Thank you, Jim.

I am delighted to be here today, to join the long and distinguished list of CEOs who have spoken to the club in the past.

I want to add a special thanks to Peter Rollins, Boston College and the Carroll School of Management, for inviting me to join you today. 

I have just returned from ten days in Asia and at the start of the trip I had the privilege to address the Nikkei Global Management Forum on "Corporate Management Challenges New Targets."   This afternoon I will talk about many of the same issues I discussed during my remarks in Tokyo… and those are the realities of companies and economies competing in today’s global marketplace.

In Asia, where United is the leading U.S. carrier, I met with our customers, business partners, employees, government officials and airport authorities in cities in Japan, Vietnam and China; we discussed future business opportunities and celebrated new routes that add critical connections between our countries.

The dynamic business environment throughout the region: at the airports, in the cities, and in the business communities - is profoundly impressive. There is a sense of possibility that the global economy can be shaped to serve Asia’s interests… and a clear understanding of the vital role aviation plays in creating that future.

As the world gets flatter, we know that industries will continue to be transformed by technology, global mobility and communication. Globalization is unstoppable.  Mature economies, like the United States, will face increasing competition from growth economies such as China. 

The reality is that we all compete in the world as it is, not the world as it was, or the world as we might wish it to be… we will all need to evolve, adapt, reinvent -- or risk irrelevance in the global marketplace.

On too many issues of national competitiveness today -- the United States seems unable to move forward from the world as it was. 

We are still having debates on immigration, trade, education, research and development, health care – that have a familiar ring and are inadequate for the realities of the 21^st Century.

The airline industry is a good case in point.  U.S. aviation once led the world in innovation, efficiency and competitiveness. Today, we no longer lead.

In a recent column entitled "Stuck in Time, Running in Place," Tom Friedman summed it up well when he wrote…  "Flying from Zurich’s ultra-modern airport to LaGuardia . . . is like flying from the Jetsons to the Flintstones."  He added:  "we used to be the gold standard. We aren’t anymore." 

As new technology drives significant changes in aviation, we have failed to modernize our infrastructure, or our regulatory environment, to keep pace. 

The current impasse over FAA re-authorization in the United States Congress is an example of how legacy attitudes and systems can challenge our ability to address the reality of the changed global competitive marketplace. 

Mature economies and industries with legacy systems that contributed to success in the 20^th Century now confront them as impediments to growth in the 21^st Century. 

America’s air traffic control system has been in place since the 1950s - a huge network of ground-based control towers that are located largely where bonfires and electric beacons were placed in the 1920s to guide air mail pilots. 

For 30 years, America has been debating improvements to this system, with no discernable progress.  The U.S. Secretary of Transportation, Mary Peters, spoke to the point in October:

"America is fast reaching the limits of its current aviation system.  Dated systems are straining to keep pace with today's air traffic.  It is clear that to ensure freedom, convenience, and reliability, we must bring the U.S. aviation system into the 21^st Century."

A satellite-based aviation system in the United States will allow planes to fly safely, straighter, fly closer, and fly better in bad weather; reducing congestion and enabling a twelve percent reduction in fuel burn, which benefits the environment. 

The FAA predicts that the number of passengers carried by U.S. commercial air carriers is on track to hit the one billion mark by 2015.

If we do not get our collective act together to bring the infrastructure in the U.S. into the 21^st Century, it is estimated it will cost our economy some $15 billion a year in lost productivity -- going up to a projected $22 billion in 2022.

The problem, as in any mature economy or industry, is that the existing structure has established participants and beneficiaries -- each fighting for their own interests and each unwilling to accept change.  Not surprisingly, every special interest in the industry has disagreed about how to pay for new air traffic control technology, and how to implement it.

Again, Mary Peters put it best:  "This is not the time for special interests.  This is a time to appreciate the seriousness of the problem and come together on a common set of solutions."

Boston has been willing to evolve, adapt and find solutions; to make a $4 billion investment at Logan in the future connectivity and economic growth for this city and surrounding region; 400 construction projects at Logan Airport since 1994 -- including a new taxi-way and a new runway, which is difficult for any airport as land-locked as Logan.

We know that airports compete.  We know that countries compete.  We are seeing regions compete in ways unimaginable before the advent of global connectivity via the internet and all that global access to information and resources has set in motion.

Some nations are seizing opportunities and confronting challenges of significant scope and scale that will position them to compete in the future.

They understand the importance of aviation as a social, economic and business enabler and are making investments accordingly.

The numbers in China alone are staggering. Airline passenger travel in China last year was estimated at 160 million customers -- double the volume from just five years ago - and is set to become the second largest aviation market to the United States in twenty years.

Work is well under way in China to relieve congestion and convert China into a global aviation leader by completing its ambitious $17.7 billion plan to modernize its aviation system, add 49 new airports and more than 600 new aircraft, along with 700 other airport expansion projects, by the year 2010.

By 2010, more than a third of the world’s air traffic will be to, from or within Asia.

And, growth is not limited to Asia.  In the Middle East Dubai is building a new airport with the latest technology, best passenger comforts, and six runways -- all capable of landing the world’s largest new passenger aircraft -- to serve as a new global 24/7 airport. 

Dubai understands:  it is not written somewhere that inter-continental flights have to stop in Europe, just because they always have.  They can just as well stop in Dubai.

Dubai is also home to Emirates, an airline with more than $30 billion of orders for new long-range aircraft, joining Singapore, Qantas, Cathay and others as global leaders. 

As the regulatory environment changes, with advances such as Open Skies and new bi-lateral agreements, international carriers will be tied less and less to their countries of origin, including more access in and out of the United States.

In the U. S. today, we have a total of 150 certificated airlines, including six majors, five low cost carriers, and nine regional carriers.  It was the goal of deregulation back in 1978 to create a market with much more choice and better pricing options for consumers.  That ambition has more than been achieved.    Washington's desire to keep the industry fragmented, driven by domestic market concerns, has led to a resistance to the normal order of free market activity. 

In many of the industries represented in this room -- in banking, financial services, energy, media, information technology -- we have seen companies combine strengths to capture synergies and deliver global scope and scale.  Not so in the airline industry.

For U.S. network carriers that also compete internationally, this environment has been debilitating in terms of how well we can prepare ourselves to compete in the world as it is today.  As the impact of globalization is being felt around the world, competitors outside of the U.S. have begun to adjust to the new market reality. 

The first of significance was the merger of KLM and Air France some four years ago.  It is now the world’s largest international carrier by revenue.  Another is Asia’s fast-expanding Cathay Pacific acquisition of Dragonair, coupled with Cathy’s recent investment in Air China. 

In September, China Eastern Airlines announced that it had sold a 24 percent stake in its business to Singapore Airlines, which will hasten China Eastern’s evolution to a world-class carrier, pending shareholder approval in January. 

The experience of China is instructive.   China essentially moved away from state-controlled airlines in 1984.  By the mid-90s, they had more than 50 carriers.  Allowing synergies to work, by 2002, they were down to three state-run airlines, and about 10 or so private companies.

Our systems are obviously different, but China recognized the need to strengthen by combining resources.

I doubt that any of us in this room today would argue that a robust U.S. aviation industry should not be a national priority, since it drives economic activity which enables many other industries to prosper. 

Now, more than ever, competition is a choice.  As a company or country, you can choose to be competitive.  The U.S. has to decide whether it wants to be a leader in aviation and have in place an infrastructure able to drive and sustain growth in the 21^st Century.

Leadership, in any age, requires certain things.  But leadership in the global age requires one quality perhaps more than anything else:  a willingness to accept the facts as they are… It requires a resolute determination to speak to the facts, and to see the world as it is -- not the world as it was, or the world as we might wish it to be. 

At United, we have had our fair share of that experience.   Five years ago, we were a "hope-first, facts-second" company.  In other words, we replaced facts with optimism and the hope that economic recovery and industry revenue improvement would bail us out.  It did not. 

In 2002, we had to do something extraordinarily difficult for any community of people.  We had to tell one another the truth.  The truth was, we had failed.  We were bankrupt.  We finally agreed to see the world as it is… and not as we hoped it would be. 

We accepted the new market reality. 

United has made significant progress in the past five years--from a company losing more than $5 million in cash per day in 2002; to a company that completed a $23 billion restructuring in early 2006; to a company that reported a pre-tax income of nearly half a billion dollars in the third quarter, well over twice our income for the same quarter a year ago, and nearly twice that of our largest U.S. competitor for the quarter.  We also paid down $2.7 billion in total net debt since our exit from Chapter 11 and generated more than $2 billion in operating cash flow in the first nine months of this year.

These results, driven by the decisions and the work we are doing every day to fundamentally improve our company, have enabled us to look to the future and create a five-year plan that invests $4 billion in improvement in our products and in our operations to position us for success. 

Last week, we launched our new international premium cabins in first and business class – making United the only U.S. carrier to have truly lie-flat seats in business and first. We did not look to the U. S. carriers when we designed this change to our aircraft, we benchmarked against the best international products, knowing that our customers will have more options in the future. 

We don’t take anything for granted.  We know we have to earn our right to relevance in the marketplace with our customers every day -- to compete against the best the world has to offer.  We also know we need to run the airline as a business - to deliver value to our shareholders.

In an industry with a long history of value destruction, creating sustainable shareholder value is likely to be more difficult than restructuring.  Our ambition, to the benefit of all stakeholders, is to do just that.

That said, we can still be encumbered by things beyond our control -- such as the escalating and unpredictable price of fuel; and we, and the rest of the industry, are also challenged by resistance to change by those with vested interests that continue to have a profound effect on this industry; including the foot-dragging on modernization of air traffic control and outdated regulatory constraints. 

As globalization gives rise to new economic powers within the developing world, the question for those of us operating in mature economies today is whether the legacy attitudes and structures that contributed to success in the 20^th Century will be an asset or an impediment to growth in the 21^st Century?

Two hundred years ago, here in Boston, we saw how quickly the global order can be changed.  The unstoppable force in 1800 was democracy.  In 2007, it is globalization.

The lesson for all of us in government, industry, and labor is clear… 

You cannot draw a line in the sand and say you don’t want to take part in globalization:  

• Further international interdependencies are unavoidable.
• Resistance to change is unsustainable.
• Legacy issues undermine competitiveness.
• Defending them at the expense of progress will simply ensure the rest of the world passes you by.     
   

For those who understand how the world has changed: 

• Who live in the world as it is, not as it was, or as they might wish it to be;
• Who acknowledge that it will continue to change;
• And are resolved to evolve, adapt and reinvent;

The opportunities are extraordinary. 

Thank you.