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

Introduction

Thank you.

Thank you, Ed, for that kind introduction. Aviation Week has, as Ed mentioned a moment ago, certainly chosen the perfect place to host this event. On behalf of myself and my colleagues, we are delighted to be here in Shanghai—and especially glad to be here when I know that in just two weeks’ time, I will be able to get here on a direct United flight from our company’s hometown in Chicago.

The business climate for aviation in the United States is a lot tougher than it has ever been, and I know that you have been discussing that throughout the conference. So it is energizing, as Ed said a moment ago, to be in China, where United’s relationships are well-established and growing, not only in our code-sharing alliances but also in our maintenance and engineering as well.

The United of the Future

Headlines around the globe illustrate daily that this is a rapidly changing business. Companies such as United, which have played a major role in the airline industry over the years, are adjusting in dramatic ways to these changes. It’s a very challenging marketplace.

Today in the U.S., as I mentioned a moment ago, according to Goldman Sachs, we have the lowest business and leisure fares in the past twelve years – and, as everyone that watched CNN this morning knows, we have fuel well in excess of $50 barrel. When you consider the recent events of the last two years – 9-11, SARS, war in Iraq, geopolitical instability, the collapse of the dot-com bubble – many in the industry thought that perhaps the current downturn was simply extending its natural economic cycle.

But we at United think that these individual events are really just a small part of the story. We think that we are witnessing systemic change and that it is going to gain momentum over time. And it is going to be in sharp contrast to the business cycles that have characterized and perhaps even shaped the industry in the past.

The perception that this is just another cycle, we think, is mistaken. And what we are witnessing is a fundamental, customer-driven change in the value proposition for air travel.

As we all know in the room, customers are now able to choose from a wide range of airline products to reach their business or leisure destinations throughout the world. They can do so from the convenience of their homes or their offices simply by logging on to the Internet or their favorite search engines.

Last-minute fares that were once unthinkable in our business are, today, common. Consequently, airlines are making massive structural changes to respond. Recently, last week, a report from JP Morgan Chase noted that network carriers in the United States have rolled back their cost structures by 7 years, with more progress to come.

In short, the new realities are here to stay. Fuel may recede, but our customers’ willingness to pay only for what they value, and not pay for what they do not, is not going to change.

So, even the strongest companies are challenged in such an environment – but let me be clear that United, although deeply harmed by the events of 9-11, was also unprepared for the events of 9-11. Our company faced chronic problems, many of our own making:

These liabilities combined to make United a very challenged company, one that entered Chapter 11 in a competitive position that was behind our peer companies.

Since then, working hard to restructure our liabilities, we have focused on a process of identifying and leveraging very desirable strategic global assets.

In the face of both our history and the realities of today’s marketplace, we have made at United – and continue to make – tough, but we think wise, choices about what products and services we will offer today and into the future.

One of the choices that we have made has been to increase our focus on MRO, given our competitive advantages in this area – advantages based on expertise and advantages based on experience. We are building on these advantages, of expertise and experience, by adding discipline, serious discipline to constantly improve process and to lower our costs.

We are able at United to make these choices because we have been single-minded in our restructuring process in focusing on the preservation of our options. Rather than being expedient and yielding to pressure to make choices addressing the short term needs of various constituencies to the company, we have kept our eye on maintaining the flexibility needed to make United a strong and resilient company for the future – one able to withstand the inevitable volatility and the pressures of the global marketplace.

Last week the company took a significant step toward creating the United of the future by announcing a substantial acceleration of our fleet optimization plan. This plan brings us to a new level as a global carrier, further expanding and strengthening our international route structure.

We have already added thirty-one new international routes and flight frequencies since February 2002. Thirty-one, during the course of the restructuring. Building on that progress, last week’s announcement will increase international available seat miles by an additional fourteen percent. Once these changes take full effect, United’s international routes will account for more than fifty percent of our total revenue.

At the same time, we are reducing the size of our mainline flying in the U.S. and lowering our costs even further. When this phase of fleet optimization at United is complete, we will be flying 455 aircraft domestically and internationally.

These actions are components in a broader, ongoing strategy for the company. And let me briefly address that larger picture.

Our strategy at United has four parts:

First, I would like to talk for just a moment about our worldwide product portfolio and network.

Despite its legacy challenges, United has one of the strongest global networks anywhere. Thanks to our strong hubs, our vast international route structure, our United Express product for smaller U.S. communities and our low-cost carrier, Ted, a passenger in an American town of, say, 100,000 people can step onto a regional jet at an airport close to his or her home, fly to a hub such as SFO, San Francisco, and make his or her way non-stop to Shanghai. A passenger from Shanghai can reach that small 100,000-person town in the U.S. just as easily.

When you add the global connectivity provided by our Star Alliance partners, United’s products and worldwide route network give us the flexibility to put the right product in the right market, at the right time, at the right price.

Secondly, we have improved our cost structure dramatically. To those that are new to the industry such as myself, dramatically is an understatement. We are creating cost discipline and we are on track at United to achieve $5 billion in annual cost improvements by next year, and, due to the current pressures of the fuel environment, we are targeting an additional $1 billion of cost savings thereafter.

Third, United is determined to lead the industry, as Ed mentioned a moment ago, despite the restructuring, in operational excellence. Our employees have performed, as Ed said, at record-breaking levels despite some of the most difficult and potentially distracting conditions in the industry’s and the company’s history. We at United think this is happening because of a changing culture at the company.

And what do I mean by that? How are we changing the culture of a company, from a company that previously looked inward, to a company that now looks to performance, as the solution to the challenges? One example is our new quarterly Success Sharing program: rewarding employees for meeting operational, customer-satisfaction and, ultimately, financial goals. Operational goals, customer satisfaction goals, on a quarterly basis, financial goals on an annual basis. Every employee in the company has the opportunity to participate, and those internationally have the opportunity to participate in modified programs as we develop them —from the aircraft maintenance technician to myself to our crew in the cockpit to those on board and to those on the concourse — and when the company delivers strong against the targets that we set for ourselves quarterly, everyone enjoys the benefit.

We are focusing on customer service and customer investment. United has always been, despite its challenges, a great brand, which is something that we, despite the restructuring, do not take for granted.

Chapter 11, our reorganization and restructuring, for all of its many challenges and all of its complexities, does not give us an exemption from running a great airline for our customers. Our customers expect us to do whatever it is that we need to do to get this company back on track; they don’t expect to hear about the restructuring as if it is their responsibility. Because in fact, it is not. It is not their problem, it is not their responsibility. It is ours.

What our customers do want from United is high-quality service, and no excuses. In the U.S., United has the best on-time arrival performance among the majors. Our load factors are among the highest in the business — nearly 84 percent in August — and we are leading the U.S. majors operationally for the third consecutive quarter.

We are also continuing to innovate, despite the reorganization. This year, we launched Ted, our low-fare carrier in the United States, a business that has as many aircraft as many of the low-fare carriers in the United States themselves, peaking at probably about 45 aircraft for this year, all Airbus A320’s. And the customer response has been tremendous. Soon, we are going to roll out our new product: a premium Boeing 757 product we call PS, which stands for premium service, a transcontinental product from New York, Los Angeles, and San Francisco, with lie-flat beds in First Class and an international level of service on all three classes on the reconfigured 757. This, despite the revenue environment that I described to you a moment ago, and the incursion of low-cost competition in the U.S. Right product, right place, right time, right value.

Our innovation also extends beyond serving our passengers to identifying what we at United do well in this industry, identifying areas such as the specialized services of MRO. United Services, our maintenance and engineering division, continues to provide great service to us at United while expanding its market share worldwide.

At United Services, we are building on our long-term strengths in MRO through our LEAN program, which is based on, as you in the room know, the Toyota Production System. Our goal is to eliminate any activity that uses time, resources or space and does not add value to our customers. Standardizing processes, increasing the velocity of the operation, eliminating defects and improving first-time quality are becoming core to the culture and how we run the business at United Services.

When customers in China or elsewhere turn to United Services turn to United Services for MRO, it's because of the experience, it’s because of the technical expertise, which are inarguable, it’s because of quality, and emphasis on safety. But it is also because we are now thinking in the context of continuous improvement, and we are thinking of one goal for all of us at United and United Services. It’s not the responsibility of our customers to worry about our focus, whether it be on reorganization or productivity and quality. It’s our responsibility, just as it is to our passengers, and we understand that.

Going Forward in China

That focus affords the company a major opportunity in this country and in this region — to be the go-to carrier and the go-to provider of specialized services. United and United Services are working hard to make good on that opportunity, to add value for our Chinese and Asian customers — because we understand that if we do not, somebody else certainly will. The growing importance of this market is hardly a commercial or a trade secret. Everyone in the world knows of the incredible growth of China’s economy. And everyone in the world of aviation knows about the dramatic expansion of air traffic here.

United has been part of that growth for 18 years: this is nothing new to the company; we entered China in 1986. Today, my colleagues and I at United are proud to be the largest carrier to China, and the only U.S. airline to offer non-stop service to the mainland.

United will continue to expand its global network throughout the Asia-Pacific region. We are the first U.S. carrier to offer direct service to Ho Chi Minh City, Vietnam in almost 30 years. It’s a very exciting event for us. And our code-sharing and frequent-flier partnership with Air China reaches 7 cities in China and 17 cities across the United States, cities from which hundreds of additional destinations can then be reached.

MRO Partnerships

Speaking of MRO, and your conference, a partnership may begin, formally speaking, with an agreement on a piece of paper, but that, in itself, is no guarantee that a relationship will follow that will be strong or enduring. We all know that that takes work. That takes hard work. It takes responsiveness, and an understanding, of the changing needs of the marketplace and customers. That is what led us to launch United Services almost ten years ago. It allows us at United to offer our world-class capabilities in MRO to improve other airlines’ operations and help them lower their costs, and help their productivity and efficiency as well.

As Greg Hall, who is with us today, our senior vice president of maintenance and engineering, will attest, and I know he did yesterday, we are putting greater emphasis on United Services at the company, at UAL, than ever before. We have reoriented our San Francisco Maintenance Center toward MRO work. Our MRO relationships in Asia are encouraging and growing. We have 27 customers on this continent, two profitable joint-venture partnerships based in Hong Kong—one for line maintenance and the other for ground handling contracts.

As those of you in the audience know, the Asian MRO market is projected to exceed $12 billion in the next decade; and with 2,400 new aircraft deliveries expected here in China over the next 20 years, the opportunity for us — and, we hope, for our customers — is enormous. United is working hard to build on these relationships and to deliver innovative, cost-efficient support for our customers’ airline operations.

Conclusion

We have no doubt at our company that we have more hard work to do to meet the needs of all of our customers – from passengers to those shipping cargo on United aircraft to those coming to the company for MRO services. It is our goal to win intense customer loyalty by executing well and delivering compelling value – as I said a moment ago, the products that customers want at the prices they want to pay, at fair value.

We start from a strong base of experience and a well-established presence in China. But as I said also a moment ago, we know, without doubt, that that does not guarantee success. We know that having been around for a while does not, in itself, entitle you to stay around for a while longer. We at United expect to earn the right to be around for many, many years to come.

And with that, I’d be glad to answer any questions.

Thanks very much.