United Expects Friday To Be The Day

[gkrangers]

So did they come out yet ?

 

[Mugs]

One other thing regarding G4G5's theory about the timing of the exit in relation to the stock price now vs. a few months from now. As I understand it, Tilton, Brace, etc. are not getting all that stock at once. In fact, I believe it comes over the course of at least 2 years so there is some incentive for them not to cash out and leave. Instead, it is in their best interest to stick around and properly run the company. I think G4G5's speculation about a February exit based on it being best for Tilton, Brace, etc. holds no merit. If they got the stock all at once, then perhaps that argument could hold water.

 

[Mugs]

That's sort of correct. I was long gone before ACA became Indy. Last 10 years is ACA, AWAC, Pt. 91. I just hate seeing my friends getting jerked around in a bunch totally unnecessary ego battles between UAL and ACA management. Lots of lost jobs and careers over nothing. Ever been to one of the corporate meetings where this stuff is worked out or just heard rumors? They can both share the blame as far as I'm concerned.

I would not say lost jobs and careers over nothing. The rapid failure of FlyI proved that the cuts and performance based operation UAL was originally seeking from ACA were absolutely necessary given the changed industry environment. ACA's competition, like it or not, understood what ACA refused to acknowledge. When you work for any company that takes this position in a rapidly changing environment and instead initiates a high risk venture, jobs and careers get lost for those reasons.

 

[WhiteCloud]

The rapid failure of FlyI proved that the cuts and performance based operation UAL was originally seeking from ACA were absolutely necessary given the changed industry environment.

Sure.......but UAL and ACA should have acted like adults and worked something reasonable out.....they were supposed to be business "partners".

 

[Andy]

Sure.......but UAL and ACA should have acted like adults and worked something reasonable out.....they were supposed to be business "partners".

I agree completely.

For your FLYi buddies, I must say that I was very impressed with the quality of service that they provided to the passengers. FLYi garnered rave reviews from a lot of their customers. It's a pity that UAL management couldn't find a way to motivate their employees and express partners to deliver that level of service.

 

[G4G5]

One other thing regarding G4G5's theory about the timing of the exit in relation to the stock price now vs. a few months from now. As I understand it, Tilton, Brace, etc. are not getting all that stock at once. In fact, I believe it comes over the course of at least 2 years so there is some incentive for them not to cash out and leave. Instead, it is in their best interest to stick around and properly run the company. I think G4G5's speculation about a February exit based on it being best for Tilton, Brace, etc. holds no merit. If they got the stock all at once, then perhaps that argument could hold water.

"The vesting period of the pay plan is also remarkably short, Foley said. According to the court filings, 20 percent of the stock grants will vest after six months, another 20 percent after one year and then 20 percent in each of the following three years"

This is a great article and explains exactly what I have been trying to say.

http://www.iht.com/articles/2006/01/15/business/bankruptcy.php



When are those profits reported? About 6 months from now?

You could not pick a better time. 6 months from now he gets 20% 18 months from now he gets 60%. Which just happens to equate to 2 complete summer reporting seasons. Not bad. My guess is he could live comfortably on that.

"Glenn Tilton, UAL's chief executive, will receive a base salary of $605,625 and a target bonus equal to that amount, the filings state. This is on top of the $4.5 million he has received in benefits as part of a pension agreement and a $3 million signing bonus. Then there are retention payments of $1.39 million earmarked for seven top executives, excluding Tilton. UAL will also pay club dues of $16,520 for two executives.

But it is the plan's stock compensation component that Brian Foley, an executive pay specialist in White Plains, New York, finds so remarkable. Not only is it rich, it is immediate. Tilton, for example, is in line to receive 822,000 options, valued at around $9 each, and 545,000 restricted shares, estimated to be worth $15 each. Other UAL executives are due for similar awards"


822,000 x 20% = 164,400 shares.
$15-$9= $6 The amount he will receive if the stock DOES NOT GO UP ONE CENT, based upon his strike price.

That equates to almost a million dollar payout in just 6 months, if the stock does nothing. What happens after he reports a 3Q profit after nice summer? If the stock sees $20 (where CAL and AMR are around) His 20% is over $1.8 million.

Still think my point is off base? He could leave in 6 months with an employment package and stock options valued North of $2 million. Leave, take credit for a UAL turn around and leave then next guy with the next 3 quaters of horible earnings with a business plan based on the price of oil being $10-15 lower then what it is.

 

[Andy]

G4G5, Glenn Tilton was the Vice Chairman of Chevron. In 2004, the Vice Chairman of Chevron (Peter Robertson) earned $2,774,763 in cash compensation (that does not include his stock options). In 2004, Tilton earned $1,159,616 in cash compensation; his options were worthless.
Here are a couple of links:
http://www.forbes.com/finance/mktguideapps/personinfo/FromPersonIdPersonTearsheet.jhtml?passedPersonId=267642
http://www.forbes.com/finance/mktguideapps/personinfo/FromPersonIdPersonTearsheet.jhtml?passedPersonId=137723

Did you note that Robertson's stock options were worth in excess of $11 mil? That's the job that Tilton walked away from to take on the job of CEO at UAL; a company that was expected to liquidate.
As for the $4.5 mil that Tilton received in pension guarantees to come to UAL, that was to compensate him for the lost pension at Chevron.

Where I think that you are making a mistake about Tilton is that you assume it's all for the money. If it was all for the money, he would have done far better over the last 3 1/2 years to stay at Chevron.
At that level, many high level execs are more driven by the challenge than by money. I think that the ego factor is more important than the dollars to Tilton. He knew that if he did not turn around UAL, he was done in the corporate world. He had enough of a nest egg to be able to walk away a wealthy man from his earnings at Texaco (and Chevron, which bought out Texaco in 2001).

You are also assuming that Tilton came in to turn around the company and then will walk away. I had thought the same thing, but after looking at his resume, I suspect that he'll stay with UAL for the rest of his career. The man started at Texaco in 1970; when he left ChevronTexaco in 2002, he had spent 32 years with the same employer.
Your hint that he'll probably walk in 6 months is IMHO wrong.
BTW, you may want to recalculate Tilton's stock options and restricted shares. UAUAV.PK was trading for $43 on Friday.
http://finance.yahoo.com/q?s=UAUAV.PK
http://money.cnn.com/quote/quote.html?symb=UAUAV
While that is disgustingly high compensation, how much do you think that he deserves for walking away from a much higher paying job to try to save UAL?

As for your comment that UAL's business plan is based on $50 oil, I'd just like to point out that UAL's PUBLIC plan was for $50 oil. I think that a guy who has worked for an oil company for more than 30 years has a better grasp on the future direction of oil than you or I. I also think that UAL's private oil forecasts are for oil at a higher price than $50.

 

[G4G5]

Andy,

You need to do a bit of research. Tilton was NEVER, NEVER, NEVER, ever going to be CEO of Chevron.

Tilton was CEO of Texaco, when Chevron bought Texaco. David O'Rilley the Chevron CEO, who is the same age as Tilton, was made the CEO and Tilton was basicly handed his walking papers.

He had nothing else. Do the research.

 

[Andy]

Andy,

You need to do a bit of research. Tilton was NEVER, NEVER, NEVER, ever going to be CEO of Chevron.

Tilton was CEO of Texaco, when Chevron bought Texaco. David O'Rilley the Chevron CEO, who is the same age as Tilton, was made the CEO and Tilton was basicly handed his walking papers.

He had nothing else. Do the research.

Tilton was Vice Chair of Chevron for a year after the merger. As with all mergers, there can only be one CEO. Do you have any written proof that Tilton would never become CEO? While I agree it was not likely for Tilton to become CEO of Chevron, you are making assertions without any evidence.
You also forget that Tilton, as CEO of Texaco, had quite a bit of say in the merge. If Tilton was to be shown the door, he would have been given his golden parachute upon completion of the merger. He was not; he stayed at the merged company.

Have you got anything written that supports your premise that Tilton was handed his walking papers? Links to any article that would suggest this would be acceptable.

 

[G4G5]

Tilton was Vice Chair of Chevron for a year after the merger. As with all mergers, there can only be one CEO. Do you have any written proof that Tilton would never become CEO? While I agree it was not likely for Tilton to become CEO of Chevron, you are making assertions without any evidence.

Yes, David O'Reilly was CEO of Chevron when they purchased Texaco. Guess who is still Chevron's CEO. The proof is in the fact that the job has not come available and that the same guy is still doing the job. What proof do you have that Tilton would have gotten the job?


You also forget that Tilton, as CEO of Texaco, had quite a bit of say in the merge. If Tilton was to be shown the door, he would have been given his golden parachute upon completion of the merger. He was not; he stayed at the merged company.

Look at the timing
Tilton didn't become CEO until early 2001, he didn't even have the job for a year and the BOD showed some much faith in him that they agreed to sell the company. Where was he going UAL was not going to replace Creighton until 9/2002. The UAL job was not available, my guess is no job for him was available so he decided to stay. He lasted a year and realized that he was never going to be CEO and that the Texaco culture was gone, replaced by the Chevron folks, who purchased his company.

Or you can believe that he stayed because he thought he was going to be CEO


Have you got anything written that supports your premise that Tilton was handed his walking papers? Links to any article that would suggest this would be acceptable.

Come on Andy, use common sence. Tilton is the same age as O'Reilly? O'Reilly is still there, he knew he had no shot. His only CEO experience was putting Texaco up for sale, Hummmmmmmmmmmmm.

 

[G4G5]

Well, actually, I was trying to make a point that went right over your head. When one reads your posts, you make very "linear" assumptions. For example, you say that UAL's post bankruptcy business plan assumes oil will be at $50bbl. Since oil is above $50bbl, UAL's plan was all wrong and we're screwed. Again, simplistic, but not showing a full understanding of what this business plan is, what it's purpose was, nor understanding the other variables that will determine whether or not UAL is a successful enterprise going forward. I tried to illustrate, for example, that fare increases (a dozen last year, more to come) could offset most if not all of the cost of fuel. So could hedging, depending on the success of the program UAL puts forth. I tried to illustrate that if an airline can earn higher unit revenues to cover its higher costs relative to a low cost competitor, it can still be successful despite being more expensive- hence the Kia (low cost producer) and the BMW (high cost producer) analogy. You're not quite getting it.

Then you stated something about NWA's post-bankruptcy costs and saying they'll be lower than UAL's. Again, simplistic assumptions about an airline's unit costs and how they will determine their success in the future. I told you that, first of all, I have no idea what their post bankruptcy costs will be. Second of all, they have to exit bankruptcy successfully before one could consider them a serious competitor again. The post bankruptcy NWA may look vastly different than they do today- who knows? If you want me to speculate about NWA's post bankruptcy costs, I'd say they'd be in line with other post-bankruptcy legacy carriers.

Your plan for fuel increases has not paned out. The fuel increases that you refer to are ONLY happening on routes where UAL competes with other legacy carriers. Show me where SWA has matched a UAL fare increase? It's not happening. If you are relying on fare increases that are only happening in a limited number of markets, it's going to that quites sometime before that trickles back to your bottom line. You also run the risk of increased LCC competition. You keep looking for an increase in fares to save you, as you raise the price of a particular route segment you now make it more attractive for increase LCC competition. They look at it and say, UAL/AMR/CAL has just the price by $10 now we can make X% on that route, it becomes profitable for them and they move in.

You keep looking for those fare increases and I will keep trying to figure what a Kia has to do with UAL.

The one with the lowest costs wins. That's why I ask about NWA. It's two fold. First off you are exiting CH11 to compete with a carrier in CH11 on your Pacific routes. That's tough enough. Secondly it is my opinion and many others that when they do exit CH11 their costs will be lower. Making it even more difficult. AMR and CAL do not feel the same kind of financial pressure from a CH11 DAL and NWA.


I have no idea what you're talking about screwing up the first bond rating. I have nothing to do with credit ratings. I fly airplanes. You made a statement about Standard & Poor's analysis of UAL's troubles, and then I posted where they had just given us a B+ credit rating, which was contradictory to your implications. It doesn't "sound better" when one says LIBOR plus anything. It's simply a fact. You also make a comment about how the future of UAL's credit rating looked poor, and then I gave you a recent press clipping showing that in fact, the opposite to your assumption had happened- our interest rate went down. Yes, it's a high interest rate compared to what other industries pay for their debt. But, you have to make an apples to apples comparison since we're in the airline business and ALL of our competitors pay rates that are vastly similar.

I come back from a two day trip and you still don't get it. THE BOND RATING IS WRONG!!!!I even put it in red for you. Here it once again:

Yes, that very same S&P
"Highest possible" Think again. You got the bond rating WRONG! You may want to go back and do a little research. From Forbes:

"Standard & Poor's issued a B rating with a stable outlook. The company's exit financing facility was rated B+, with a recovery rating of 1, the highest possible rating (that means Citi and JP Morgan have the highest possibility of recovering their money, back to leveraging the assets). Moody's rated United a Corporate Family Rating of B2 with a stable outlook."
The companies exist financing facility IS NOT the bond rating that interest rates are derived from! Stable is not, highest possible.

http://www.forbes.com/prnewswire/feeds/prnewswire/2006/01/09/prnewswire200601091438PR_NEWS_B_MWT_CG_CGM040.html


It's not B+ it's STABLE. The stable rating is the one used for future interest payments. I can't be any more clear about this. Read the quote and the the article.

The loan is based upon a few important things that you fail to mention. According to UAL's latest 10Q SEC filing. The exit financing requires a minimum of $750 million unrestricted cash or you default. So $750 will be sitting in a bank and not accessible. Secondly the $3+ billion will need to be repaid in 6 years! That's not including the interest payment of approx 9%.

UAL had to put up excessive collateral in order to secure such financing. That's the B+ rating that you refer to. You can get anyone to lend you money if you put up excessive collateral and offer to pay high interest rates. What happened Tony Soprano didn't have the $3 billion?

You are talking about having to make incredibly high revenue numbers in order to just pay back the loan, I am not even talking about making profits.

I can't go city by city pair to show which markets SWA matched if they did at all. In my opinion, if they matched it at all, it probably wouldn't be for the full 5 bucks each way. All one can do is watch unit revenue rise over time, unless you have some pretty sophisticated computer power at your disposal. If unit revenue does rise over time, one can infer that price increases are sticking. Since UAL's unit revenue has been rising roughly quarter over quarter, I'm guessing that UAL (and probably its competitors) do have some pricing power and average fares have been rising.

But if you want to really discuss costs, you should probably back away from interest rates, because they tend to be one of an airline's smallest costs, and all airlines pay about the same in relation to whatever metric you want to use (except SWA). The really big ticket items are fuel, labor, maintenance, regional partner feed, etc. That's where a competitive advantage can really apply, which can be seen by both SWA (fuel) and JetBlue (labor).


Airlines don't all pay the same interest rates. It a variable dependent upon your bond rating. If your credit rating is 700+ and your neighbor just came out of Ch11, are you going to pay the same interest rate? Look at AMR's cash on hand.

I agree with you about the competitive advantages that SWA and Jetblue have. Again that's why UAL and the other majors don't have any pricing power and making statements about $10 fare increases are very mis leading when you don't count the markets where you are competing against Jetblue or SWA.

 

[G4G5]

Again, the BMW vs. Kia thing went way over your head, just disregard it as it didn't get through. You're thinking "driving" and I was trying to use common examples of "low cost" and "high cost" providers of a product to illustrate the point that low cost isn't necessarily everything. Anyway.....

If you're referring to the fact that CAL has a "fortress hub" in EWR and AMR has a "fortress hub" in DFW, then UAL is just doomed, sorry, I don't buy it. It looks like JetBlue is coming to visit EWR and it will be interesting to see what transpires with Love Field and DFW. If they're depending on their fortress hubs to secure their future, I hope they have a plan B.

How many airports can SWA fly out of LUV? How long has it taken them to get that far? Jetblue taking over or even threating in EWR? Look at the dominance that AMR has in MIA and DFW, that CAL has in EWR and HOU. Where does UAL have any hub with similar dominance?

The reason I think UAL is probably the best positioned to deal with anything is that now that we've exited bankruptcy, if anything else "major happens" (i.e. bird flu, terrorist attack, spike in fuel prices), someone's going away (i.e. DAL and/or NWA liquidation) or going into bankruptcy to reorganize (CAL, AMR). That leaves us to benefit from whatever transpires from those events. We have a network that is unmatched by anyone else and a very post-bankruptcy competitive cost structure in place with CASM's in the low 7's (we weren't as competitve before in my opinion), excluding fuel. That's why I think we're probably in the best position to deal with anything that comes down the road. It's also a biased opinion, like most of your anti-UAL posts.

A "network unmatched by anyone else"? How is you Latin American presence, when compared to CAL or AMR? Your Northeast presence? New York, Boston, Florida, Texas some of the largest markets in the country, you have a minimal presence when compares to the competition and Ch11 has not improved this one bit. You now have to compete with CAl(low costs) and a CH11 Delta(lowering costs) to Europe. You are betting a lot on something major happening. What happens if nothing happens? Right now your biggest Pacific competition can now do the very same things in Ch11 that you claim help give you the advantage. Who says anyone is going anywhere? You are obviously very pro UAL and want to keep the rose colored glasses on, so be it. I don't wish anyone at UAL ill will. My whole point to this is why come out of ch11 now after 37 months? You seem to feel that UAL is ready and I don't. You have faith in Tilton, I don't. So be it.

 

[skykid]

A "network unmatched by anyone else"? How is you Latin American presence, when compared to CAL or AMR? Your Northeast presence?

You're killing me! Not a lot of people would argue that United doesn't have the best all-around route structure of airlines that actually fly overseas. United is also very weak in Greenland, but looking at the big picture, I'd say they are coming out of Ch11 with the route structure right where they wanted it.

Here's one of my favorite posts you had about how the PBGC would pull the plug on United -

Skykid,

Boeingman sees it, I see it and now the PBGC sees it. Answer me this simple question, Why did the PBGC go after the pension of the UAL pilots?.....

This will force the matter to the BK court leading to liquidation. The PBCG is fully aware that they have NO LEGAL ground to do this. UAL will have to fight it or the pilots will not pass the TA. Either way the PBGC forces UAL into liquidation.

The PBCG is pissed that UAL has decided to dump the existing pilots pension on them only to agree to replace it (in the TA) with a new one.

So why did the PBGC all of a sudden decide to come after the pilots, with one day left in 2004?

It's a very clear message to every airline. Try to pass off your pension on us and we will force you into liquidation.

I'm sure your new analysis is just as accurate as that! Keep it coming - there is nothing wrong with wishful thinking. Hey speaking of wishful thinking, WhiteCloud only has 31 days to make good on his hope - scratch that - prediction, that United will liquidate in Feb 2006. Are you sure you don't want to back that up by a few months now, again?!?

 

[Andy]

Where was he going UAL was not going to replace Creighton until 9/2002. The UAL job was not available, my guess is no job for him was available so he decided to stay.

OK, I can understand that you wouldn't have paid close attention because it didn't concern you. However, Creighton was an INTERIM CEO who replaced Goodwin in Oct 2001. UAL's BOD spent almost a year trying to find anyone who would take the job.
It's fortunate that Tilton got bored at Chevron, because he took a hefty paycut to come on over to UAL.

Come on Andy, use common sence. Tilton is the same age as O'Reilly? O'Reilly is still there, he knew he had no shot. His only CEO experience was putting Texaco up for sale, Hummmmmmmmmmmmm.

Tilton knew during merger (more like acquisition of Texaco by Chevron, similar to AmWest acquiring USAirways) talks that he would not be CEO. The norm in this kind of takeover is to give him a hardy thanks and golden parachute while he walks out the door. That wasn't done, which means that O'Reilly and Tilton mutually agreed to have Tilton stay.
As far as using common sense, I can produce at least one link that states that Tilton took the job for the challenge. You were asked for a link, any link, and you try to soft shoe me.
You think that Tilton is a failure because the publically released business plan calls for $50 oil; you and I have no idea what UAL is planning behind the scenes. Let's ignore the fact that most people said that the company was dead when Tilton took over. Tilton had to walk a thin line of being able to extract concessions from everyone without having mass defections. I think that he did a decent job.


I think that a widebody captain should be paid more than $300K/yr. That's a tough sell to the CEO of a company with 60,000 employees who's making $1.15 mil/yr. If I expect to see a widebody captain at UAL making >$300K/yr, I'm going to have to see the CEO paid a bit more than $1.15 mil/yr.

 

[G4G5]

Andy,
Here is your chance to win Ben Steins money

January 29, 2006
Everybody's Business
When You Fly in First Class, It's Easy to Forget the Dots
By BEN STEIN
ONE of the best conspiracy movies ever made is the perfect British classic, "The Third Man." In the most haunting scene, the villain, played adroitly by Orson Welles, takes Joseph Cotten, the good guy, up in a Ferris wheel. The villain, named Harry Lime, has been selling adulterated penicillin in postwar Vienna, making a fortune and causing children to become paralyzed and die.

Mr. Cotten's character, a pulp fiction writer named Holly Martins, asks him how he could do such an evil thing for money. The two men are at the top of the Ferris wheel, and the people below them look like tiny dots. Mr. Welles's villain looks down and says, "Tell me, would you really feel any pity if one of those dots stopped moving forever? If I offered you £20,000 for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare?"

This scene comes to mind when I think of Glenn F. Tilton and other executives of the UAL Corporation and the hapless employees of its primary business, United Airlines. Its history is a perfect text for the ethical morass in which American business often finds itself.

United is one of the proudest names in airline history. It has long been a synonym for fine service and extensive, convenient routes. In the early 1990's, when some investment bankers were casting around for a way to make tens of millions of dollars, they came up with a doozy: the employees of UAL would give up some of their salaries and benefits in exchange for stock in UAL, eventually becoming UAL's largest owner through an employee stock ownership plan.

The deal went through — with staggering compensation to Wall Street — and in 1994 the American employees of UAL, as a group, became its largest owners. Within a few years, overseas personnel were allowed the privilege of tossing their life savings into UAL, too.

Trouble was not far behind. The employees found management demanding pay cuts, big (and, for passengers, inconvenient) changes and cuts in scheduling and services, and even silly changes in their once-great flight attendant uniforms. Then came the blows of 9/11 and a recession, and then rising fuel costs. There were demands for more cuts in pay and benefits and more layoffs. That was not enough. About three years ago, UAL was "forced" to enter bankruptcy to stay alive.

This step meant that UAL could drastically cut workers' pay — and it did. Pensions were simply jettisoned and made the burden of the federal government's Pension Benefit Guaranty Corporation, which meant cuts of close to two-thirds in some pilots' pension payments. And, of course, the bankruptcy simply eliminated all of that equity in UAL that the employees had bought with their hard-earned savings.

Thus, in a series of evil events, management of UAL basically ruined the lives of the employee-owners, if that is not putting too fine a point on it, by taking away their savings, incomes and pensions. (I am indebted to my pal, Phil DeMuth, for much of this research.)

All right, you might say. What else could management have done amid high fuel costs and a deregulated, supercompetitive market? That's "creative destruction," and it's good for the economy, some of my fellow Republicans and admirers of the free market might say. But what about the rules of law and common decency? Because, you see, there is a bit more to the story.

Now UAL has been reorganized. It is preparing to emerge from bankruptcy. It will soon have a stock offering. This offering is expected to raise very roughly $6 billion. It is presumably worth that because UAL now has such low labor costs that it may actually make a profit of some size. (I'll believe it when I see it.)

Here comes the good part: management has asked the bankruptcy court to let it have — free — roughly 15 percent of the stock in the new company, or about $900 million. Mr. Tilton, the chief executive, who plays the Orson Welles character in this drama, would get about $90 million personally for his hard work shepherding UAL through bankruptcy (for which he was already paid multiple millions of dollars).

The bankruptcy court, instead of ordering Mr. Tilton's arrest, instead cut the management share to about 8 percent, so he will get more than $40 million, more or less. That is more than Lee R. Raymond, the chief executive of Exxon Mobil, one of the most successful companies of all time, was paid in 2004 (not counting Mr. Raymond's 28 million shares of restricted stock).

So here it is in a nutshell: employees are goaded into investing a big chunk of their wages and benefits in UAL stock. They lose that. Then they lose big parts of their pay and pensions. They become peons of UAL. Management gets $480 million, more or less. "Creative destruction?" Or looting?

Wait, Mr. Tilton and Mr. Bankruptcy Judge. The employees were the owners of UAL. They were the trustors, and Mr. Tilton and his pals were trustees for them. How were the trustors wiped out while the trustees, the fiduciaries, became fantastically rich? Is this the way capitalism is supposed to work? Trustors save up, and their agents just take their savings away from them?

If the company is worth so much that management has hundreds of millions coming to them, shouldn't the employee-owners get a taste? Does capitalism mean anything if the owners of the capital can be wiped out while their agents grow wealthy? Is this a way to encourage savings and the ownership society? Or is this a matter of to him who hath shall be given?

I know that this is basically the same story I described recently concerning the Delphi Corporation, where something similar is going on. But that's exactly the point. Management is using competition, higher fuel costs and every other cost complaint to cut the pay and pensions of its own employees while enriching itself.

And I can well imagine what goes through Mr. Tilton's mind as he does it: "Hey, I'm a great executive. Great executives in private-equity firms make more than I do. Why shouldn't I get the moolah? Basically, I've worked it so UAL is now a private-equity deal anyway. That's what it's all about now, isn't it? Who's got the most at the end of the day at Bighorn or the Reserve or whatever golf course I choose to retire at? And, anyway, wouldn't you take $48 million for a few of those dots we used to call our employees and owners to stop moving?"


Ben Stein is a lawyer, writer, actor and economist. E-mail: [email protected].


You guys crack me up comedians are taking shots at Tilton in the NY Times and you think its just G4G5 being anti UAL.

 

[Andy]

G4G5, I love it! You can't answer my questions, so you use an article riddled with half-truths and flat out inaccuracies. Is your real name Phil DeMuth?

Here's an article from the Chicago Trib, not big fans of UAL, from 2003 that supports my comments about Tilton:
http://www.chicagotribune.com/chi-unitedday4-story,0,5296778.story?page=1&coll=chi-unitednavover-misc

You do not recall how grim things looked when Tilton took over. Understandable. However, it you're going to make claims, at least have something to back them up. That little piece of fluff by Ben Stein is laughable; I cannot believe that he'd actually put his name to it.

Now, how do I win Ben Stein's money?

 

[F9 Driver]

I know I’m going to regret this…

That little piece of fluff by Ben Stein is laughable; I cannot believe that he'd actually put his name to it.

Now, how do I win Ben Stein's money?

Andy, I guess we’ll have to agree to disagree on this one. I don’t think the end justifies the means in this case.

For those unfamiliar with Ben Stein he’s a notorious pro-management and pro-free market conservative.

Maybe Ben Stein put his name on this because he sees how Tilton et al profited hugely by reneging on bargains.

Bargains were trashed by UAL with nearly every entity that they had one with. And Management is being handsomely rewarded for this? And people are supposed to thank them for a job well done?

Maybe Mr. Stein thinks the public should look a bit harder at the cost of their choices.

To read some more of Mr. Stein’s “fluff” : http://www.benstein.com/writing.html

 

[Andy]

F9 driver, G4G5's argument was that Tilton was handed his walking papers at Chevron. I called the BS flag and asked him to back it. He was unable to, so he pulled out Ben Stein's article in today's NYT.

I am not going to even try to defend the amount of money that Tilton is making on this; I will only say that it is market wages for a CEO. Hmmm .... market wages, where have we heard that one before?
Pilots complaining about the (IMHO ludicrously high) wages that top management receives is a lot like FAs/CSRs/Rampers complaining about high pilot salaries. Personally, I think that UAL's pilot salaries suck rocks and needs to be higher.

I'm well aware of who Ben Stein is and his point of view. In this case, he got some crappy info. Allow me to point by point:

"The employees found management demanding pay cuts, big (and, for passengers, inconvenient) changes and cuts in scheduling and services, and even silly changes in their once-great flight attendant uniforms."
In this sentence, it is implied that UAL managment demanded pay cuts between ESOP and 9/11. I haven't found anything indicating that any labor group was asked to take pay cuts.
'Big changes' - vague. What were these 'big' changes, and if they were so big, why not list them?
'Silly changes in their once great flight attendant uniforms.' When were they great? In the 40s? 50s? 60s? 70s? 80s? Like it or not, uniforms get dated and need to be changed on occasion. I don't know the change that he speaks of, but it would be nice to compare before/after pictures of the uniform to see how silly these changes were.

'About three years ago, UAL was "forced" to enter bankruptcy to stay alive.'
Why the quotation marks around forced? Does anyone really think that UAL could have survived outside of BK court? UAL had less than $1.5 Bil in cash when they declared BK; that was the bare bones minimum to be able to pull it off without liquidating. UAL was burning through cash at the time, so if they had waited another month or two, chap 7 would have been a more likely scenario.

"The bankruptcy court, instead of ordering Mr. Tilton's arrest, instead cut the management share to about 8 percent, so he will get more than $40 million, more or less. That is more than Lee R. Raymond, the chief executive of Exxon Mobil, one of the most successful companies of all time, was paid in 2004 (not counting Mr. Raymond's 28 million shares of restricted stock)."
The restricted stock and options, at $15/sh, is worth about $15 mil for Tilton. $15/sh is where it was expected to go out the gate at. It's now more likely to be around $45$/sh, hence the huge boost in Tilton's stock holdings.
He chose to compare Tilton's stock compensation with Raymond's cash compensation. Apples and oranges. If you compare Tilton's cash & stock compensation with Raymond's cash and stock compensation (estimated at $42 mil in 2005), you'll find out that Tilton got paid less than Raymond.


I do not like the huge gap between the workers' and senior executives' salaries, but it is not something that is unique to United. This gap is present in every industry. It's disgusting and I agree with the main points of Stein's article, but Tilton is receiving market wages for a CEO.
What we need is a bunch of MBAs out there that will undercut each other's salaries for the opportunity to be CEO/CFO/COO/VP. Then we'll see top executive salaries do the same thing as pilot wages have done.

And for G4G5, stay focused on the topic at hand. Stop being distracted by shiny objects. Show me where Tilton was forced out of Chevron.

 

[81Horse]

What we need is a bunch of MBAs out there that will undercut each other's salaries for the opportunity to be CEO/CFO/COO/VP. Then we'll see top executive salaries do the same thing as pilot wages have done.

What we need is a bunch of corporate boardmembers who are not invertebrates. And who have some ethical values.

 

[Andy]

What we need is a bunch of corporate boardmembers who are not invertebrates. And who have some ethical values.

Unfortunately, the vast majority of BOD seats are held by current and former CEOs.
It'd be like management hiring pilots from another airline to negotiate their pilot contract.

 

[81Horse]

It'd be like management hiring pilots from another airline to negotiate their pilot contract.

This would be wrong because ... ?

 

[G4G5]

F9 driver, G4G5's argument was that Tilton was handed his walking papers at Chevron. I called the BS flag and asked him to back it. He was unable to, so he pulled out Ben Stein's article in today's NYT.


Call me on what? I explained it to you . David O'Reilly is still Chevron's CEO and Tilton is gone.
How long after Tilton became Texaco, did the BOD decide to sell the company? Just a few months. He was a lame duck CEO, whose only experience was selling the company, with minimal CEO experience at best.

O'Reilly's Chevron bought Texaco, what happened to Tilton? Was he asked to come and help with the merger or asked to stick around for the integration? No, he was dumped, he was not asked to be COO, he was not asked to be on the BOD. They didn't even ask him to come to Houston. They gave him a Vice chairman title until they could close up the Texaco HQ in Westchester, NY. Then they sent him out to the west coast to vice chairman of Dynergy, a troubled division that was the red headed step child of Chevron. He was NOT asked to come to Houston, Chevron's HQ.

And for G4G5, stay focused on the topic at hand. Stop being distracted by shiny objects. Show me where Tilton was forced out of Chevron.

Shiny object's, time to change the water in the bong Cheech.

You say he stayed. You tell me that I should look at that as a positive. I tell you that he had nothing else. Look at merger history, if the other CEO is worth anything they give him the number two spot, or give him a position of power. He was not asked to be co-ceo or promised that .

http://www.forbes.com/finance/mktguideapps/personinfo/FromPersonIdPersonTearsheet.jhtml?passedPersonId=137723

"From October 2001 to August 2002, he served asVice Chairman of ChevronTexaco Corporation (global energy). In addition, from May 2002 to September 2002 he served as Non-Executive Chairman of Dynegy, Inc. (energy). From February to October 2001 he served as Chairman and Chief Executive Officer of Texaco Inc. (global energy). He previously served as President of Texaco's Global Business Unit. He serves as a director of Lincoln National Corporation."

No co-ceo position, upon coming over in the acquisition he was offered Vice Chairman and the he was DEMOTED to a Non-executive position of a troubled division. After the DEMOTION, he to take his few months of CEO experience and go looking for a job.

Vice Chairman is the number 2 position at Chevron, what do you call it when you lose your vice chair position and are asked to take a NON EXECUTIVE position at a troubled division? It's not a promotion. In the business world it called getting your walking papers.

Andy,Your BS flag is flying fully erect.

 

[Andy]

G4G5, you may want pull out your calendar and check for overlap. From October 2001 to August 2002, he served asVice Chairman of ChevronTexaco Corporation (global energy).
In addition, from May 2002 to September 2002 he served as Non-Executive Chairman of Dynegy, Inc. (energy).


I guess that I'm waay off base here, but I'm pretty sure that May 2002 comes before August 2002. It sounds like he took on additional responsibilities because he was bored. Taking over a troubled division would fit that criteria. His stepping down from Vice Chairman in August, the month before he left for United, was likely due him already accepting the job and to allow Chevron to have a transition plan in place.
As for the boredom thing, the article that I posted said that "In an interview, he (Tilton) said he was seeking a demanding, important post."
You and I can sit here and put whatever spin on his career that we desire. The bottom line is that he took the CEO post of United in Sep 2002 right before things got very dim and has been able to rework it into a viable company.

 

[G4G5]

Andy, my point is and I will make it clear, he was NOT asked to come to Houston, Chevron HQ and be part of the new Chevron-Texaco, what does that tell you?

Just like his vast months of CEO experience in selling Texaco. the Vice Chair title was a token title. He could not come over from Texaco a janitor title. Once again, he was not made co-ceo or even asked to be on the BOD. Once he finished mopping up Texaco they sent him out to run Dynergy. Not exactly a "demanding or important" job

You keep saying things like, "Sep 2002 right before things got very dim and has been able to rework it into a viable company".
How much of the rebuilding do you really think he did? He took the company into CH11 and hired countless lawyers and consultants. This isn't rocket science. He has spent millions on firms that specialize in bankruptcy. The architecture is already in place for the recovery. They drive the Bus, he just follows. Once again, his leadership is less then impressive. He has less then a year under his belt at running Texaco and UAL out side of CH11.

 

[Andy]

Andy, my point is and I will make it clear, he was NOT asked to come to Houston, Chevron HQ and be part of the new Chevron-Texaco, what does that tell you?

Sooo, that's NOW your point? It's hard to tell; every time I rebut your 'point,' your 'point' changes, and you leave your previous 'point' undefended.
And you know that Tilton wasn't invited to Houston because ....? I haven't seen you point out anything that says he wasn't invited to Houston. Links? I didn't think so. I'm not even sure what this would prove; it would take a while to shut down Texaco's headquarters.

Going back to your previous post: Look at merger history, if the other CEO is worth anything they give him the number two spot, or give him a position of power. He was not asked to be co-ceo or promised that .

Tilton shared the number two position as Vice Chairman with Matzke. Here's the press release: http://investor.chevron.com/ireye/ir_site.zhtml?ticker=tx&script=410&layout=-6&item_id=151826
Texaco was the acquired company, not Chevron. Note how almost every key position is filled with Chevron personnel, not Texaco. If this had been a merger of equals, you'd see many more Texaco executives in key positions.
This was an acquisition of a weaker company. It is typical for the weaker company to only receive a few key positions. If Tilton was to be shown the door, they would've handed him his golden parachute and sent packing.

Going back to your previous 'point,' does your 2002 calendar show that August 2002 precedes May 2002? And this comes from someone tell me to use 'common sence' (your spelling, not mine) and to change the water in my bong. BTW, what's a bong?

Continue to spin away. I've had about enough of your running down blind alleys. I think that a lot of your posts have more holes in them than swiss cheese.

 

[G4G5]

Sooo, that's NOW your point? It's hard to tell; every time I rebut your 'point,' your 'point' changes, and you leave your previous 'point' undefended.
And you know that Tilton wasn't invited to Houston because ....? I haven't seen you point out anything that says he wasn't invited to Houston. Links? I didn't think so. I'm not even sure what this would prove; it would take a while to shut down Texaco's headquarters.

You have a hard time reading the facts, was Tilton every in Houston? Did he ever have anything to do with the running of the Chevron corporation? NO, so I will spell it out for you, that means he was not invited. In fact once they finished the sale of Texaco, they sent him out to the west coast (Dynergy)

The quick sale and "Shutting down Texaco,'s headquarters" now their is something that adds to the resume of a great CEO.

What have my different points been? I don't think UAL should exit CH11 now and I don't like Tilton. If I have strayed or you have not felt that then I apologize

Going back to your previous post: Look at merger history, if the other CEO is worth anything they give him the number two spot, or give him a position of power. He was not asked to be co-ceo or promised that .

Tilton shared the number two position as Vice Chairman with Matzke. Here's the press release: http://investor.chevron.com/ireye/ir_site.zhtml?ticker=tx&script=410&layout=-6&item_id=151826
Texaco was the acquired company, not Chevron. Note how almost every key position is filled with Chevron personnel, not Texaco. If this had been a merger of equals, you'd see many more Texaco executives in key positions.
This was an acquisition of a weaker company. It is typical for the weaker company to only receive a few key positions. If Tilton was to be shown the door, they would've handed him his golden parachute and sent packing.

Not necessarily the case. Look at JP Morgan Chase's acquisition of Bank One. Jimmy Dimmon (Bank One) is now Ceo. If executives are worth their weight or considered valuable they are typically invited to become part of the BOD or given a position of power within the new corporation.

Golden parachutes are only given to VALUABLE executives. Chevron obviously felt he was not Valuable. Note how the Texaco BOD did not give him a Golden Parachute, when he was CEO. This only further shows how he was a lame duck brought in just to over see the sale of the company.

Going back to your previous 'point,' does your 2002 calendar show that August 2002 precedes May 2002? And this comes from someone tell me to use 'common sence' (your spelling, not mine) and to change the water in my bong. BTW, what's a bong?

Continue to spin away. I've had about enough of your running down blind alleys. I think that a lot of your posts have more holes in them than swiss cheese.

You keep saying things like, "Sep 2002 right before things got very dim and has been able to rework it into a viable company".
How much of the rebuilding do you really think he did? He took the company into CH11 and hired countless lawyers and consultants. This isn't rocket science. He has spent millions on firms that specialize in bankruptcy. The architecture is already in place for the recovery. They drive the Bus, he just follows. Once again, his leadership is less then impressive. He has less then a year under his belt at running Texaco and UAL out side of CH11.

Getting back to my points, or swiss cheese as you call it. I guess you feel that Tiltons is a good CEO and now is the right time for UAL to exit CH11. Sounds to me like you know exactly what a bong is.

 

[FlyUnited]

Well regardless of your little squabble, he successfully pulled off what most said was impossible. That in itself makes him a success to other CEO types. The fact that he also destroyed labor in the process makes him a GOD!

 

[GuppyWN]

Why United Airlines will fail again

Quote:
There is a plethora of financial and operational reasons why the United Airlines that exits bankruptcy early next month will soon enough be back in Chapter 11 or desperately seeking a merger to keep itself afloat.
But United Airlines will fail again primarily because it has no organizational heart, no identity and no definable brand. Most of all, it has none of the vision and discipline that separates the winners from the losers in the deregulated skies.

Consider the airlines that have had success of any meaningful duration in the last decade. There is, of course, Southwest Airlines. Whether you like what it sells is beside the point: You know and understand the product that it sells. And you know that Southwest delivers it at every seat on every flight on every route that it operates. Southwest's management and employees are fanatically devoted to its standards of simplicity and its unabashedly mass-transit approach to air travel.

Ditto JetBlue Airways. You know what you buy every time: a leather chair with decent legroom; free in-flight satellite TV and radio; a sense of casual style; and rational prices. AirTran Airways has found success because it offers a definable and recognizable product: no-frills, two-class service at simple prices. It even did the unthinkable—dump commuter flights—because they did not fit the image or the financial model. And before its corporate ego ran amok, Continental Airlines had a profitable run. Why? It crafted a demonstrably higher quality of "traditional" full-service flying and then reworked its management, crews, fleet and operations until the airline was a consistent and marketable whole.

United has done none of those things during its 38 months in Chapter 11. In a market that has proven it will only support consistency, United Airlines is a bizarre amalgam of in-flight products, fleet configurations and service concepts. It cynically tries to be all things to all fliers and careens from idea to idea, cabin to cabin and fare to fare, sometimes on a route-by-route basis.

In fact, United isn't. Not in concept or in execution. It is a disjointed collection of flights run by executives with no overarching vision, no unifying commitment and no marketing or brand discipline. In every conceivable way, United is the opposite of what works in the sky.

United will emerge from the most costly bankruptcy in American history with 26 separate in-flight seat configurations. It dabbles in everything from the upmarket p.s. service to the downmarket Ted. It slaps its name and logo on five types of narrow-body planes, four types of widebody jets and eight flavors of regional aircraft. It befuddles buyers with an ever-shifting combination of one, two, three and even four classes of in-flight service. And like all of the Big Six, its rococo fare structure is repulsive.

It is, simply put, an unholy mess competing in an unforgiving marketplace that only spares carriers with impeccable systemwide coherency.

United's intellectually slovenly approach to air travel guarantees its failure. But it's not just theory: United exits bankruptcy as a textbook example of worst-case practices. Consider:

• United's oil-price projections are fantasy. The five-year plan that United submitted to its bankruptcy court predicts annual operating profits through 2010. But its projections are based on oil selling for an average of $50 a barrel. The market price of oil is currently north of $65 a barrel. Given the growing demands of China and India and the upheavals in Iran and Nigeria, oil could be closer to $100 a barrel than $50 in the next five years. In fact, last week at the World Economic Forum in Switzerland, experts contemplated the mechanics of a global economy with $120-a-barrel oil.

• United is swimming in debt. United will exit bankruptcy saddled with about $17 billion in debt. It expects to issue about 125 million new shares under the ticker symbol UAUA. While some observers predict the stock will quickly trade higher, the opening price is likely to be about $15 a share. That gives United an equity value just shy of $2 billion and a debt-to-equity ratio of about 8.5-to-1. By comparison, American Airlines' debt ratio is deemed much too high at about 6-to-1.

• United is mortgaged to the hilt. United made public relations hay this week with its announcement that it quickly secured $3 billion in exit financing. What it didn't mention was that the loan was secured with just about every asset that United owns: fleet; spare parts; Atlantic and Pacific routes; corporate headquarters building; flight simulators; accounts receivable; and even the Mileage Plus frequent-flier program.

• United's route network is no longer admirable. The talking-head experts routinely prattle on about the peerless United Airlines route network. But, frankly, they aren't paying attention. United's Chicago hub is under constant pressure from American at O'Hare and Southwest is growing rapidly at Midway. Southwest has also returned to harass United in Denver, where Frontier Airlines is also an established competitor. Independence Air has disappeared at Washington/Dulles, but that isn't good news for United because two much stronger players, AirTran and JetBlue, are now able to make inroads there. Its Pacific routes are under pressure from some of the world's best airlines. It faces brutal competition in Latin America and Europe, too.

• United is less competitive than ever. United constantly promotes p.s., its three-class service in the New York-Los Angeles-San Francisco transcontinental triangle, as proof of its commitment to serve higher-fare, higher-profit business travelers. But United has little to offer those customers elsewhere. The p.s. concept, after 15 months, hasn't been added to any other route. Instead, United has turned huge chunks of its domestic route network over to Ted, which has no first-class service. And almost 40% of United's network fleet is now comprised of regional jets. United has equipped some of those smaller craft with first-class cabins, but those planes have generally replaced the larger jets that travelers prefer. Internationally, United has aging premium-class products that are notably inferior to the perks offered by it major competitors.

• United is stretched to the limit. United has improved its once-atrocious on-time ratings during its 38 months in bankruptcy. But those gains are constantly at risk because United has stretched its workforce to the limit. After shedding about 25,000 workers, it no longer has the capacity to cope when a few days of bad weather in Chicago or wonky computers upset daily operations. Operations nearly collapsed under the strain of both occurrences in December and United will probably be back at the bottom of the on-time ratings when December's numbers are published.

• United has no capacity to grow. Having dumped more than 100 planes in bankruptcy and deferred delivery of most of the rest of the mainline jets it ordered, United is stalled at its present size. In fact, its five-year business plan predicts no substantive capacity growth between now and 2010.

• United has a looming frequent-flier crisis. The no-growth scenario and high load factors—United currently fills almost 82%of its seats—also means that the airline will be hard-pressed to make good on all of the frequent-flier miles it uses to keep travelers loyal. Worse, it seems clear that there will be a torrent of new miles pouring into Mileage Plus. Earlier this month, United moved its credit card transaction processing to Chase, the bank that also issues the Mileage Plus credit cards. Why the switch? Chase agreed to make an advance purchase of miles equal to the hundreds of million of dollars that United must keep in reserve for credit-card refunds that would result from its grounding. That means Chase will be churning out an endless series of mileage-accrual offers that United's static capacity won't be able to easily absorb.

• United's top managers are focused on short-term gains. United's top executives recently rewarded themselves with 8% of the new airline's shares. This bonus plan, which The New York Times called "insanity squared," has another intriguing fillip: They vest with head-spinning rapidity. According to court filings, 20% vest after six months and another 20% vest after one year. Then 20% more of the shares vest in each of the next three years. Bottom line: Chief executive Glenn Tilton and his 399 top lieutenants now have a financial incentive to make the kind of short-term, shore-up-the-share-value decisions that are often incompatible with the long-term vitality of an airline.

• United's employees are angry. How would you feel if you lost your stock—United was largely employee-owned before bankruptcy—had your pension plan gutted when management dumped it on the Pension Benefit Guarantee Corp., made two rounds of salary-and-benefit concessions and then learned that the bosses rewarded themselves with a stock-bonus windfall? Now you know the state of mind of most of United's rank-and-file employees. It won't make for a lot of happy flights in the weeks and months to come.

Sadly, for all these reasons and many more, from whatever day that United officially exits bankruptcy next month, the clock will begin ticking on the next, and inevitable, crisis.

 

[G4G5]

GuppyWN,
I am not sure where you got this but it's the exact stuff that I was going round and round about with UALDriver.

The debt load, mortaged to the hilt, route structure and oil price.

It amazes me that guys can argue that Tilton has done a good job and that UAL is ready to leave CH11.

 

[G4G5]

You're killing me! Not a lot of people would argue that United doesn't have the best all-around route structure of airlines that actually fly overseas. United is also very weak in Greenland, but looking at the big picture, I'd say they are coming out of Ch11 with the route structure right where they wanted it.

Here's one of my favorite posts you had about how the PBGC would pull the plug on United -



I'm sure your new analysis is just as accurate as that! Keep it coming - there is nothing wrong with wishful thinking. Hey speaking of wishful thinking, WhiteCloud only has 31 days to make good on his hope - scratch that - prediction, that United will liquidate in Feb 2006. Are you sure you don't want to back that up by a few months now, again?!?

My analysis? All I am doing is repeating what other folks are saying (see two posts up, GuppyWN)

I answered your PBGC post already:

Are you proud that your pension got dumped on the tax payers?

Forbes places the value for UAL at over $10 billion. I would have much rather seen UAL liquidated and that $10 billion given to the PBGC to distribute to the UAL employees. Here's a thought give the UAL employees the pension that they worked for. This goes beyond UAL, I would rather see that happen to USAir, Delphi, GM, whomever.

It's supply and demand. The folks who fly UAL would still keep flying. The industry would not lose those jobs. The pilots at UAL would be just like those at TWA pilots, who found jobs at AA, Fedex, UPS, Airtran, Jetblue, AmericaWest, SWA. I could go on. The difference is they would have pensions from UAL when they retire and companies would think twice about dumping their pensions.

No instead we now have a trend that companies like IBM, Verizon and soon to be countless others will be following. The dumping of the American pension system.

I am glad you can come on FI and gloat about it.

Did you miss it the first time?