A year and a half ago, Hilton Worldwide Inc. was on the ropes. Bought by private equity titan Blackstone Group LP for $26 billion at the end of the mid-decade leveraged buyout boom, the hotel group was rocked by a 30% fall in Ebitda when the economy flagged, people familiar with the matter say. Blackstone's record $5.7 billion equity investment had plunged 70% in value. Were it not for the fact that Hilton's $20 billion debt had no covenants, the hotel chain likely would have been seized by lenders.

Today, amazingly, the picture is rosy. Hilton's Ebitda has zoomed back close to its 2008 all-time high of $1.9 billion to $2 billion, sources say. And Blackstone finds itself eyeing a prospective 60% gain, based on the market values of Hilton's publicly traded rivals.

"If it happens in 2011," Nomura Securities International Inc. lodging analyst Harry Curtis says about Hilton's matching or surpassing its Ebitda high, then Hilton's financial rebound "would be faster than the industry's as a whole. That would be impressive." (Curtis notes that because McLean, Va.-based Hilton doesn't release its financials, he and other Wall Street analysts aren't privy to its performance. The Ebitda numbers in this story haven't been reported before.)

The striking turnabout is mainly the product of a surge in business travel that began early last year and boosted the industry's overall revenue per available room, known as RevPar, by 8% in the U.S., after a stunning 17% decline in 2009, according to Smith Travel Research Inc. What's more, debt became less of a worry for Hilton that April, when Blackstone persuaded creditors to slash nearly $4 billion of what it owed and to extend by two years the maturity of the $16 billion of debt that remained.

Still, a healthier economy and the financial maneuvering aren't the only reasons for Hilton's revival, people in the industry say. Several give considerable credit to Chris Nassetta, the company's hard-charging, 48-year-old president and CEO, and to the free hand Blackstone gave him that allowed him to overhaul Hilton's operations and culture.

When the buyout firm recruited Nassetta at the time the deal closed in late 2007, it gave him the tasks of reanimating and knitting together a fragmented, rather sleepy organization; of accelerating growth, particularly overseas; and of bolstering the allure and earnings power of Hilton's stable of hotel brands. By most accounts, he has delivered.

"If you go back to the early 2000s, when [Stephen] Bollenbach was at the helm, some of Hilton's brand families were a little tired," says Kevin Mallory, a senior managing director at commercial real estate broker CB Richard Ellis Inc. who has sold many hotels bearing a Hilton brand to investors and company franchisees.

"I would say [the improvement in Hilton's image] started under Bollenbach. But the vim and vigor and focus on creating a brand family that hits on all cylinders -- that's a huge focus of Chris'. What he and his team have done is fantastic. If we are taking a property into the marketplace that's branded by Hilton, that is the cream of the crop, on a par with many of the Marriott brands. That is not how Hilton was viewed 10 years ago."

Not all appraisals are so glowing. Yet even less generous critics, such as FelCor Lodging Trust Inc. president and CEO Richard Smith, admit Nassetta has greatly upgraded operations. "Marriott's machine, from a driver-of-revenue perspective, is a little above them at this point. I think they're probably ahead [of Marriott] from an operating perspective," observes Smith, whose company owns 53 hotels under various Hilton brands. "But I think they're doing a great job. They think like owners and really think about profitability."

The world's third-biggest hotel chain by number of rooms after InterContinental Hotels Group plc and Marriott International Inc., which are both slightly larger, Hilton, Nassetta says, was a work in progress when he took over, after his long stint as CEO of Host Hotels & Resorts Inc., a major Marriott hotel owner.

"They had spent the last few years doing strategic acquisitions, to get the right pieces of the puzzle. They had been thoughtful" in choosing what to buy, Nassetta says.

"But what Jon Gray," the Blackstone dealmaker who led the leveraged buyout, "and I saw was that the pieces had not been integrated. It was a long way off from being optimized."

The biggest purchased piece was Hilton's foreign licensee, Hilton International Co., whose $5.7 billion acquisition Bollenbach had staged nearly two years earlier. The deal was a homecoming of sorts: In the early 1960s, company founder Conrad Hilton had sold the international network to ease a financial strain. Watford, England-based HI eventually branched into gambling, and hotel expansion took a back seat. When Blackstone bought Hilton, only 15% of the new hotels it had in the pipeline were overseas. Hilton's presence in fast-­growing markets such as India and ­China was thin to nonexistent. Worse, because HI operated by its own set of rules, the service at hotels varied from market to market. That posed a threat to brand integrity and Hilton's image.

"The brand standards in Europe were always very different from those in the U.S. I think they were, quite frankly, a bit slacker in Europe," says Curtis.

In addition to cranking up the former HI operation, Nassetta and Blackstone saw a golden opportunity to export overseas the chain's lower-cost, limited-service brands -- Hilton Garden Inns, Homewood Suites and Hampton Inns -- as well as full-service brands such as DoubleTree, Embassy Suites and the upscale Waldorf Astoria.

Until the 2006 merger, Hilton had been barred from planting their flags in HI's territory. Some of these brands Hilton had absorbed in a $4 billion purchase of Promus Hotels Corp. in 1999.

As a prelude to realizing his agenda, Nassetta says, he had to revamp Hilton organizationally. Hilton's patchwork creation had produced a Balkanized, disharmonious culture. He says: "When I went around the world in my first six months" visiting Hilton's outposts, "it became really obvious that the whole company was siloed. Whole regions were siloed." HI was a loose federation of fiefs situated in Watford, U.K.; Dubai, United Arab Emirates; and Singapore, while domestically, Hilton was bifurcated between a palatial head office in Beverly Hills, Calif., and Memphis, Promus' old base. "It was a disjointed organization. People didn't really talk to each other. When I asked executives what their priorities were, I'd get wildly different answers."

Nassetta thoroughly cleaned house, replacing nine of the company's top 10 executives and more than half the top 100. He slashed tens of millions of dollars in costs, mostly by eliminating entire layers of managers in Hilton's secondary offices. He moved the headquarters to unglamorous McLean, a Washington suburb, partly to save money but also, he says, "to radically change the environment." Most important, he says, he tore down the silos, realigned management along functional and brand lines, and "forced people to communicate and collaborate" on charting goals and strategy.

As to Nassetta's agenda, two of his central goals, brand building and ramping up hotel launches, were closely entwined because of the way that big hotel chains finance expansion nowadays.

When Blackstone bought it, Hilton owned just 54 of its roughly 2,900 hotels, having long ago migrated to a model built around franchising with an eye to conserving capital, as had the other big chains. In franchising, third-party developers fund hotel construction costs and own and manage the properties under license to Hilton or another brand chain. Typically, franchisees pay a chain 4% to 5% of hotel revenues as royalties, along with marketing fees, and then pocket the remaining profit.

Franchisees consequently seek out hotel brands that will deliver the most bang for the buck, ones that don't have a harder time raising the capital needed to expand.

When Nassetta came to Hilton, the brands were a mixed bag, though nearly all beat the averages. According to a source, Smith Travel in 2005 pegged the flagship Hilton brand's RevPar penetration index at 104. This meant that U.S. hotels flying the Hilton banner averaged 4% more revenue per available room than all of its head-to-head competitors, a wide-ranging group that included Marriott and Starwood Hotels & Resorts Worldwide Inc.'s Sheraton brand. DoubleTree was below 100, but another full-service brand, Embassy Suites, was at 123. Hilton's limited-service brands were fairly strong: 107 for Hilton Garden Inns, 111 for Homewood, 115 for Hampton. The numbers for Waldorf and Hilton's other luxury brand, Conrad, were unavailable. (These figures are closely guarded. Smith Travel and Hilton declined to provide them.)

Nassetta was determined to juice those numbers, and he has succeeded across the board.

To do so, Nassetta and his team set out to elevate and standardize the level of service in each brand. The flagship was a special focus. In 2008, Nassetta initiated a top-to-bottom review of it, a project he dubbed H360. The breakfast fare, bath amenities, the look of lobbies, Wi-Fi service, hotel architecture and the handling of customer complaints -- all came under the microscope. "There was a huge amount of inconsistency in the granular standards that travelers care about," Nassetta says. "If you went to [a Hilton in] Abu Dhabi, you'd get one product and experience. If you went to New York, another. With H360, I think we've achieved a lot in creating basic standards of product and service that are consistent throughout the world."

A corollary part of that has been to force owners to upgrade substandard hotels. Those that don't are booted out of the system.

The success of his efforts can be seen in the latest Smith Travel numbers: At the end of last year, the previously cited source says, the flagship brand's RevPar penetration index stood at 109, up five points from 2005. DoubleTree had gone from less than 100 to 106. For the rest, the spread above 100 had widened, with Hilton Garden Inns climbing to 121, Hampton to 122, Homewood to 126 and Embassy Suites to 128.

In turn, those muscular numbers have enabled Hilton to throttle up hotel launches to a record level. The chain, which as of March 31 comprised 612,000 rooms at 3,700 hotels, has 150,000 rooms in the pipeline. That's nearly a third more than Marriott, and double Starwood's pipeline. The push abroad that Nassetta and Blackstone plotted is in overdrive, with 55% of openings outside the U.S. Emerging markets are a major target, with 30,000 rooms in China either being built or on the drawing board, along with a host of new hotels in India, Turkey and Latin America. Hilton also aims to expand the upscale Waldorf and Conrad brands, which had a combined 20 locations in 2007, to more than 60 sites over the next several years.

Hilton's road to prosperity has been the opposite of smooth. Nassetta's now-humming engine sputtered badly in 2009 when business travel dwindled. Though Hilton still produced enough cash flow to service its debt, Nassetta was forced to cut payroll and curtail expansion. Hilton got a huge break when Blackstone persuaded creditors to accept $800 million for an $1.8 billion chunk of debt -- a buyback that Blackstone funded -- and to swap a further $2 billion of junior debt for preferred securities.

Hilton further suffered a blow to its reputation in 2009, when it became embroiled in a corporate espionage scandal. Hilton poached two executives from Starwood, Ross Klein and Amar Lalvani, to help it launch a line of chic "lifestyle" boutique hotels to vie with Starwood's W brand. Starwood sued, accusing Klein and Lalvani of looting a "mountain" of confidential information. Nassetta quickly jettisoned Klein and Lalvani, and Hilton months latter settled with Starwood for a reported $75 million. It further agreed to steer clear of the lifestyle segment until the end of 2012.

Though the episode was deeply embarrassing, Nomura's Curtis says the damage to Hilton was fleeting, remarking: "The consumer really has no idea of any litigation like that. And from the point of view of [corporate customers], they generally don't focus on those kind of things."

Nassetta declined to discuss the matter.

Just now, the sharp improvement in Hilton's fortunes has ­fueled speculation that Blackstone may soon take it public. The numbers suggest that if the PE firm did so, it would emerge with a very healthy gain.

At a multiple of 14.5 times projected 2011 Ebitda, roughly where Marriott's and Starwood's shares trade, an initial public offering would value the private equity firm's stake at more than 1.6 times Blackstone's $6.5 billion investment. (Blackstone wouldn't comment on that estimate.)

But Nassetta and sources close to Blackstone say there's no rush. Thanks to the debt restructuring, Hilton faces no near-term pressure to shore up its equity. Moreover, industry fundamentals are strong, with U.S. hoteliers benefiting from a dearth of new supply that has bolstered pricing power. Blackstone, sources say, firmly believes that the rebound in lodging is at an early stage, so it makes sense to wait.

"We think we have got plenty of legs in the cycle. The numbers are only going to get better," says Nassetta.

Of course, things can go downhill in a hurry in lodging, as Hilton's recent history shows.

As broker Mallory observes: "The hotel industry reacts immediately to changes in the economy. It's not like office buildings, where if the economy goes south, you don't lose all your tenants."

But despite worrying economic signs, few in the industry anticipate another slump. "We are light years ahead of where we were a couple of years ago," says Mallory.

And so is Hilton.