Source: Financial Times
Author: Doug Cameron

Changes in the regulatory environment are likely to permit mergers between major US airlines, Glenn Tilton, chairman and chief executive of United Airlines, said on Thursday as the carrier looks to a future beyond three years in Chapter 11 bankruptcy protection.

Many industry observers expect a reorganised United to take part in future consolidation, after a bid to buy US Airways in 2000 was blocked by the US Department of Justice. US Airways was subsequently acquired last year by America West, a smaller rival, but speculation continues that United could eventually combine with Houston-based Continental.

United expects to receive court approval for its restructuring plan on Friday, paving the way for it to leave Chapter 11 on February 1.

Mr Tilton said in an interview that United's focus remained on boosting productivity, but added: "Deregulation has done its work. It's time to recognise that we should compete on a grander scale. Should the opportunity present itself, we'll make sure we're in a position to take advantage."

United has cut $7bn from annual expenses after two rounds of pay cuts and the dumping of its underfunded pension plan, and Mr Tilton said the current restructuring plan was "light years" away from previous efforts that twice saw applications for federal loans turned down.

"The positive surprise is going to be the resilience of this particular piece of work," he said. "I think we're going to do well in a good market and do better in a difficult market."

Mr Tilton defended the strategy against criticism that elements such as revenue growth were overly optimistic, and said it was "just scratching the surface" of efforts such as attracting more business passengers with extra amenities and more leg-room. "Our revenue assumptions are conservative," he said.

United has one of the strongest networks in the US and has expanded its hubs at Washington Dulles and Denver while shifting capacity from the domestic market to more profitable routes to Europe and Asia.

Mr Tilton said the syndication of a $3bn loan to fund its exit from bankruptcy was oversubscribed, and the carrier forecasts a return to profitability this year after running up operating losses of $2.5bn over the past three years. The restructuring plan was backed by unsecured creditors, and United overcame the last big obstacle on Wednesday when the bankruptcy judge approved a management compensation plan despite widespread opposition from unions.