.

 

We could experience adverse publicity and declining revenues as a result of an accident involving our aircraft or the aircraft of our regional carriers

 

Any accident involving an aircraft that we operate or an aircraft that is operated under our brand by one of our regional carriers could have a material adverse effect on us if such accident created a public perception that our operations or those of our regional carriers are less safe or reliable than other airlines, resulting in passengers being reluctant to fly on our aircraft or those of our regional carriers. In addition, any such accident could expose us to significant tort liability. Although we currently maintain liability insurance in amounts and of the type we believe to be consistent with industry practice to cover damages arising from any such accidents, and our regional carriers carry similar insurance and generally indemnify us for their operations on our behalf, if our liability exceeds the applicable policy limits or the ability of a carrier to indemnify us, we could incur substantial losses from an accident.

 

A significant failure or disruption of the computer systems on which we rely could adversely affect our business

 

We depend heavily on computer systems and technology to operate our business, such as flight operations systems, communications systems, airport systems and reservations systems (including continental.com and third party global distribution systems). These systems could suffer substantial or repeated disruptions due to events beyond our control, including natural disasters, power failures, terrorist attacks, equipment or software failures, computer viruses or hackers. Any such disruptions could materially impair our flight and airport operations and our ability to market our services, and could result in increased costs, lost revenue and the loss or compromise of important data. Although we have taken measures in an effort to reduce the adverse effects of certain potential failures or disruptions, if these steps are not adequate to prevent or remedy the risks, our business may be materially adversely affected.

 

Our net operating loss carryforwards may be limited

 

At December 31, 2008, we had estimated net operating loss carryforwards (“NOLs”) of $3.8 billion for federal income tax purposes that expire beginning in 2009 and continuing through 2028. Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize NOLs if it experiences an

“ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period.

 

In the event of an ownership change, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate (which is 5.40% for December 2008). Any unused annual limitation may be carried over to later years.

 

For purposes of Section 382, increases in share holdings by, or that result in a person becoming, a holder of 5% or more of the outstanding shares of our common stock are aggregated for purposes of determining whether an “ownership change” has occurred. Because our common stock has been trading at low market prices, the cost of acquiring a sufficient number of shares of our common stock to become a holder of 5% or more of the outstanding shares, and the cost of acquiring additional shares by existing holders, has decreased significantly from historical levels, increasing the possibility that we could experience an “ownership change.” Although we cannot currently predict whether or when such an “ownership change” may occur, an ownership change as of December 31, 2008 would have resulted in a $119 million limit to our annual NOL utilization, before consideration of any built-in gains. The imposition of this limitation on our ability to use our NOLs to offset future taxable income could cause us to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs. In addition, depending on the market value of our common stock at the time of any such ownership change, we may be required to recognize a significant non-cash tax charge, the amount of which we cannot estimate at this time.

 

The global recession could continue to result in less demand for air travel

 

The U.S. and global economies are currently in a recession. The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and global economies. For 2008, a year in which the U.S. gross domestic product experienced its largest contraction in 25 years, traffic for the seven largest U.S. carriers, measured in miles flown by revenue passengers, fell approximately 2% as compared to 2007, the first such annual decline in five years. This decline in demand has disproportionately reduced the volume of high yield traffic in the premium cabins on international flights, as many business and leisure travelers are either curtailing their international travel or purchasing lower yield economy tickets. A prolonged recession in the U.S. or global economies that continues to contribute to the loss of business and leisure traffic, particularly the loss of high yield international traffic in our first class and BusinessFirst cabins, could have a material adverse effect on our results of operations and financial condition.

 

The airline industry is highly competitive and susceptible to price discounting

 

The U.S. airline industry is characterized by substantial price competition, especially in domestic markets. Carriers use discount fares to stimulate traffic during periods of slack demand, or when they begin service to new cities or have excess capacity, to generate cash flow and to establish, increase or preserve market share. Some of our competitors have greater financial resources (including a larger percentage or more favorable fuel hedges against price increases) and/or lower cost structures than we do, some of which is the result of bankruptcies and/or mergers. In recent years, the domestic market share held by low-cost carriers has increased significantly and is expected to continue to increase. The increased market presence of low-cost carriers, which engage in substantial price discounting, has diminished the ability of the network carriers to maintain sufficient fare levels in domestic markets to achieve sustained profitability. We cannot predict whether or for how long these trends will continue.

 

In addition to price competition, airlines also compete for market share by increasing the size of their route system and the number of markets they serve. Several of our domestic competitors have increased their international capacity, including service to some destinations that we currently serve. Additionally, the “open skies” agreement between the United States and the European Union, which became effective on March 30, 2008, is resulting in increased competition from European and U.S. airlines in these international markets, and may give rise to additional consolidation or better integration opportunities among European carriers. The increased competition in

these international markets, particularly to the extent our competitors engage in price discounting, may have a material adverse effect on our results of operations, financial condition or liquidity.

 

Expanded government regulation could further increase our operating costs and restrict our ability to conduct our business

 

Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs and can adversely affect us. Additional laws, regulations, airport rates and charges and growth constraints have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenue. In addition, to address concerns about airport congestion, the Federal Aviation Administration (“FAA”) has designated certain airports, including New York Liberty, Kennedy and LaGuardia as “high density traffic airports,” and has imposed operating restrictions at these three airports, including recent additional capacity reductions at LaGuardia. In addition, the FAA has designated New York Liberty and Kennedy as Level 3 Coordinated Airports under the International Air Transport Association Worldwide Scheduling Guidelines, which requires us to participate in seasonal FAA procedures for capacity allocation and schedule coordination for New York Liberty and to have slots to operate at that airport. Although we do not believe that these current operating restrictions will have a material adverse effect on our operations at New York Liberty, we cannot predict the impact of future capacity constraints or allocations or other restrictions on our operations that might be imposed by the FAA, Congress or other regulators, which might have a material adverse effect on us.

 

Additional restrictions on airline routes and takeoff and landing slots have been or may be proposed that could affect rights of ownership and transfer. For example, although currently not effective because of a court order and the FAA has proposed withdrawal, the FAA has issued rules that continue the FAA requirement to have a slot for arrival or departure at New York Liberty, Kennedy and LaGuardia through 2019. These rules provide that the FAA would withdraw and auction to the highest bidder annually through 2013 a portion of each airline’s slots at New York Liberty, Kennedy and LaGuardia. Joined by our airline trade association, the Air Transport Association, and the Port Authority of New York and New Jersey, which operates New York Liberty, Kennedy and LaGuardia, we have challenged the legality of the FAA withdrawal of slots from airlines for non-operational reasons and the slot auction in the U.S. Court of Appeals for the D.C. Circuit. The court has ordered the FAA not to implement the rules while our challenge is pending, so the rules have not become effective and no slot withdrawals or auctions have occurred under such rules. Moreover, the FAA has proposed to withdraw these rules and has invited public comment on its proposal. We cannot provide any assurances that we will prevail in this challenge, but we expect the FAA will adopt its proposal to withdraw these rules, which will obviate the need to challenge them further. Withdrawal and auctioning to the highest bidder of our slots could have a material adverse effect on us by causing us to incur substantial costs to successfully bid for them or by reducing our slot portfolio, requiring us to terminate flights associated with these slots and increasing our costs to operate at these airports.

 

The FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures or operational restrictions. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, aircraft operation and safety and increased inspections and maintenance procedures to be conducted on older aircraft.

 

Many aspects of airlines’ operations also are subject to increasingly stringent federal, state, local and foreign laws protecting the environment, including the imposition of additional taxes on airlines or their passengers. Future regulatory developments in the United States and abroad could adversely affect operations and increase operating costs in the airline industry. The European Union has issued a directive to member states to include aviation in its Greenhouse Gas Emissions Trading Scheme by February 2010, which will require us to have emissions allowances to operate flights to and from member states of the European Union in January 2012 and thereafter, including flights between the United States and the European Union. The U.S. government and other non-EU governments are expected to challenge the application of the EU emissions trading scheme to their airlines; however, we may be forced to comply with the EU emission trading scheme requirements during a legal challenge. We may have to purchase emissions allowances through the EU emissions trading scheme to cover EU flights that exceed our free allotment, which could result in substantial costs for us.

Other regulatory actions that may be taken in the future by the U.S. government, foreign governments (including the European Union), or the International Civil Aviation Organization to address concerns about climate change and air emissions from the aviation sector are unknown at this time. Climate change legislation is anticipated in the United States, but it is currently unknown how the potential legislation will be applied to the aviation industry. The impact to us and our industry from such actions is likely to be adverse and could be significant, particularly if regulators were to conclude that emissions from commercial aircraft cause significant harm to the upper atmosphere or have a greater impact on climate change than other industries. Potential actions may include the imposition of requirements to purchase emission offsets or credits, which could require participation in emission trading (such as required in the European Union), substantial taxes on emissions and growth restrictions on airline operations, among other potential regulatory actions.

 

Further, the ability of U.S. carriers to operate international routes is subject to change because the applicable arrangements between the United States and foreign governments may be amended from time to time, or because appropriate slots or facilities are not made available. We cannot provide assurance that current laws and regulations, or laws or regulations enacted in the future, will not adversely affect us.

 

Additional terrorist attacks or international hostilities may further adversely affect our financial condition, results of operations and liquidity

 

The terrorist attacks of September 11, 2001 involving commercial aircraft severely and adversely affected our financial condition, results of operations and liquidity and the airline industry generally. Additional terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks (including elevated national threat warnings or selective cancellation or redirection of flights due to terror threats such as the August 2006 terrorist plot targeting multiple airlines, including us), could negatively affect us and the airline industry. The potential negative effects include increased security, insurance and other costs for us and lost revenue from increased ticket refunds and decreased ticket sales. Our financial resources might not be sufficient to absorb the adverse effects of any further terrorist attacks or other international hostilities involving the United States.

 

Additional security requirements may increase our costs and decrease our traffic

 

Since September 11, 2001, the Department of Homeland Security (“DHS”) and the Transportation Security Administration (“TSA”) have implemented numerous security measures that affect airline operations and costs, and they are likely to implement additional measures in the future. Most recently, DHS has begun to implement the US-VISIT program (a program of fingerprinting and photographing foreign visa holders), announced that it will implement greater use of passenger data for evaluating security measures to be taken with respect to individual passengers, expanded the use of federal air marshals on our flights (who do not pay for their seats and thus displace revenue passengers and cause increased customer complaints from displaced passengers), begun investigating a requirement to install aircraft security systems (such as devices on commercial aircraft as countermeasures against portable surface-to-air missiles) and expanded cargo and baggage screening. DHS also has required certain flights to be cancelled on short notice for security reasons, and has required certain airports to remain at higher security levels than other locations. In addition, foreign governments also have begun to institute additional security measures at foreign airports we serve, out of their own security concerns or in response to security measures imposed by the United States.

 

Moreover, the TSA has imposed measures affecting the contents of baggage that may be carried on an aircraft. The TSA and other security regulators could impose other measures as necessary to respond to security threats that may arise in the future.

 

A large portion of the costs of these security measures is borne by the airlines and their passengers, and we believe that these and other security measures have the effect of decreasing the demand for air travel and the overall attractiveness of air transportation as compared to other modes of transportation. Additional security measures required by the U.S. and foreign governments in the future, such as further expanded cargo screening, might increase our costs or decrease the demand for air travel, adversely affecting our financial results.

The airline industry is heavily taxed

 

The airline industry is subject to extensive government fees and taxation that negatively impact our revenue. The U.S. airline industry is one of the most heavily taxed of all industries. These fees and taxes have grown significantly in the past decade for domestic flights, and various U.S. fees and taxes also are assessed on international flights. In addition, the governments of foreign countries in which we operate impose on U.S. airlines, including us, various fees and taxes, and these assessments have been increasing in number and amount in recent years. Certain of these fees and taxes must be included in the fares we advertise or quote to our customers. Due to the competitive revenue environment, many increases in these fees and taxes have been absorbed by the airline industry rather than being passed on to the passenger. Further increases in fees and taxes may reduce demand for air travel and thus our revenues.

 

Airlines may continue to participate in industry consolidation or alliances, which could have a material adverse effect on us

 

We are facing stronger competition from carriers that have participated in industry consolidation and from expanded airline alliances and joint ventures.

 

Since its deregulation in 1978, the U.S. airline industry has undergone substantial consolidation and additional consolidation may occur in light of the recently completed merger of Delta Air Lines, Inc. (“Delta”) and Northwest Airlines, Inc. (“Northwest”), which changed the competitive environment for us and the entire airline industry. As a result of the announcement of the Delta/Northwest merger agreement, we conducted a comprehensive review of our strategic alternatives and announced in April 2008 that we had determined that the best course for us was not to merge with another airline at such time. Through consolidation, carriers have the opportunity to significantly expand the reach of their networks, which is of primary importance to business travelers, and to achieve cost reductions by eliminating redundancy in their networks and their management structures.

 

Through participation in airline alliances and/or joint ventures, carriers granted anti-trust immunity by the appropriate regulatory authorities are able to coordinate their routes, pool their revenues and costs and enjoy other mutual benefits, such as frequent flier program reciprocity, achieving many of the benefits of consolidation. For example, Air France-KLM, Delta and Northwest have received anti-trust immunity to form a new trans-Atlantic joint venture among those airlines and to coordinate routes, fares, schedules and other matters among those airlines, Alitalia and CSA Czech Airlines. American Airlines, British Airways and Iberia have requested anti-trust immunity for a similar trans-Atlantic joint venture, which would also involve many of the same benefits.

 

There may be additional consolidation or changes in airline alliances and/or joint ventures in the future, any of which could change the competitive landscape for the airline industry and have a material adverse effect on us.

 

Insurance costs could increase materially or key coverage could become unavailable

 

The September 11, 2001 terrorist attacks led to a significant increase in insurance premiums and a decrease in the insurance coverage available to commercial airlines. Furthermore, our ability to continue to obtain certain types of insurance remains uncertain. Since the terrorist attacks, the U.S. government has provided war risk (terrorism) insurance to U.S. commercial airlines to cover losses. War risk insurance in amounts necessary for our operations, and at premiums that are not excessive, is not currently available in the commercial insurance market. If the government discontinues this coverage in whole or in part, we may be able to obtain comparable coverage in the commercial insurance market only, if it is available at all, for substantially higher premiums and on more restrictive terms. If we are unable to obtain adequate war risk insurance, our business could be materially and adversely affected.

 

Public health threats affecting travel behavior could have a material adverse effect on the industry

 

Public health threats, such as the bird flu, Severe Acute Respiratory Syndrome (SARs) and other highly communicable diseases, outbreaks of which have occurred in various parts of the world in which we operate, could adversely impact our operations and the worldwide demand for air travel. Any quarantine of personnel or inability to access our facilities or aircraft could adversely affect our operations. Travel restrictions or operational problems

in any part of the world in which we operate, or any reduction in the demand for air travel caused by public health threats in the future, may materially adversely affect our operations and financial results.

 

Our results of operations fluctuate due to seasonality and other factors associated with the airline industry

 

Due to greater demand for air travel during the summer months, revenue in the airline industry in the second and third quarters of the year is generally stronger than revenue in the first and fourth quarters of the year for most U.S. air carriers. Our results of operations generally reflect this seasonality, but also have been impacted by numerous other factors that are not necessarily seasonal, including excise and similar taxes, weather and air traffic control delays, as well as the other factors discussed above. As a result, our operating results for a quarterly period are not necessarily indicative of operating results for an entire year, and historical operating results are not necessarily indicative of future operating results.

 

The Appraisals Are Only Estimates of Aircraft Value

 

Three independent appraisal and consulting firms have prepared appraisals of the Aircraft. Letters summarizing such appraisals are annexed to this Prospectus Supplement as Appendix II. Such appraisals are based on varying assumptions and methodologies, which differ among the appraisers, and were prepared without physical inspection of the Aircraft. Appraisals that are based on other assumptions and methodologies may result in valuations that are materially different from those contained in such appraisals. See “Description of the Aircraft and the Appraisals — The Appraisals”.

 

An appraisal is only an estimate of value. It does not indicate the price at which an Aircraft may be purchased from the Aircraft manufacturer. Nor should an appraisal be relied upon as a measure of realizable value. The proceeds realized upon a sale of any Aircraft may be less than its appraised value. In particular, the appraisals of the Boeing 737-924ER aircraft are estimates of values as of future delivery dates. The value of an Aircraft if remedies are exercised under the applicable Indenture will depend on market and economic conditions, the supply of similar aircraft, the availability of buyers, the condition of the Aircraft and other factors. Accordingly, there can be no assurance that the proceeds realized upon any such exercise of remedies would be sufficient to satisfy in full payments due on the Certificates.

 

Certificateholders May Not Participate In Controlling the Exercise of Remedies in a Default Scenario

 

If an Indenture Default is continuing, subject to certain conditions, the Loan Trustee under such Indenture will be directed by the “Controlling Party” in exercising remedies under such Indenture, including accelerating the applicable Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes. See “Description of the Certificates — Indenture Defaults and Certain Rights Upon an Indenture Default”.

 

The Controlling Party will be:

 

 

As a result of the foregoing, if the Trustee is not the Controlling Party with respect to an Indenture, the Certificateholders will have no rights to participate in directing the exercise of remedies under such Indenture.

 

The Exercise of Remedies Over Equipment Notes May Result in Shortfalls Without Further Recourse

 

During the continuation of any Indenture Default under an Indenture, the Equipment Notes issued under such Indenture may be sold in the exercise of remedies with respect to that Indenture, subject to certain limitations. See “Description of the Intercreditor Agreement — Intercreditor Rights — Limitations on Exercise of Remedies”. The market for Equipment Notes during any Indenture Default may be very limited, and there can be no assurance as to the price at which they could be sold. If any Equipment Notes are sold for less than their outstanding principal

amount, Certificateholders will receive a smaller amount of principal distributions under the relevant Indenture than anticipated and will not have any claim for the shortfall against Continental, the Liquidity Provider or the Trustee.

 

The Ratings of the Certificates Are Not a Recommendation to Buy and May Be Lowered or Withdrawn in the Future

 

It is a condition to the issuance of the Certificates that they be rated not lower than Baa2 by Moody’s and A− by Standard & Poor’s. A rating is not a recommendation to purchase, hold or sell Certificates, because a rating does not address market price or suitability for a particular investor. A rating may not remain unchanged for any given period of time and may be lowered, suspended or withdrawn entirely by a Rating Agency if in its judgment circumstances in the future (including the downgrading of Continental, the Depositary or the Liquidity Provider) so warrant.

 

The rating of the Certificates is based primarily on the default risk of the Equipment Notes and the Depositary, the availability of the Liquidity Facility for the benefit of holders of the Certificates, the collateral value provided by the Aircraft relating to the Equipment Notes, and the cross-collateralization provisions applicable to the Indentures. These ratings address the likelihood of timely payment of interest (at the Stated Interest Rate and without any premium) when due on the Certificates and the ultimate payment of principal distributable under the Certificates by the Final Maturity Date. The ratings do not address the possibility of certain defaults, optional redemptions or other circumstances, which could result in the payment of the outstanding principal amount of the Certificates prior to the final expected Distribution Date. Standard & Poor’s has indicated that its rating applies to a unit consisting of Certificates representing the Trust Property and Escrow Receipts initially representing interests in $389,687,000 of Deposits. Amounts deposited under the Escrow Agreement are not property of Continental and are not entitled to the benefits of Section 1110 of the U.S. Bankruptcy Code and any default arising under an Indenture solely by reason of the cross-default in such Indenture may not be of a type required to be cured under Section 1110 of the U.S. Bankruptcy Code. Any cash collateral held as a result of the cross-collateralization of the Equipment Notes also would not be entitled to the benefits of Section 1110 of the U.S. Bankruptcy Code. Neither the Certificates nor the Escrow Receipts may be separately assigned or transferred.

 

Escrowed Funds May Be Returned If They Are Not Used to Buy Equipment Notes

 

Under certain circumstances, all of the funds held in escrow as Deposits may not be used to purchase Equipment Notes by the deadline established for purposes of this Offering. See “Description of the Deposit Agreement — Unused Deposits”. If any funds remain as Deposits after such deadline, they will be withdrawn by the Escrow Agent and distributed, with accrued and unpaid interest but without any premium, to the Certificateholders. See “Description of the Deposit Agreement — Unused Deposits”.

 

There May Be a Limited Market for Resale of Certificates

 

Prior to this Offering, there has been no public market for the Certificates. Neither Continental nor the Trust intends to apply for listing of the Certificates on any securities exchange or otherwise. The Underwriters may assist in resales of the Certificates, but they are not required to do so. A secondary market for the Certificates may not develop. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of your Certificates.

 

The proceeds from the sale of the Certificates being offered hereby will be used to purchase Equipment Notes issued by Continental during the Delivery Period to generate cash for Continental’s general corporate purposes from 12 Aircraft that it currently owns and to finance Continental’s purchase of five new Boeing 737-924ER Aircraft. Before the proceeds are used to buy Equipment Notes, such proceeds from the sale of the Certificates will be deposited with the Depositary on behalf of the Escrow Agent for the benefit of the holders of the Certificates.

 

Continental Airlines, Inc. (“Continental” or the “Company”) is a major United States air carrier engaged in the business of transporting passengers, cargo and mail. Continental is the world’s fifth largest airline as measured by the number of scheduled miles flown by revenue passengers in 2008. Including Continental’s wholly owned subsidiary, Continental Micronesia, Inc. (“CMI”), and regional flights operated on Continental’s behalf under capacity purchase agreements with other carriers, Continental operates more than 2,300 daily departures. As of March 31, 2009, Continental served 121 domestic and 121 international destinations and offered additional connecting service through alliances with domestic and foreign carriers. Continental directly served ten Canadian cities, 25 European cities, seven South American cities, and six Asian cities from the U.S. mainland as of March 31, 2009. In addition, Continental provides service to more destinations in Mexico and Central America than any other U.S. airline, serving 39 cities. Through its Guam hub, CMI provides extensive service in the western Pacific, including service to more Japanese cities than any other U.S. carrier. The Company’s executive offices are located at 1600 Smith Street, Houston, Texas 77002. The Company’s telephone number is (713) 324-2950 and its website is www.continental.com. Information contained on the Company’s website is not part of, and is not incorporated in, this Prospectus Supplement.

 

The following summary describes the material terms of the Certificates. The summary does not purport to be complete and is qualified in its entirety by reference to all of the provisions of the Basic Agreement, which was filed with the Securities and Exchange Commission (the “Commission”) as an exhibit to the Company’s Current Report on Form 8-K dated September 25, 1997, and to all of the provisions of the Certificates, the Trust Supplement, the Deposit Agreement, the Escrow Agreement, the Intercreditor Agreement and the trust supplement applicable to the Successor Trust, each of which will be filed as an exhibit to a Current Report on Form 8-K to be filed by Continental with the Commission. The references to Sections in parentheses in the following summary are to the relevant Sections of the Basic Agreement unless otherwise indicated.

 

Each Pass Through Certificate (collectively, the “Certificates”) will represent a fractional undivided interest in the Continental Airlines 2009-1 Class A Pass Through Trust (the “Trust”). (Section 2.01) The Trust will be formed pursuant to a pass through trust agreement between Continental and Wilmington Trust Company, as trustee (the “Trustee”), dated as of September 25, 1997 (the “Basic Agreement”), and a supplement thereto (the “Trust Supplement” and, together with the Basic Agreement, the “Pass Through Trust Agreement”) relating to such Trust between Continental and the Trustee, as trustee under the Trust.

 

The Trust Property of the Trust (the “Trust Property”) will consist of:

 

 

 

The Certificates will be issued in fully registered form only and will be subject to the provisions described below under “— Book Entry; Delivery and Form”. The Certificates will be issued only in minimum denominations of $1,000 or integral multiples thereof, except that one Certificate may be issued in a different denomination. (Section 3.01)

 

The Certificates represent interests in the Trust, and all payments and distributions thereon will be made only from the Trust Property. (Section 3.09) The Certificates do not represent an interest in or obligation of Continental, the Trustee or any of the Loan Trustees or any affiliate of any thereof.

 

Pursuant to the Escrow Agreement, the Certificateholders as holders of the Escrow Receipts affixed to each Certificate are entitled to certain rights with respect to the Deposits. Accordingly, any transfer of a Certificate will have the effect of transferring the corresponding rights with respect to the Deposits, and rights with respect to the Deposits may not be separately transferred by holders of the Certificates (the “Certificateholders”). Rights with respect to the Deposits and the Escrow Agreement, except for the right to request withdrawals for the purchase of Equipment Notes, will not constitute Trust Property.

 

Payments of interest on the Deposits with respect to the Trust and payments of principal, premium (if any) and interest on the Equipment Notes or with respect to other Trust Property will be distributed by the Paying Agent (in the case of the Deposits) or by the Trustee (in the case of Trust Property) to Certificateholders on the date receipt of such payment is confirmed, except in the case of certain types of Special Payments.

 

Interest

 

The Deposits and the Equipment Notes will accrue interest at the applicable rate per annum for Certificates set forth on the cover page of this Prospectus Supplement, payable on January 8 and July 8 of each year, commencing on January 8, 2010. Such interest payments will be distributed to Certificateholders on each such date until the final Distribution Date, subject in the case of payments on the Equipment Notes to the Intercreditor Agreement. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months.

 

Payments of interest applicable to the Certificates will be supported by a Liquidity Facility to be provided by the Liquidity Provider for the benefit of the holders of the Certificates in an aggregate amount sufficient to pay interest thereon at the Stated Interest Rate on up to three successive Regular Distribution Dates (without regard to any future payments of principal on the Certificates), except that the Liquidity Facility will not cover interest payable by the Depositary on the Deposits. The Liquidity Facility does not provide for drawings or payments thereunder to pay for principal of or premium, if any, on the Certificates or any interest on the Certificates in excess of the Stated Interest Rate. Therefore, only the holders of the Certificates will be entitled to receive and retain the proceeds of drawings under the Liquidity Facility. See “Description of the Liquidity Facility”.

 

Principal

 

Payments of principal of the Equipment Notes are scheduled to be received by the Trustee on January 8 and July 8 in certain years.

 

Scheduled payments of interest on the Deposits and of interest or principal on the Equipment Notes are herein referred to as “Scheduled Payments”, and January 8 and July 8 of each year, commencing on January 8, 2010, until the final expected Regular Distribution Date are herein referred to as “Regular Distribution Dates”. See “Description of the Equipment Notes — Principal and Interest Payments”. The “Final Maturity Date” is January 8, 2018.

Distributions

 

The Paying Agent will distribute on each Regular Distribution Date to the Certificateholders all Scheduled Payments received in respect of the Deposits, the receipt of which is confirmed by the Paying Agent on such Regular Distribution Date. The Trustee will distribute, subject to the Intercreditor Agreement, on each Regular Distribution Date to the Certificateholders all Scheduled Payments received in respect of Equipment Notes held on behalf of the Trust, the receipt of which is confirmed by the Trustee on such Regular Distribution Date. Each Certificateholder will be entitled to receive its proportionate share, based upon its fractional interest in the Trust, of any distribution in respect of Scheduled Payments of interest on the Deposits and, subject to the Intercreditor Agreement, of principal or interest on Equipment Notes held on behalf of the Trust. Each such distribution of Scheduled Payments will be made by the Paying Agent or Trustee to the Certificateholders of record on the record date applicable to such Scheduled Payment subject to certain exceptions. (Sections 4.01 and 4.02; Escrow Agreement, Section 2.03) If a Scheduled Payment is not received by the Paying Agent or Trustee on a Regular Distribution Date but is received within five days thereafter, it will be distributed on the date received to such holders of record. If it is received after such five-day period, it will be treated as a Special Payment and distributed as described below.

 

Any payment in respect of, or any proceeds of, any Equipment Note, or Collateral under (and as defined in) any Indenture other than a Scheduled Payment (each, a “Special Payment”) will be distributed on, in the case of an early redemption or a purchase of any Equipment Note, the date of such early redemption or purchase (which shall be a Business Day), and otherwise on the Business Day specified for distribution of such Special Payment pursuant to a notice delivered by the Trustee as soon as practicable after the Trustee has received funds for such Special Payment (each, a “Special Distribution Date”). Any such distribution will be subject to the Intercreditor Agreement. Any unused Deposits to be distributed after the Delivery Period Termination Date or the occurrence of a Triggering Event, together with accrued and unpaid interest thereon (each, also a “Special Payment”), will be distributed on a date 25 days after the Paying Agent has received notice of the event requiring such distribution (also, a “Special Distribution Date”). However, if such date is within ten days before or after a Regular Distribution Date, such Special Payment shall be made on such Regular Distribution Date.

 

“Triggering Event” means (x) the occurrence of an Indenture Default under all Indentures resulting in a PTC Event of Default with respect to the Certificates, (y) the acceleration of all of the outstanding Equipment Notes (provided that during the Delivery Period the aggregate principal amount thereof exceeds $150 million) or (z) certain bankruptcy or insolvency events involving Continental.

 

The Paying Agent, in the case of the Deposits, and the Trustee, in the case of Trust Property, will mail a notice to the Certificateholders stating the scheduled Special Distribution Date, the related record date, the amount of the Special Payment and the reason for the Special Payment. In the case of a redemption or purchase of the Equipment Notes held in the Trust or any distribution of unused Deposits after the Delivery Period Termination Date or the occurrence of a Triggering Event, such notice will be mailed not less than 15 days prior to the date such Special Payment is scheduled to be distributed, and in the case of any other Special Payment, such notice will be mailed as soon as practicable after the Trustee has confirmed that it has received funds for such Special Payment. (Section 4.02(c); Trust Supplement, Section 3.03; Escrow Agreement, Sections 2.03 and 2.06) Each distribution of a Special Payment, other than a final distribution, on a Special Distribution Date will be made by the Paying Agent or the Trustee, as applicable, to the Certificateholders of record on the record date applicable to such Special Payment. (Section 4.02(b); Escrow Agreement, Section 2.03) See “— Indenture Defaults and Certain Rights Upon an Indenture Default” and “Description of the Equipment Notes — Redemption”.

 

The Pass Through Trust Agreement requires that the Trustee establish and maintain, for the Trust and for the benefit of the Certificateholders, one or more non-interest bearing accounts (the “Certificate Account”) for the deposit of payments representing Scheduled Payments received by the Trustee. The Pass Through Trust Agreement requires that the Trustee establish and maintain, for the Trust and for the benefit of the Certificateholders, one or more accounts (the “Special Payments Account”) for the deposit of payments representing Special Payments received by the Trustee, which shall be non-interest bearing except in certain circumstances where the Trustee may invest amounts in such account in certain permitted investments. Pursuant to the terms of the Pass Through Trust Agreement, the Trustee is required to deposit any Scheduled Payments received by it in the Certificate

Account and to deposit any Special Payments so received by it in the Special Payments Account. (Section 4.01; Trust Supplement, Section 3.02) All amounts so deposited will be distributed by the Trustee on a Regular Distribution Date or a Special Distribution Date, as appropriate. (Section 4.02; Trust Supplement, Section 3.03)

 

The Escrow Agreement requires that the Paying Agent establish and maintain, for the benefit of the Receiptholders, one or more accounts (the “Paying Agent Account”), which shall be non-interest bearing. Pursuant to the terms of the Escrow Agreement, the Paying Agent is required to deposit interest on Deposits and any unused Deposits withdrawn by the Escrow Agent in the related Paying Agent Account. All amounts so deposited will be distributed by the Paying Agent on a Regular Distribution Date or Special Distribution Date, as appropriate.

 

The final distribution for the Trust will be made only upon presentation and surrender of the Certificates at the office or agency of the Trustee specified in the notice given by the Trustee of such final distribution. The Trustee will mail such notice of the final distribution to the Certificateholders, specifying the date set for such final distribution and the amount of such distribution. (Trust Supplement, Section 7.01) See “— Termination of the Trust” below. Distributions in respect of Certificates issued in global form will be made as described in “— Book Entry; Delivery and Form” below.

 

If any Distribution Date is a Saturday, Sunday or other day on which commercial banks are authorized or required to close in New York, New York, Houston, Texas or Wilmington, Delaware (any other day being a “Business Day”), distributions scheduled to be made on such Regular Distribution Date or Special Distribution Date will be made on the next succeeding Business Day, without additional interest.

 

The “Pool Balance” indicates, as of any date, the original aggregate face amount of the Certificates less the aggregate amount of all payments made in respect of the Certificates or in respect of Deposits other than payments made in respect of interest or premium or reimbursement of any costs or expenses incurred in connection therewith. The Pool Balance as of any Distribution Date shall be computed after giving effect to any special distribution with respect to unused Deposits, payment of principal of the Equipment Notes or payment with respect to other Trust Property and the distribution thereof to be made on that date. (Trust Supplement, Section 2.01)

 

The “Pool Factor” as of any Distribution Date is the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the original aggregate face amount of the Certificates. The Pool Factor as of any Distribution Date shall be computed after giving effect to any special distribution with respect to unused Deposits, payment of principal of the Equipment Notes or payments with respect to other Trust Property and the distribution thereof to be made on that date. (Trust Supplement, Section 2.01) The Pool Factor will be 1.0000000 on the date of issuance of the Certificates; thereafter, the Pool Factor will decline as described herein to reflect reductions in the Pool Balance. The amount of a Certificateholder’s pro rata share of the Pool Balance can be determined by multiplying the par value of the holder’s Certificate by the Pool Factor as of the applicable Distribution Date. Notice of the Pool Factor and the Pool Balance will be mailed to Certificateholders on each Distribution Date. (Trust Supplement, Section 3.01)

The following table sets forth the expected aggregate principal amortization schedule for the Equipment Notes (the “Assumed Amortization Schedule”) and resulting Pool Factors. The scheduled distribution of principal payments would be affected if Equipment Notes with respect to any Aircraft are not acquired by the Trust, if any Equipment Notes held in the Trust are redeemed or purchased or if a default in payment on such Equipment Notes occurs. Accordingly, the aggregate principal amortization schedule applicable to the Trust and the resulting Pool Factors may differ from those set forth in the following table.

 

 

The Pool Factor and Pool Balance will be recomputed if there has been an early redemption, purchase, or default in the payment of principal or interest in respect of one or more of the Equipment Notes held in the Trust, as described in “— Indenture Defaults and Certain Rights Upon an Indenture Default” and “Description of the Equipment Notes — Redemption”, or a special distribution attributable to unused Deposits after the Delivery Period Termination Date or the occurrence of a Triggering Event, as described in “Description of the Deposit Agreement”. If the principal payments scheduled for a Regular Distribution Date prior to the Delivery Period Termination Date are changed, notice thereof will be mailed by the Trustee to the Certificateholders by no later than the 15th day prior to such Regular Distribution Date. In the event of (i) any other change in the scheduled repayments from the Assumed Amortization Schedule or (ii) any such redemption, purchase, default or special distribution, the Pool Factors and the Pool Balances will be recomputed after giving effect thereto and notice thereof will be mailed by the Trustee to the Certificateholders promptly after the Delivery Period Termination Date in the case of clause (i) and promptly after the occurrence of any event described in clause (ii).

 

On each Distribution Date, the Paying Agent and Trustee will include with each distribution by it of a Scheduled Payment or Special Payment to Certificateholders a statement setting forth the following information (per $1,000 aggregate principal amount of Certificate, except as to the amounts described in items (a) and (f) below):

 

(a) The aggregate amount of funds distributed on such Distribution Date under the Pass Through Trust Agreement and under the Escrow Agreement, indicating the amount allocable to each source, including any portion thereof paid by the Liquidity Provider.

 

(b) The amount of such distribution under the Pass Through Trust Agreement allocable to principal and the amount allocable to premium, if any.

 

(c) The amount of such distribution under the Pass Through Trust Agreement allocable to interest.

 

(d) The amount of such distribution under the Escrow Agreement allocable to interest.

 

(e) The amount of such distribution under the Escrow Agreement allocable to unused Deposits, if any.

 

(f) The Pool Balance and the Pool Factor. (Trust Supplement, Section 3.01(a))

So long as the Certificates are registered in the name of DTC or its nominee, on the record date prior to each Distribution Date, the Trustee will request that DTC post on its Internet bulletin board a securities position listing setting forth the names of all DTC Participants reflected on DTC’s books as holding interests in the Certificates on such record date. On each Distribution Date, the Paying Agent and Trustee will mail to each such DTC Participant the statement described above and will make available additional copies as requested by such DTC Participant for forwarding to Certificate Owners. (Trust Supplement, Section 3.01(a))

 

In addition, after the end of each calendar year, the Trustee and Paying Agent will furnish to each Certificateholder at any time during the preceding calendar year a report containing the sum of the amounts determined pursuant to clauses (a), (b), (c), (d) and (e) above with respect to the Trust for such calendar year or, in the event such person was a Certificateholder during only a portion of such calendar year, for the applicable portion of such calendar year, and such other items as are readily available to the Trustee and which a Certificateholder shall reasonably request as necessary for the purpose of such Certificateholder’s preparation of its U.S. federal income tax returns. (Trust Supplement, Section 3.01(b)) Such report and such other items shall be prepared on the basis of information supplied to the Trustee by the DTC Participants and shall be delivered by the Trustee to such DTC Participants to be available for forwarding by such DTC Participants to Certificate Owners in the manner described above. (Trust Supplement, Section 3.01(b)) At such time, if any, as the Certificates are issued in the form of definitive certificates, the Paying Agent and Trustee will prepare and deliver the information described above to each Certificateholder of record as the name and period of ownership of such Certificateholder appears on the records of the registrar of the Certificates.

 

The Trustee is required to provide promptly to Certificateholders all material non-confidential information received by the Trustee from Continental. (Trust Supplement, Section 3.01(e))

 

Upon the occurrence and continuation of an event of default under an Indenture (after giving effect to any applicable grace period and notice requirement, an “Indenture Default”), the Controlling Party will direct the Loan Trustee under such Indenture in the exercise of remedies thereunder and may accelerate and sell all (but not less than all) of the Equipment Notes issued under such Indenture or sell the collateral under such Indenture to any person, subject to certain limitations. See “Description of the Intercreditor Agreement — Intercreditor Rights — Limitations on Exercise of Remedies”. The proceeds of any such sale will be distributed pursuant to the provisions of the Intercreditor Agreement. Any such proceeds so distributed to the Trustee upon any such sale shall be deposited in the applicable Special Payments Account and shall be distributed to the Certificateholders on a Special Distribution Date. (Sections 4.01 and 4.02) The market for Equipment Notes at the time of the existence of an Indenture Default may be very limited and there can be no assurance as to the price at which they could be sold. If any such Equipment Notes are sold for less than their outstanding principal amount, Certificateholders will receive a smaller amount of principal distributions under the relevant Indenture than anticipated and will not have any claim for the shortfall against Continental, the Liquidity Provider or the Trustee.

 

Any amount, other than Scheduled Payments received on a Regular Distribution Date or within five days thereafter, distributed to the Trustee by the Subordination Agent on account of any Equipment Note or Collateral under (and as defined in) any Indenture held in the Trust following an Indenture Default will be deposited in the Special Payments Account for the Trust and will be distributed to the Certificateholders on a Special Distribution Date. (Sections 4.01 and 4.02; Trust Supplement, Section 3.02) Any funds representing payments received with respect to any defaulted Equipment Notes, or the proceeds from the sale of any Equipment Notes, held by the Trustee in the Special Payments Account will, to the extent practicable, be invested and reinvested by the Trustee in certain permitted investments pending the distribution of such funds on a Special Distribution Date. (Section 4.04)

 

The Pass Through Trust Agreement provides that the Trustee will, within 90 days after the occurrence of any default known to the Trustee, give to the Certificateholders notice, transmitted by mail, of such uncured or unwaived default known to it, provided that, except in the case of default in a payment of principal, premium, if any, or interest on any of the Equipment Notes held in the Trust, the Trustee will be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of the Certificateholders. (Section 7.02) The term “default” as used in this paragraph only means the occurrence of an Indenture Default under any Indenture

pursuant to which Equipment Notes held by the Trust were issued, as described above, except that in determining whether any such Indenture Default has occurred, any grace period or notice in connection therewith will be disregarded.

 

The Pass Through Trust Agreement contains a provision entitling the Trustee, subject to the duty of the Trustee during a default to act with the required standard of care, to be offered reasonable security or indemnity by the holders of the Certificates before proceeding to exercise any right or power under the Pass Through Trust Agreement or the Intercreditor Agreement at the request of such Certificateholders. (Section 7.03(e))

 

Subject to certain qualifications set forth in the Pass Through Trust Agreement and to the Intercreditor Agreement, the Certificateholders holding Certificates evidencing fractional undivided interests aggregating not less than a majority in interest in the Trust shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or pursuant to the terms of the Intercreditor Agreement, or exercising any trust or power conferred on the Trustee under the Pass Through Trust Agreement or the Intercreditor Agreement, including any right of the Trustee as Controlling Party under the Intercreditor Agreement or as holder of the Equipment Notes. (Section 6.04)

 

In certain cases, the holders of the Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of the Trust may on behalf of the holders of all the Certificates waive any past “event of default” under the Trust (i.e., any Indenture Default under any Indenture pursuant to which Equipment Notes held by the Trust were issued) and its consequences or, if the Trustee is the Controlling Party, may direct the Trustee to instruct the applicable Loan Trustee to waive any past Indenture Default and its consequences, except (i) a default in the deposit of any Scheduled Payment or Special Payment or in the distribution thereof, (ii) a default in payment of the principal, premium, if any, or interest with respect to any of the Equipment Notes and (iii) a default in respect of any covenant or provision of the Pass Through Trust Agreement that cannot be modified or amended without the consent of each Certificateholder affected thereby. (Section 6.05) Each Indenture will provide that, with certain exceptions, the holders of the majority in aggregate unpaid principal amount of the Equipment Notes issued thereunder may on behalf of all such holders waive any past default or Indenture Default thereunder. (Indentures, Section 5.06) Notwithstanding such provisions of the Indentures, pursuant to the Intercreditor Agreement only the Controlling Party will be entitled to waive any such past default or Indenture Default. See “Description of the Intercreditor Agreement — Intercreditor Rights — Controlling Party”.

 

 

If Additional Junior Certificates are issued, upon the occurrence and during the continuation of a Certificate Buyout Event, with 15 days’ written notice to the Trustee and each Certificateholder the holders of such Additional Junior Certificates will have the right to purchase all but not less than all of the Certificates on the third business day next following the expiry of such 15-day notice period. See “Possible Issuance of Additional Junior Certificates”. If Continental or any of its affiliates is a holder of Additional Junior Certificates, it will not have the purchase rights described above. (Trust Supplement, Section 4.01) In each case, the purchase price will be equal to the Pool Balance of the Certificates plus accrued and unpaid interest thereon to the date of purchase, without premium, but including any other amounts then due and payable to the Certificateholders.

 

A “Certificate Buyout Event” means that a Continental Bankruptcy Event has occurred and is continuing and the following events have occurred: (A) (i) the 60-day period specified in Section 1110(a)(2)(A) of the U.S. Bankruptcy Code (the “60-Day Period”) has expired and (ii) Continental has not entered into one or more agreements under Section 1110(a)(2)(A) of the U.S. Bankruptcy Code to perform all of its obligations under all of the Indentures or, if it has entered into such agreements, has at any time thereafter failed to cure any default under any of the Indentures in accordance with Section 1110(a)(2)(B) of the Bankruptcy Code; or (B) if prior to the expiry of the 60-Day Period, Continental shall have abandoned any Aircraft.

 

A Pass Through Certificate Event of Default (a “PTC Event of Default”) under the Pass Through Trust Agreement means the failure to pay:

 

 

 

Any failure to make expected principal distributions with respect to the Certificates on any Regular Distribution Date (other than the Final Maturity Date) will not constitute a PTC Event of Default. A PTC Event of Default resulting from an Indenture Default under all Indentures will constitute a Triggering Event.

 

Continental will be prohibited from consolidating with or merging into any other corporation or transferring substantially all of its assets as an entirety to any other corporation unless:

 

 

In addition, after giving effect to such transaction, no Indenture Default shall have occurred and be continuing. (Section 5.02; Indentures, Section 4.07)

 

The Basic Agreement, the Trust Supplement, the Note Purchase Agreement, the Indentures and the Participation Agreements will not contain any covenants or provisions that may afford the Trustee or Certificateholders protection in the event of a highly leveraged transaction, including transactions effected by management or affiliates, which may or may not result in a change in control of Continental.

 

The Pass Through Trust Agreement contains provisions permitting, at the request of Continental, the execution of amendments or supplements to the Pass Through Trust Agreement or, if applicable, to the Deposit Agreement, the Escrow Agreement, the Intercreditor Agreement, the Note Purchase Agreement or the Liquidity Facility, without the consent of the holders of any of the Certificates:

 

 

 

In each case, such modification or supplement may not adversely affect the status of the Trust as a grantor trust under Subpart E, Part I of Subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes. (Section 9.01; Trust Supplement, Section 6.02)

 

The Pass Through Trust Agreement also contains provisions permitting the execution, with the consent of the holders of the Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of the Trust, of amendments or supplements adding any provisions to or changing or eliminating any of the provisions of the Pass Through Trust Agreement, the Deposit Agreement, the Escrow Agreement, the Intercreditor Agreement, the Note Purchase Agreement or the Liquidity Facility to the extent applicable to the Certificateholders or of modifying the rights and obligations of the Certificateholders under the Pass Through Trust Agreement, the Deposit Agreement, the Escrow Agreement, the Intercreditor Agreement, the Note Purchase Agreement or the Liquidity Facility. No such amendment or supplement may, without the consent of the holder of each Certificate so affected thereby:

 

 

 

In the event that the Trustee, as holder (or beneficial owner through the Subordination Agent) of any Equipment Note in trust for the benefit of the Certificateholders or as Controlling Party under the Intercreditor Agreement, receives (directly or indirectly through the Subordination Agent) a request for a consent to any amendment, modification, waiver or supplement under any Indenture, any Participation Agreement, any Equipment Note or any other related document, the Trustee shall forthwith send a notice of such proposed amendment, modification, waiver or supplement to each Certificateholder as of the date of such notice, except in the case when consent of Certificateholders is not required. The Trustee shall request from the Certificateholders a direction as to:

 

 

Provided such a request for Certificateholder direction shall have been made, in directing any action or casting any vote or giving any consent as the holder of any Equipment Note (or in directing the Subordination Agent in any of the foregoing):

 

 

For purposes of the immediately preceding paragraph, a Certificate shall have been “actually voted” if the Certificateholder has delivered to the Trustee an instrument evidencing such Certificateholder’s consent to such direction prior to one Business Day before the Trustee directs such action or casts such vote or gives such consent. Notwithstanding the foregoing, but subject to certain rights of the Certificateholders under the Pass Through Trust Agreement and subject to the Intercreditor Agreement, the Trustee may, in its own discretion and at its own direction, consent and notify the relevant Loan Trustee of such consent (or direct the Subordination Agent to consent and notify the relevant Loan Trustee of such consent) to any amendment, modification, waiver or supplement under the relevant Indenture, Participation Agreement, any relevant Equipment Note or any other related document, if an Indenture Default under any Indenture shall have occurred and be continuing, or if such amendment, modification, waiver or supplement will not materially adversely affect the interests of the Certificateholders. (Section 10.01)

 

In determining whether the Certificateholders of the requisite fractional undivided interests of Certificates have given any direction under the Pass Through Trust Agreement, Certificates owned by Continental or any of its affiliates will be disregarded and deemed not to be outstanding for purposes of any such determination. Notwithstanding the foregoing, (i) if any such person owns 100% of the Certificates, such Certificates shall not be so disregarded, and (ii) if any amount of Certificates so owned by any such person have been pledged in good faith, such Certificates shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Certificates and that the pledgee is not Continental or an affiliate of Continental.

 

The Trustee will be obligated to purchase the Equipment Notes issued with respect to the Aircraft during the Delivery Period, subject to the terms and conditions of a note purchase agreement (the “Note Purchase Agreement”). Under the Note Purchase Agreement, Continental agrees to enter into a secured debt financing with respect to each Aircraft. The Note Purchase Agreement provides for the relevant parties to enter into a participation agreement (each, a “Participation Agreement”) and an indenture (each, an “Indenture”) relating to the financing of each Aircraft in substantially the form attached to the Note Purchase Agreement.

 

The description of such financing agreements in this Prospectus Supplement is based on the forms of such agreements attached to the Note Purchase Agreement. However, the terms of the financing agreements actually entered into may differ from the forms of such agreements and, consequently, may differ from the description of such agreements contained in this Prospectus Supplement. See “Description of the Equipment Notes”. Although such changes are permitted, under the Note Purchase Agreement, the terms of such agreements must not vary the Required Terms. In addition, Continental is obligated to certify to the Trustee that any substantive modifications do not materially and adversely affect the Certificateholders. Continental must also obtain written confirmation from each Rating Agency that the use of financing agreements modified in any material respect from the forms attached to the Note Purchase Agreement will not result in a withdrawal, suspension or downgrading of the rating of the Certificates. Further, under the Note Purchase Agreement, it is a condition precedent to the obligation of the Trustee to purchase the Equipment Notes related to the financing of an Aircraft that no Triggering Event shall have occurred and, in the case of certain currently-owned Aircraft, that certain maintenance shall have been performed on such Aircraft. See “Description of the Aircraft and the Appraisals — Timing of Financing the Aircraft”. The Trustee will have no right or obligation to purchase Equipment Notes after the Delivery Period Termination Date.

 

The “Required Terms”, as defined in the Note Purchase Agreement, mandate that:

 

 

Boeing 777-224ER

 

Boeing 757-224

 

 

Boeing 737-924ER

 

Boeing 737-824