UALs Tilton clear for takeoff on

Tilton clear for takeoff on deals
With new trade rules, United CEO is set to do what he does best.

After three stormy years at United Airlines, the clouds may be parting for Glenn Tilton.
Mr. Tilton, a former oil executive, arrived at United just before the company sought bankruptcy protection in 2002. Now, United is set to exit Chapter 11 just as the airline industry appears primed for consolidation both at home and abroad. That would suit Mr. Tilton, a skilled and experienced dealmaker who helped oversee Texaco Inc.'s $35-billion merger with Chevron Corp. in 2001.

Speaking late last month before the UK Aviation Club in London, Mr. Tilton signaled that United would be a willing player as air carriers embark on a global round of mergers and acquisitions.

"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," he said. "Nor are we in denial about what needs to be done in the future to remain viable and competitive."

Mr. Tilton's associates say he has been determined from the outset to get the company out of bankruptcy and to eliminate regulatory restrictions — like barriers to foreign investment — that have made it difficult for airlines to respond to market pressures.

Both of those things should happen next year, when the restructured United should reap the benefits of an "Open Skies" trade agreement that would permit foreign investment in U.S. airlines and allow U.S. carriers to fly routes within Europe. Mr. Tilton has made clear his intention to pursue new overseas routes and deeper alliances with foreign partners.

"We would like to fly to a lot of points in Europe," says Mark Anderson, United's top lobbyist in Washington, D.C. "Collaboration in making deals: That's an important part of (trade) liberalization."

The trade compromise, which still must be formally approved by the U.S. government and European Union, is expected to take effect during the second half of 2006, although experts say there's still a chance the deal could collapse.

Lowering the trade barriers would encourage U.S. carriers to join in a consolidation that has already begun in Europe with the mergers of Air France and KLM Royal Dutch Airlines, and Lufthansa A.G. and Swiss International Air Lines.

United Airlines CEO Glenn Tilton has plenty of experience in consolidation and strategic deal-making.

Deal: Texaco-Chevron merger
Size: $35 billion
Tilton's role: Planned, executed deal as senior vice-president and later chairman and CEO of Texaco

Deal: Divesting Texaco's stake in two refining joint ventures
Size: $3.8 billion
Tilton's role: Helped create the companies in 1998; negotiated their sale as a condition of the Chevron merger

Deal: Lincoln National Corp. acquires Jefferson-Pilot Corp.
Size: $7.5 billion
Tilton's role: Director of Lincoln National
The new United should fare well in that environment. With its lower cost structure, the Elk Grove Township-based carrier will be able to undercut Europe's dominant airlines on fares. And it should have an edge at home, as competitors like Delta Air Lines Inc. and Northwest Airlines Corp. slog through bankruptcy.

United is poised to buy, with Delta or Continental Airlines the likeliest targets. Continental Chief Financial Officer Jeff Misner said at a conference last week his airline would mull a United deal if it offered a "bucket of dough," according to Bloomberg News.

"If they've truly restructured their costs, they're going to be able to do whatever they want," Bay Area aviation analyst Alan Sbarra says of United. "They're going to be in a powerful position."

Even so, United will be heavily leveraged and in need of capital to upgrade its fleet to compete overseas. It will exit bankruptcy with a thin sliver of equity: $2.77 billion vs. its total $17.42-billion debt load, the company says.

"To sustain that model, they will need increased international capital," says Brian Havel, director of DePaul University's International Aviation Law Institute.

Relaxed foreign ownership restrictions would make it easier for United to pursue either a merger with Star Alliance partner Lufthansa, or an equity infusion to shore up its balance sheet and buy up assets when weaker domestic foes collapse.

United officials won't comment on such prospects. Still, Mr. Tilton is in familiar territory. In his 32 years at Texaco, he learned how to maneuver through the rapidly consolidating oil industry.

"Glenn's got good instincts and good sense," says Chris Gidez, who headed Texaco's communications from 2000 to 2002. "He can read the tea leaves pretty well."

From the outset at United, Mr. Tilton determined to challenge aviation's idiosyncratic rules — like restrictions on foreign investment — that stifle consolidation.

"He's better able to recognize some of the dysfunction" that aviation insiders view as normal, says Michael Whitaker, United's vice-president for alliances, international and regulatory affairs.

Responds Mr. Tilton, by e-mail: "I think Mike has it right — and my vantage point from past industry experience has been helpful in recognizing that market distortion is ultimately damaging to competition."

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