Firm Hands Reaping Applause at US Air

With an airplane painted in the colors of defunct Piedmont Airlines behind him, US Airways CEO Doug Parker stood in a Charlotte, N.C., airport hangar and gave a speech rife with the types of things employees like to hear.

Although the goal with most consolidations is to eradicate vestiges of predecessor companies, Parker spoke at the recent unveiling of an airplane dedicated to the past.

"People said stop talking about this ... we're going to start a new culture," he said. "But what I realize is you can't kill that [old] culture. It's still here, it's vibrant, and frankly, it's one of the best assets of US Airways. What you should do is embrace it."

Less than a year ago, Parker and his team from low-cost carrier America West Airlines took over a bankrupt legacy carrier and engineered what so far has been one of the industry's most successful mergers.

Since then, US Airways' revenue per available seat mile and stock price have soared, and Parker has been widely applauded for his communication skills and sensitivity to employee concerns. Now, he's talking about the possibility of merging with another bigger carrier -- Delta Air Lines(DALRQ:OTC BB) or Northwest(NWACQ:OTC BB).

What sometimes gets overlooked in US Airways' success is the contribution of the management teams preceding Parker's. In the final few years at the former US Airways, two CEOs -- David Siegel, from 2002 to 2004, and Bruce Lakefield, from April 2004 to September 2005 -- struggled with the fallout from the Sept. 11 terrorist attacks and the most severe slowdown in industry history.

Through two bankruptcies, they slashed $3.4 billion in annual costs and billions more in debt. Additionally, Lakefield nursed the airline through a period when it almost shut down for lack of cash, raised new cash through investment concepts never previously attempted and eventually managed to save the jobs of the vast majority of the airline's roughly 24,000 active employees.

To be sure, the two CEOs weren't always warmly embraced by employees. Their roles included cutting salaries and benefits and eliminating jobs. But both said, in recent interviews, that they are proud of their work at US Airways.

Siegel, an executive from 1993 to 1999 at Continental(CAL:NYSE), was witness to that company's turnaround, which serves as the clearest precedent to the one he helped bring about at US Airways. At Continental, personable Gordon Bethune took over in 1994 and guided the carrier to success after the run of the widely vilified Frank Lorenzo.

"Like Doug [Parker], Gordon came in when all the cost cuts had been made," said Siegel. "Somebody had taken the hits for that, and now he can be the builder, the positive guy. If I had the choice, I'd rather do that than what I had to do."

Siegel, now CEO of Gate Gourmet, left a post as CEO of Avis Rent A Car to join US Airways. Six months later, the airline filed for bankruptcy protection, a path that would eventually be followed by three of the five other legacy carriers. US Airways secured about $1.9 billion in annual savings, including $1 billion from labor. It wasn't enough, however, given a subsequent breakdown in industry pricing due to rapid expansion by low-fare carriers.

Siegel sought more cuts, an unpopular move that led to his ouster. In 2004, US Airways again sought bankruptcy protection and secured another $1.5 billion in annual cuts. This time, the airline emerged with expenses low enough that it became a viable candidate to merge with America West.

Siegel concedes that he failed to get sufficient pay concessions in the first bankruptcy. "I said we hope this works, the world has to get better. But I always feared we weren't getting enough," he said. "When the world didn't get better, I said now we have to step up to reality."

"I knew when I went to the second round that it would be tough for me to survive politically," Siegel said.

He was well compensated for his time on the job. Employees, who were being asked for a second round of concessions when he left, deeply resented his departure, which resulted in a $4.7 million severance payment and a payout of more than $773,000 in defined contribution benefits.

Siegel says he worked 80 to 100 hours a week and earned the money. "Don't cry for me," he said. "I know the employees went through a lot. But had I kept my old job, and never gone to US Airways, I would have made a lot more money and nobody would have complained about it."

When Lakefield succeeded Siegel, the retired Lehman Brothers executive had a single overriding mission: to save jobs. "I didn't really come into this for anything but that reason, and that mission was accomplished," he said in an interview. "Whenever I ride an airplane, and I ride fairly often, more people thank me than I could ever imagine."

Now 62, Lakefield continues to serve as vice chairman of US Airways. Parker paid tribute to Lakefield at the company's annual meeting in April. After describing the financing that helped to establish the new company, Parker noted: "Bruce, to his credit, said, 'I care about that stuff, but what I really care about is saving jobs.' Now 35,000 people work for the largest profitable airline in the U.S."

There were dark days before the merger became reality, however. Early in 2005, US Airways came close to shutting down after it fell out of compliance with loan covenants from its banks, the Air Transportation Stabilization Board and General Electric Commercial Aviation Services.

In February of that year came the first ray of light, unprecedented deals in which two regional carriers invested in US Airways in return for a commitment to contract for their services. The deals inspired other investors. In May, America West agreed to become the first low-fare carrier to take over a legacy carrier.

A one-time submarine officer, Lakefield worked to keep his team focused, even though most members of the management team realized their success would likely result in the loss of their own jobs.

Lakefield "had our jobs in mind -- that was a big thing to him," said Jack Stephan, president of the US Airways chapter of the Air Line Pilots Association. Siegel's principal contribution to US Air was to reduce costs, Stephan said, noting: "Siegel made no change to the structure of the airline. ... It was bankruptcy emergence subsidized by the pilots and the other labor groups."

Pilots, who provided more than $2 billion in pay and benefit concessions to save US Airways, now expect their participation to be rewarded.

"I give Doug Parker the benefit of the doubt," Stephan said. "But he will need a lot more than communication skills to appease this pilot group."



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