The business of international aviation has been subject to pervasive governmental constraints since the onset of popular commercial flight.  Nations have insisted that their airlines remain closely owned and controlled, and that international bilateral agreements specify where, when, and how airlines operate. 

Despite efforts over the last decade to loosen international commercial and operating restrictions, the aviation sector today remains constrained by much of the same regulation enacted fifty years ago. 

That said, I am particularly pleased to be here at a time when we have witnessed two important developments in this previously inert regulatory environment.

The European Commission and U.S. negotiators have agreed on the text of a new bilateral transatlantic open market aviation agreement and the U.S. Department of Transportation has proposed a new policy to relax tight restrictions on foreign control of U.S. airlines. Together, these events may signal a new direction for international aviation policy - one that ultimately could free airlines to compete like other international businesses such as Telecommunications, Financial Services or Energy.

Today, I will talk about some of the issues and the opportunities facing this industry, and I also want to talk about United, and our experience of the past three years as we fundamentally restructured the company so that we could "earn the right" to compete in the international marketplace.

Three years ago, my company was losing $3 billion a year, $5-6 million a day going out in cash.

Our cost structure was the highest, or among the highest, in the U.S. industry across all segments of the business. Our collective bargaining agreements were uncompetitive with the realities of the marketplace.  We had unsustainable legacy benefit obligations. United, and the other U.S. network carriers, had been unwilling or unable to deal with years of bad decisions.

The industry had been building business plans on some hoped for industry recovery rather than the reality of the market and the work that needed to be done by the companies themselves and agreeing to higher and higher wages and benefits, knowing they were unsustainable.

At the same time, the U.S. regulatory environment consistently blocked any attempts by the airlines to consolidate constructively as in other industries. In fact, in 2001, just before my arrival at United, the proposed merger with U.S. Airways was denied because U.S. regulators thought it would reduce competition or service.

The U.S. market today remains regulated. The rejection of the United-US Airways merger -- two very weak carriers at the time -- represents an outdated view of competition suitable only for a regulated industry. The focus of our regulatory bodies has been to keep the industry fragmented and encourage the maximum number of competitors in domestic markets - failing to recognize the global nature of our business.

U.S. network carriers have also failed to respond to the competitive realities. The entry of the low cost carriers and their ever increasing market share; and price transparency via the internet; both of which combined to force fares in the U.S. down some 50% lower than they were 25 years ago when adjusted for inflation.

Three years ago, United started on a path of confronting the issues that stood between us, our ability to attract financing, and ultimately, to be a company with a future.

United's restructuring while in Chapter 11 has been a different experience than some here today might imagine, especially if you had listened to the recent speakers at the Aviation Club, who apparently imagined themselves as experts on the subject.

The opportunity to restructure a company in Chapter 11 is available to every industry in the U.S.

This is not an airline phenomenon

In fact, far from being a "safe harbor" providing protection from competition, the facts tell a different story.  Out of the 166 airline bankruptcy filings since 1978, only 2 passenger and 1 cargo carrier have successfully restructured and exited as successful businesses. Of the 15 largest U.S. carriers in 1980, only 5 survive today, and 2 of those just entered Chapter 11, their futures uncertain. That is in contrast with Europe , where 11 of the 15 largest carriers operating in 1980 are flying today.

There is no "free ride" in Chapter 11 and it has proven to be a very effective tool for enabling market exit.

In contrast, carriers in the EU have the opportunity for repeated infusions of state aid with no meaningful, market-tested plan for restructuring.

All Chapter 11 does is provide the "opportunity" for a company to restructure.

The work is complicated, it is distracting and costly the cost to United in legal fees alone as of last June was over $260 million. A company in Chapter 11 operates in a completely different environment, with court and creditors taking center stage.

The task is to prove that if the enterprise is worth more to creditors as a going concern than would be where the assets sold at auction.

Customers, corporate customers included, are concerned about the future. The ongoing press coverage of the very public activities and negotiations through the court process, give competitors opportunities to further their interests.

That United has come this far in a large and complex restructuring is due for the most part to decisions we made at the outset. We decided we would keep the work of restructuring on a separate track to the work of running a better airline and increasing our focus on our customers, who previously had been undeniably neglected.

Both tracks were critical. Our customers had choices and would not tolerate our restructuring at their expense.

Chapter 11 allows for rejection and renegotiation contracts to current market levels... this is both an opportunity and a challenge for the company in Chapter 11. Such contracts include:

Aircraft leases, business and vendor contracts, airports, real estate and Labor agreements -- which must be renegotiated against the backdrop of the court's standard of fair and equitable for imposing new terms.

Relationships with every business partner, all key constituent groups, particularly employees and union leadership, are, to say the least, put to the test.

Most have become creditors, looking for restitution of monies owed, while negotiating forward looking contracts at terms less advantageous to them. There are thousands of such relationships and contracts that must be recast and managed in the short term.

By reaching a balance across the interests of three key stakeholders - our customers, employees and creditors, soon to be shareholders - we have constructed a solid competitive platform for United.

We lowered unit costs, excluding fuel, by 20 percent which, combined with reducing the size of the airline, will result in $7 billion in average annual cost savings through 2010.

We have increased productivity by 27 percent  eliminating duplication, waste and inefficiencies with much more to do. Twice in three years, we worked with our labor groups to reach consensual agreements to bring wages and benefits in-line with market reality.

We confronted the fact that United could no longer afford its legacy pension obligations.

We overhauled our governance structure and leadership team.

Fleet costs were renegotiated to achieve unprecedented savings - of some $850 million annually.

And contracts with our United Express partners are now among the most competitive in the industry.

Turning to the second, and separate track of work: Improving the day-to-day operations of the airline and refocusing on our customers -- this was the work of the vast majority of the company, the work that improves the customer experience and the efficiencies of the operations, reducing costs and enhancing revenues.

We have made decisions starting with our customers in mind... providing products and service they want and value, at prices they are willing to pay. Our relationships with our STAR alliance partners, including bmi here in the U.K. are an important part of how we differentiate United from our U.S. competitors.

We have strengthened United's domestic network and global connectivity because that connectivity is highly valued by our worldwide customers.

Today we serve more cities worldwide and fly more domestic routes than we did in 2002.  We reduced capacity in the U.S. and on international routes that no longer represented the best use of aircraft.

There is another popular myth about Chapter 11, that it encourages airlines to "dump" excess capacity on the Atlantic routes. To the contrary, since November 2002 when we filed for Chapter 11, United has reduced flights to Europe by 8 percent, compared to Continental's growth of 30 percent.

The business traveler has always been at the heart of United and we want to provide the travel experience they expect.  We realize that our international product can and should be much better.  The work we have begun domestically gives a clear indication of the direction for the future of our international service.

In the U.S. , United has created differentiated products to meet changing customer demand, knowing that even the same customer wants different products at different times. We have maintained our United First, United Business, and Economy Plus service while some of our competitors have been squeezing more seats into their aircraft.

Other U.S. carriers provide a commodity product that meets the barest minimum of customer expectations apparently believing every element of their business is only about cost.

Against that backdrop of price reduction and degradation of service in the U.S. , we created p.s., our premium service transcontinental flights between New York and Los Angeles or San Francisco , because certain transcon customers were prepared to pay a premium for special service and a lie flat bed.  p.s. has exceeded our expectations.

We also introduced Explus, new Embraer 70-seat jets with First Class and Economy Plus, across United Express to better accommodate higher-yield passengers. These planes serve hundreds of regional U.S. destinations from our five major hubs, and have redefined the Regional Jet experience in America .  

We are not just competing for the business traveler, all our passengers and their travel demands are important to us and to the sustainability of our network.  We provide a different experience that meets their expectation and price point.

We created Ted, to serve our leisure destinations for more price sensitive travelers to places like Las Vegas , Ft. Lauderdale , Puerta Vallarta and other vacation spots in North America .  Ted is a success story for our customers and our employees and is profitable for United.  So much so, that we are expanding Ted to 56 aircraft this year  all A320s -- a 20 percent increase.

We are now competing successfully with Low Cost Carriers in all five of our U.S. hubs.

In Denver across the 8 Ted destinations, United had a 34 percent share of market versus 33 percent for Frontier before we launched Ted. We now have 57 percent on the same routes and Frontier has a 20 percent share.

We have been competing with the LCCs since 1980. Unlike many markets in Europe , in the U.S. the LCCs fly right into the major city airports such as Chicago , San Francisco , New York or Dulles. We compete head to head with them in 80 percent of our markets.

And, we now have a cost structure that allows us to compete. Today, we have a portfolio of products and the flexibility to deploy a regional jet, Ted or a mainline aircraft to any market that we serve, as that market and customer demand dictates.

We have preserved jobs for our 55,000 employees, soon to be joined by 500 recalled pilots and 2,100 new flight attendants by the end of next year. More than 17,000 people applied via the web site in two and a half days, which is a remarkable comment on how far United has come.

We are here today and will exit Chapter 11 in February 2006 because we were not in denial three years ago about what needed to be done to fix our company, nor are we in denial about what needs to be done in the future to remain viable and competitive.

At United today, in contrast to United in the past, we face facts.

We call the question and we follow through on tough decisions regardless of how unpopular they may be. We are a stronger company today than we ever could have been without this experience.

On the basis of the work done to date and United's future potential, we have secured $3 billion in all debt exit financing from JPMorgan and Citigroup, on terms that are good even for my old business.

We will continue to balance the interests of our employees, customers and investors in every decision we make at United.

The U.S. is no longer leading the global aviation industry. Nor have we been playing a meaningful role in the transformation taking place among our international competitors. U.S. carriers must confront the challenges they can and should resolve themselves. And include United in that statement.

There is also substantial work that must be done on the U.S. regulatory front in order to compete in today's global marketplace. The recent proposal by the U.S. DOT would allow foreign investors in U.S. airlines to effectively control the bulk of the airline's commercial operations (except for safety, security, and national defense aspects) -- as long as statutory caps on foreign ownership of U.S. carrier voting stock were met, and as long as U.S. investors have the equivalent, reciprocal, rights to control foreign airlines. The proposal, if it becomes final, offers new incentives for cross-border airline investment.

Simply said, anything that distorts the marketplace should be removed -- and that includes distortions that affect or benefit United.

Regulation is the biggest form of government subsidy, and nowhere is that more apparent today than at Heathrow, where BA's protected transatlantic services provide 70 percent of its profits.

The negotiation of a comprehensive air services agreement between the U.S. and all of Europe , promises to create the basis for a whole new global template for international aviation.

By incorporating U.S. "open skies" deregulatory principles, and going beyond them in some respects, the new agreement, if ratified, will immediately lift most regulatory constraints on the world's largest international aviation market.

Each of these two milestones is meaningful in its own right. Together, they can be seen as points setting a course that ultimately leads to dismantling the unique overlay of sector-specific regulation, and treating international aviation as just another multinational business as it should be treated.

From a commercial perspective, achieving that objective is essential for the industry to prosper over the longer term in the global marketplace.

Loosening constraints on international aviation will shake the old regulatory regime in which change has historically come slowly, if at all. These potential changes promise a new and most welcome direction for international aviation, and deserve, in my view, the enthusiastic support of airlines and passengers alike.

Thank you.