Worst Airline Ever

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But it was United's collapse into bankruptcy just before Christmas of 2002 that is at the heart of the airline's current crisis. Despite a 38-month stay, hundreds of millions of dollars of employee concession, and the largest pension default in corporate history, United emerged as a fiscal and operational mess. Worse, the airline's new chief executive, Glenn Tilton, a former oil-company executive, embraced every old, failed idea ever tried by big network carriers.

Instead of a simple, cost-effective and passenger-friendly roster of in-flight services and streamlined fleet operations, United left bankruptcy in February 2006 with 26 separate in-flight seat configurations. It dabbled in everything from the upmarket P.S. to the downmarket Ted. It had four types of narrow-body jets, three types of wide-body aircraft and eight flavors of regional jets. Travelers were confronted with flights outfitted with an ever-shifting mix of one, two, three, or even four classes. (By contrast, the industry's only consistently profitable airline, Southwest, flies just one type of aircraft and offers just one class of service.) United's finances were equally chaotic. It left bankruptcy saddled with $17 billion in debt and its $3 billion exit financing was secured with mortgages on virtually all of the airline's assets.

And oil is the original sin at the post-bankruptcy United. The five-year plan of reorganization (P.O.R.) cooked up by Tilton and chief financial officer Frederic "Jake" Brace predicted crude would average $50 a barrel. It was laughable even then. When United filed the P.O.R. in February 2006, oil was already selling above $65 a barrel—and a panel at the World Economic Forum in Davos, Switzerland, had just discussed the ramifications of $120-a-barrel crude.

As a result, United's future as a going concern is an open question. One thing that isn't in doubt, however, is the financial wherewithal of the airline's upper management.

Tilton and his top executives emerged from the bankruptcy with 8 percent of the new United Airlines and a fast-vesting bonus plan that the New York Times called "insanity squared." Many of United's management team have been flipping their shares as soon as they vested, yielding tidy profits as the airline's shares topped out above $50. But rather than curb their enthusiasm now that the market has soured on the airlines in general and United in specific, Tilton et al will pitch a new executive-incentive plan at the airline's annual meeting in California on Thursday. If approved, it will create 8 million new shares for the benefit of the top brass.

In other words, no matter how rough the ride for United's employees and passengers, it will continue to be smooth sailing in the executive suite.

The Fine Print…

A follow-up to last week's column on all-business airlines. The British administrators of grounded Silverjet have received offers from several private investors to buy and relaunch the airline. And Marc Rochet, chief executive of L'Avion, the all-business carrier that flies between Newark, New Jersey, and Paris, has told Portfolio.com that his airline is filling 80 percent of its seats and has sufficient cash to continue flying without disruption.

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