=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/09/09/f= inancial0900EDT0027.DTL ---------------------------------------------------------------------- Tuesday, September 9, 2003 (AP) UAL's Tilton likes his odds for a rebound SUSAN CAREY, The Wall Street Journal (09-09) 06:00 PDT (AP) -- CHICAGO -- It's been a year since Glenn Tilton took what is arguably the toughest assignment in the airline industry: running United Airlines parent UAL Corp. In August 2002, when a recruiter from Russell Reynolds Associates Inc. phoned the longtime oil-industry executive and broached the idea of turning around United, Mr. Tilton says he laughed out loud. The ChevronTexaco Corp. vice chairman already was doing triage at Dynegy Inc., the troubled energy trader in which ChevronTexaco had a minority stake. "I'm the interim chairman of Dynegy," Mr. Tilton says he told the headhunter. The United post "may be the only job that's harder." UAL had been hemorrhaging money since 2000, had alienated its best customers with frequent cancellations and erratic service, and was being swamped by competition from discount airlines. Its experiment with majority employee ownership had been a disaster, leading to revolving-door management, expensive labor contracts and paralysis in the boardroom. Losing two jets in the Sept. 11, 2001, terrorist attacks had left the company unnerved. But after doing some homework and meeting with UAL's directors and the retiring interim chief executive, Mr. Tilton says he was attracted by United's potential: its global route network, five hubs, modern fleet, powerful brand and membership in the Star Alliance of major carriers. So over Labor Day weekend of 2002 Mr. Tilton signed a five-year contract to be its chairman, chief executive officer and president. Three months later, the federal government turned down UAL's request for loan guarantees and the carrier couldn't meet its financial obligations. So Mr. Tilton put UAL into bankruptcy-court protection, the largest airline bankruptcy ever. Rivals whispered that UAL faced certain liquidation. Since the filing, the 55-year-old Mr. Tilton has begun to make his mark = on the world's second-largest carrier. Employee ownership is history and the two union leaders who sit on its board no longer can veto important decisions. UAL has wrung $5 billion a year from expenses. It is flying on time, half its senior executives are new and the company is more focused on marketing and customer satisfaction. But United's losses continue. It has massively underfunded pension plans and needs to attract financing to exit Chapter 11. Beyond that, the company must figure out how to compete in the changing aviation landscape. But Mr. Tilton is sanguine. "We like our chances," he said in a recent interview at UAL's headquarters in suburban Chicago. Excerpts: WSJ: How did you learn a new company and a new industry on the run? Mr. Tilton: The first level of understanding was simply the numbers. I thought its financials already put it well within the zone of insolvency. And then (I spent) probably a good month talking to the board of directors, the executive team, labor leadership, rank and file and customers. That coupled the analytic understanding with a contextual understanding. WSJ: How do you filter all that information, and the opinions of all the outside advisers working on United's bankruptcy and restructuring? Mr. Tilton: You don't reject anything ... but everything becomes a sort = of meritocracy: Is it worth listening to or not listening to? Employees: Are they being constructive or are they whining? Advisers: Are they being constructive and genuinely helpful, or are they marking time? Competitors: In their criticism, is there actually something we can take advantage of? Journalists: Do they really know what they're talking about so you might pay attention to what they write, or not? WSJ: What would you say to guide other executives parachuting into unfamiliar industries? Mr. Tilton: Beware of generalization. Beware of preconceived perceptions of your own. Listen. Be engaged. WSJ: You lived through Texaco's trip through bankruptcy court in 1987. H= ow are you managing United in Chapter 11? Mr. Tilton: We prepared the organization, the management team and the board of directors for the experience. As we attempted to restructure out of court, we continued to talk about our preparations for filing should it be necessary. That was time well spent. Since the filing, we agreed there were three areas of focus that were our responsibility. (One is) managing the Chapter 11 as a separate and distinct responsibility. And that job should be entrusted to a discrete set of executives with the company, and advisers from outside the company. WSJ: What are the other two areas of focus? Mr. Tilton: One is to continue to run a very good airline. The third bucket of work is the future. Where is the company going to be in five years? Answer: We get the opportunity to compete off a new platform of cost-competitiveness. We take advantage of the assets we had going in, optimize our route network and revitalize our brand. WSJ: How did you communicate to customers that United was going to be there for them after the Dec. 9 bankruptcy filing? Mr. Tilton: Through our behavior. On Dec. 9, our customers noticed nothing. We were approaching the end of the best operational year in the company's history. ... We still hold the No. 1 spot for on-time arrival performance. Our employees are delivering big-time. WSJ: In Chapter 11, you have cut $5 billion a year from your once-toweri= ng costs. Are there any other advantages to being in bankruptcy? Mr. Tilton: One of the difficulties of motivating companies, especially legacy companies that are 77 years old, is complacency. (But) I didn't need to create any antidote to complacency or come in and create discontent. In bankruptcy, everything is more intense. WSJ: Employees have been laid off and those who remain have taken big pay cuts. What are you saying to them? Mr. Tilton: (We have a) rigorous, mutually respectful engagement between the leadership and rank-and-file. (We have) candor and transparency. One of the tenets around here is that we deliver the bad news the same way we deliver the good news. And the person delivering (both) is me. ... Bad news for us now would be we have more work to do. WSJ: What do you mean by "more work to do?" Mr. Tilton: Cost reduction and containment by themselves don't make a competitive global business. That's why we've got teams of people looking at ways we can increase asset utilization and take advantage of the new flexibility to outsource work that others can do less expensively. We're also looking at new revenue streams that make strategic sense for us. One example: In the not-too-distant future, as much as half of our maintenance work could be performed for other companies. WSJ: Tell us your thinking behind the discount airline you are planning = to compete with the low-cost carriers. Mr. Tilton: Nontraditional competitors are going to continue to put their schedules up as mainline carriers pull their schedules down. United, in competing as one of the premier brands world-wide, needs to compete with its peers in that global group. A good many of our customers are both business travelers and leisure passengers. We want to be able to compete for them ... so we need to be relevant to that (low-fare) market as well. Maybe not their first thought, but certainly we need to be among those (they consider) when booking a holiday with the family. WSJ: Airline-executive compensation is under scrutiny. What are your views? Mr. Tilton: Pay the market (rate). The way to represent (executive compensation) to employees is as a capital investment. When I explain it to them that way, they get it. Employees say to me, "Pay what you need to pay because we need new management, new leadership, because of our particular circumstances." WSJ: How would you characterize United's customers? Mr. Tilton: Loyal. Patient. Long-suffering. Excited about the restoration of the brand. Really invested in this whole turnaround with us. I hear it repeatedly. WSJ: What has been the biggest surprise for you about the airline industry? Mr. Tilton: Its complexity. When I first did my homework, I compared it = to the vertically integrated oil and gas business ... with maybe 15 business units in a value chain. Here, there's only one business; it's a marketing business, a transportation model that's very straightforward. What I failed to realize is that the complexity of this business is in two places: It's in the relationships of people who make up the population of the business. And the other issue is this business of not really being deregulated. WSJ: What are your prospects for attracting financing to allow you to ex= it from reorganization, and when do you think you'll emerge from bankruptcy? Mr. Tilton: Prospects are very good, very encouraging. We're in active dialogue with the capital markets and the federal loan-guarantee board. All the good work we've done so far on the cost side gives us a great deal of flexibility. And the recent uptick in revenues and yields (revenue per passenger) has to be reassuring to potential investors. ... We expect to reorganize in less time than our original estimate of 18 months. The first quarter of 2004, leading into a strong travel season, is the most likely scenario. =20 ---------------------------------------------------------------------- Copyright 2003 AP