By Glenn F. Tilton, Chairman, President and CEO, UAL Corp. and United Airlines

Introduction

Before I begin my formal remarks, I would like to share the story with you which I think is consistent with the introduction. When I graduated from university, I had spent a good deal of my time abroad. I grew up in Latin America, actually went to high school in Brazil. As I was coming out of graduate school and contemplating my career, I had thought that like my father, I would go to work for the government. My father worked for governments around the world and thought that I would either work for the diplomatic service or that I would be a spy.

But, there was a man in Brazil that I had most admired in the course of my time there as a young man, and he was the managing director of Pan Am in Brazil. I always thought that he had a very interesting and a very romantic position as the chairman of Pan American, so as I was contemplating my future course of direction in life, I sent him a note and said could you please give me some direction? I was thinking perhaps of entertaining the thought of a business career, and I’ll never forget -- on this the two-year anniversary of my experience with United -- that he wrote me back and said, "I have no doubt that whatever you do you will be successful, but regardless of what you decide to do, promise me that you will never work for an airline." It took me 30-odd years, but I finally decided to ignore him.

This is an industry which is rapidly evolving; companies such as United are adjusting in dramatic ways to establish their relevance in a changing market place, becoming more competitive, day by day, to better serve our customers. This is a subject that I’d like to talk about today, in different parts -- our internal challenges and our external challenges. This industry is undergoing dramatic margin compression as we just said. All this can be perceived as a pressure cooker being compressed from the top line to the bottom line in an industry that is suffering from over capacity -- my oil bill is running a billion dollars greater than I thought it would be at the beginning of the year -- and no pricing power regardless of that fact.

The reality of being in a pressure cooker is that you do whatever it is that you can to get out, and the tendency is to focus on that which is immediately in front of you. At United, we are working very hard every day to break out of the pressure cooker, but also out of the mentality that it inspires. I remember we talked about it at my table here today, one that says let’s focus only on the present and let the future take care of itself. This is in my view a self-limiting proposition. We all know better, and we have a cordial understanding of how the actions we take today will impact where we intend to be five or ten years down the road.

With that admonition in mind, the United that we want to be is an airline that has clearly established its market relevance, an airline that has addressed the challenges of the past and is a leader in meeting the needs of our customers in the future, an airline that builds a cost structure that ensures success in both up and down business cycles. For company culture, it seems that a low cost is a central component to a strong future. It motivates our work force giving our employees more reason to be excited about being part of a winning team and ensures that they are able to share in the company’s success over time.

We need to demonstrate through our financial performance that rewards shareholders and eventually attracts investment; fundamental stuff. Most importantly, we aspire to put United in a position, which allows us to earn intense customer loyalty; by delighting customers with compelling value and delivering the products that they want at prices in this market environment that they are willing to pay. For all of us know today who represent United that this is not the United of today, we believe it is the United of the future and it’s not only our aspiration on return, it is also our immediate intention. For that to happen, I personally have no illusions: it’s going to require more hard work for United as a proxy as I have said and more tough choices which are very difficult to make and require courage from all of us in this business, but I am convinced we can accomplish this based on what the employees of United have already shown that they can achieve. Any team of people that can lift itself and their company out of the condition that this company found itself in two years ago is certainly a force to be reckoned with.

Let me be clear; even before United was deeply harmed personally by the events of September 11, we were facing chronic problems, many of our own making. Our cost structure was uncompetitive; our balance sheet was overleveraged; we had surplus, unproductive, unprofitable capacity; we had restricted labor contracts; we had a lack of alignment among management supervisors and front line employees; we also had nearly impossible corporate governance; and we had leadership that lacked credibility in the market place before September 11. These liabilities combined to make United a huge challenged company, one that entered Chapter 11 in a competitive position far behind its competitors.

We are constantly aware at this company of the temptation to make quick expedient decisions to yield to the pressure to make choices that address the short term but leave the needs in some of our constituencies that leave the company as a whole struggling in the future. We have learned, however, from our history that to succumb to this temptation would be wrong, and we won’t do it again. At the same time, United had and has support assets: first, United has one of the strongest networks in the world, strong hubs, strong international structure, and a strong route structure that provides us with the flexibility to deliver the right product at the right time at the right price for our customers.

Second, we have unmapped scope and Star Alliance that extends the reach of this network, taking customers virtually anywhere in the world they want to go and the alliance continues to expand. We are excited about the recent agreements with South African Airways recognizing Rigas as a member of the board of South Africa, Tap Air Portugal, Adria Airways and Croatia Airlines which add to the ability to provide our passengers with lower fares, seamless connections and enormous global reach.

Third, we have a greatly improved cost structure. With other improvements to be made, we are creating discipline in our costs -- not previously the norm in United Airlines.

Fourth, there is the strength of the United team. Throughout the past two years, this team has done what few others have been able to do -- a challenging, necessary, but difficult restructuring while at the same time improving operations and launching innovative new products. A strong team and getting stronger thanks in part to new programs such as Success Sharing program which is our incentive paying profit sharing system. The philosophy is simple: when we deliver strong performance, everyone participates in the benefit; when we don’t, nobody receives a payout.

Fifth, and in many ways this is the sum of all of these parts, United is a great brand and it’s a great brand with loyal customers worldwide, and that’s something that we at United do not take for granted. Chapter 11 for all of its many challenges, reorganization, restructuring, whatever we choose to call it, does not exempt a company from running a great airline for customers. Our customers expect us to do whatever it is we need to do to get the company back on track. They do not expect to see or hear about it on board or on the concourse or on the phone with our reservations office. It’s not their problem and it’s not their responsibility, it’s ours. What they do want is high quality customer service.

In the United States, United has the best on-time arrival performance among the majors one of the factors upon which we ? . On a quarterly basis to our employees, our load factors are among the highest in the industry -- nearly eighty-four percent in August -- and we are leading the US majors operationally for the third consecutive quarter.

We have also continued, as I said a moment ago, to innovate. Earlier this year, we launched Ted against the advice of many pundits, our new low-fare carrier, 50 aircraft all A320’s, designated crews who bid the opportunity to fly Ted, and the customer response to Ted has been tremendous. We have delivered customer enhancements while we have been restructuring, including Economy Plus across the entire fleet, EasyCheck-in kiosks, Mileage Plus improvements, and next month, we are going to roll out a new product: B757 p.s. service transcontinental, which we are very excited about with 12 lie-flat facilities in first class, 18 in business, the balance of the cabin is all economy plus, no economy.

We all tend to be all things to all people, but we are going to focus investments on our customers, where value to us offers the greatest potential. Even with these strengths, we know that United has big obstacles to clear, and I want really to focus on those. They are external and internal, those that we control and those that we do not. The promise that we have made did not come overnight, and we are by no means done.

The relentless pressure that this industry is under is not going to abate. We are challenged today by record high fuel costs, one billion dollars as I mentioned a moment ago, increased low-cost competition and an unforgiving pricing environment. These factors are not going to change, so we have to change. We have done an enormous amount of work to restructure this company.

I’d like to stand here today, declare victory and say we have finished the job. That’s not so. We have not finished the job. We have much more to do and many more tough decisions to make. We are going to give this company competitive footing and make it viable going forward. We must use our time in bankruptcy restructuring the company and be prepared to make the hard decisions to make the company viable in the future. Our intent is not to be expedient. Our intent, as I was asked this morning, relative to the restructuring is to do this once and do it right. We also know at United that exit from Chapter 11 is not the end of the game, it’s only a launch proposition, an opportunity for United to leave the parked gate.

Going forward, we know that we are going to have to compete in a tough economic market place. To compete successfully, an airline in our position has two types of challenges, as I mentioned a moment ago, internal and external. Internal obstacles in this industry can be formidable, and I suspect they can be sufficient to be exhausting, but they should be manageable. Speaking bluntly, United’s great assets were mismanaged for quite some time.

The company became untethered from the realities of the market place, existing in its own private reality. Like other carriers, United has legacy practices, old ways of doing business. They are no longer relevant to today’s realities. We also have legacy costs that are no longer sustainable, including costs associated with labor and employees' benefits work rules and productivity issues. This is true of legacy carriers worldwide. We are all grappling with past decisions to provide employee benefits that are not viable in today’s market place. For all legacy carriers working to be competitive, these issues present a significant challenge.

Cost will always be the issue for United and this industry, regardless of fuel price whether it be $30 or $50. Another variable we are continuing to rigorously scrutinize is our cost structure and to benchmark our cost performance against our competitors and companies outside of the industry, which is what this industry must do. It must move beyond the bounds of benchmarking itself. Against a failing business problem, we will pursue every cost reduction opportunity, which does not impact safety with quality experience for our customers.

This brings me now to the external obstacles, many are most familiar to you in this room. The disfunctionalities that affect everyone in the industry, common challenges that impact our ability to compete. We are seeing a range of actions to address the challenges that I mentioned a moment ago by peer companies, but more important, we are seeing a broader market recognition that certain changes need to be made, must be made on a macro level. Changes that would benefit all of us and make the world that I described to you a moment ago at United worthwhile. It’s a fundamental question. If we do all of this restructuring work, what is the reward that will be available to us when we are at the other end of the tunnel and out of the pressure cooker?

On issues such as these when I speak to organizations such as IATA who are leading the race suggesting policies such as ending the monopoly position enjoyed by airports and air traffic controller authorities and simplifying business practices in an industry which is by any standard unnecessarily complex.

IATA’s agenda for change issued a few months ago in Singapore is full of good practical ideas to stabilize the industry while improving the customer experience. I think personally that these developments are encouraging. I also think that if disfunctionality persists, we face significant barriers that no airline or industry group can clear. I am talking of course about a subject of great concern to the EAC, indeed to everyone in the room. The regulations that hold every airline back no matter how hard we work, no matter how we restructure our organizations to meet the demands of the 21st century. The role of government and our economic decisions precludes us from conducting business as other industries do, and from competing as regular companies compete.

Given my experience in oil and gas industry as mentioned, where the constraints are fewer in cross border mergers such as BP, AMOCO, Total Fina Elf are routine. I will never cease to be amazed by the barriers that exist to the consolidation. In this business, a business that clearly needs the benefit of consolidation and these obstacles include the burdens of taxes and fees create in my opinion illogical behavior by the companies themselves. It becomes easier to excuse bad practices and harder to see outside one’s own distorted frame of reference if you have a sense of fatigue with respect to whether or not it’s all going to be worthwhile.

It does not and should not allow anyone to offer substandard performance but as long as obstacles prevent constructive consolidation the industry will not be able to redress this disfunctionality or its excess capacity in a meaningful way. Consolidation to the extent that it occurs at all will continue to happen rationally and efficiently through slow tortuous liquidation. It’s time to open the skies on both sides of the Atlantic. An agreement between the US and the EU will be an important step toward the future that I have just described, allowing the industry to evolve and raise. Then, it is a must that the parties reach an agreement that ends all limits on foreign ownership and control and the right establishment in the US EU aviation area.

We understand the changes coming in stages. They come torturously slowly and they come incrementally. The interim agreement between the US and the EU Commission is in our view an important first step. We believe that it contains key commercial opportunities for the industry and perhaps most significant a commitment to further talks on productive liberalization. This should boost competition and benefit carriers on both sides of the Atlantic. It may also provide a catalyst for similar changes in other parts of the world.

The beginning of next year will offer a chance to get the talks off to a fresh start. There is a lot of hard work ahead as there is for everybody in the industry but we are confident at United that the route will be productive and move us all closer to a future that rests in our collective hands. For our industry and for companies such as United making a transformation on a scale that I have described to you as you can imagine is enormously difficult and at times very frustrating. But I believe personally from the wisdom of my two-year vantage point that this is watershed moment for this industry.

I genuinely believe that we have come to an inflection point and I also genuinely believe that United finds itself right at the point of sphere. After a few of the roughest years in our history, I do believe that we have an opportunity to create fundamental change and that fundamental change is going to require leadership and it’s going to require courage, and it is going to require addressing some of the items in this business that have previously been unmentionable.

I believe the industry will succeed. I think there are signs that collectively we are all beginning to move in a better direction. Frankly, I think that we are taking some inspiration from one another. As one moves others must. As the competitive benchmark moves, we just have to move to mark against it. At United, of course, I am firm in my belief that if we realize this opportunity that we have given ourselves to redirect this company and to atone for our own self indulgences of the past we take advantage of the opportunity here in our own private pressure cooker that is not unlike that in which the industry finds itself collectively.

I think United will emerge as a viable resilient company ready to compete however tough the market place may be. That’s the airline that we have the opportunity to create, and to be fair, that’s the opportunity that the founder of United created for us. We have great good fortune. Its fundamental potential is still available to us despite some of the missteps of our recent past. I know that it is within our reach and I think that if we move together to address the challenges that I mentioned a moment ago with respect to the external environment we will create the opportunity for the reward to be truly global industry, which is what truly would make all of the hard work that we as management and our employees are undertaking worthwhile and that will be the answer to the question that one of my employees posed here a while ago -- Is this hard work all worthwhile?

I think if we all dedicate ourselves to the proposition that this is an important industry, an industry that creates wealth, that creates commerce, creates mobility and it should be dealt with on that basis and seriously as a serious business, not perceived as it is today as some type of a hobby, I think we have an opportunity to create truly global business but we’ve got to get serious about the work. I will be quite ready to answer any questions.

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