Focus on Five - A Special Report
Glenn Tilton has become a danger to this airline.
Glenn Tilton, the CEO and President of United Airlines, is increasingly showing his weakness and inability as an airline manager. Moreover, since his election as chairman (not the head) of the Air Transport Association of America (ATA), he has used his position to lobby (the ATA is a lobbying organization) for changes in aviation legislation that do not benefit the United Airlines franchise or its employees. This, in addition to his lack of prior airline experience, makes him a danger to the survival of United Airlines.
Stock Value
No matter how it is measured, stock performance under Tilton has been dismal. Whether it is measured from bankruptcy exit in 2006 or from the beginning of 2008, United's stock has lost more than 88 percent of its value (unadjusted for dividends). The other airlines all operated in similar economic environments and under the same economic conditions. What was the difference? Glenn Tilton.
*DAL price from its bankruptcy exit 5/3/2007
Financial Failures
It is no secret: United Airlines is burning its furniture to keep warm. But how much furniture is left? Tilton still has not proposed any plan for United other than living for the day. He focused all his energy, and United’s assets, on a merger. In this, too, he was unsuccessful. The latest plan for keeping United airborne is the sale/leaseback of United’s own aircraft. In 2008, United sold, then leased back, 24 aircraft. Nine of those aircraft leases expire in 2010. These are in addition to the 94 B-737s and 6 B-747s which may be removed permanently by year’s end. How much value has United lost during the last year? 
(Delta is not charted since it gained in asset value by nearly 66 percent due mostly to its merger with Northwest Airlines.)
Now, under the guise of taking advantage of current economic opportunities, he puts out a Request for Proposals for new aircraft. Analysts saw this RFP for what it really was -- merely a “scheme,” and UAUA stock lost an additional 24%. United is burdened by steady and heavy debt maturities even without any new aircraft orders.
Not only has United shrunk its assets, its ratio of cash to total assets is dangerously low. In other words, it is disposing of its assets without a corresponding increase in its cash position, unlike Southwest. Today’s economic environment requires that an airline generate strong operating results and free cash flow. United’s assets and cash position are both diminishing. Where are they going?
You can put a blond dye job on United’s numbers, but they still aren’t pretty. Who’s responsible? Glenn Tilton. 
Misuse of Cash
Speaking of cash, where has it gone? At the beginning of 2008, United had $4.3 billion in cash. By the end of 2008, that cash had dwindled to $2.3 billion. Everyone knows of the misspent $500 million to pay down debt, only to reborrow it at a higher rate ...and of the $250 million dividend ... and of the lost $1.1 billion in fuel hedging mistakes. Don’t forget, employing one of the highest paid airline CEOs for the worst performing airline isn't cheap, either.
Let’s also note United spent more than $1.1 million on lobbying efforts over the last two quarters, using United cash (not voluntary contributions as do other Political Action Committees) to effect changes in laws that will allow United to invest in virtual mergers and foreign airlines rather than strengthening its core business and creating U.S. jobs.
Tilton claims that the airlines are always on the front line facing a different challenge each week. Competent airline managements build flexibility and resilience into their business plans. Tilton has done neither. United entered bankruptcy after 9/11; American Airlines did not, yet both were equally impacted. Other airlines are weathering the current economic storm. United's debt has been downgraded to “vulnerable to default.” Tilton's only management tools are bankruptcy and changing laws to allow United to invest in foreign airlines and virtual mergers.
Studying these numbers and facts, is Glenn Tilton a good investment for United Airlines?
Worst Company in America
The American Customer Satisfaction Index (ACSI) rates more than 200 companies in 43 industries and 10 economic sectors. It recently rated United Airlines next to last of every rated company in the U.S., not just last among airlines, but among every rated company in the U.S. Furthermore, United has not shown any improvement over the previous year’s performance. United tried to shrug this off with its “Tale of Two Surveys” NewsReal written on May 20. In it, United reported that it regularly surveys its first and business class passengers who indicated that United has improved over last year. Then again, United has seen a decline in both numbers and percentages of premium class passengers over the last few years. In fact, its new United First Suite and full lie-flat seats in Business Class reduce its premium seat count by 20 percent. In other words, at best, United’s surveys show fewer people like United more. And as United admits in its NewsReal, “ACSI shows the general perception among consumers overall, whether they are frequent flyers with us or not.” Perception is reality. What’s the difference between United Airlines and all the higher rated companies in America? Glenn Tilton.
The Real Danger
Instead of working to improve United's performance as an airline, Tilton is using United's cash reserves and his position as chairman of the ATA in an attempt to change the law to make it easier for United to own a virtual company with no equipment and no employees. While this effort may make millions of dollars for United (and an extra bonus for him), it comes at the employees’ expense.
Tilton complains of the government’s plans for the creation of a high-speed rail system. A true visionary leader would embrace these plans and find ways to take advantage of the new opportunities these plans will create.
More importantly, Tilton has been advocating legislative changes that will enable United to manage “itself as a true global business . . . able to leverage costs and services.” The U.S. airline industry produces more than one-third of the entire world’s airline revenues. The changes Tilton is seeking will not increase the revenues for U.S. carriers as much as these changes will increase revenues for foreign carriers. In a speech to the European Aviation Club last month, Tilton stated, “We are already seeing the benefits of open skies with Europe, enabling new routes and creative solutions to enter new markets. At United we are looking at every opportunity to strengthen our company, such as our proposed joint venture with Aer Lingus. The proposed new route from Dulles to Madrid would not be economically viable for us on our own, but with Open Skies, an expanded partnership with Aer Lingus becomes possible. ... The regulatory complexity and constraints prevent us from attracting foreign capital or investing in non-U.S. airlines, opportunities available to other global industries.”
Tilton has been shrinking United systematically since his becoming CEO. Testifying before Congress in 2004, Tilton addressed the scope provisions the pilots lost in bankruptcy by stating, “They also agreed to unprecedented work rule and scope changes that allow United the flexibility in workforce and product portfolio that we need to be competitive. We now have the code share authority we need to partner with other carriers where United lacks network coverage. We can deploy regional jets wherever it makes sense for our business and for our connecting passengers. We have gained the authority to use marketplace flexibility to United’s competitive advantage.” Such "competitive advantage" has resulted in a smaller airline with consistent losses in revenues, profits and shareholder value.
Whether one is a shareholder, a passenger or an employee, Glenn Tilton’s relentless assault on this airline is obvious. Unfortunately, much of the damage he’s inflicted is irreparable.
Harry S. Truman once said, “The buck stops here.” Glenn Tilton could easily adopt the slogan, “The buck stops anywhere but here.” Until United's Board of Directors recognizes what the shareholders, passengers and employees have known for far too long – that Glenn Tilton is the problem, not the solution – the future of United Airlines is in danger.
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