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US Airways CEO Parker Pulls It All Together

CHARLOTTE, N.C. -- For the fourth time in four years, Doug Parker is actively chasing his dream of a game-changing airline merger.

If there were to be a deal between US Airways (LCC), the company he runs, and UAL's (UAUA) United, Parker would become an icon, a CEO who merged his way to the top of the industry.

Four years ago, Parker was running America West Airlines, a Tempe, Ariz.-based regional carrier with $2.4 billion in annual revenue. Today, he heads the $12 billion US Airways. A successful merger could make him a top executive at a $30 billion airline, second in size only to Delta (DAL) and Northwest (NWA), assuming their own combination is completed.

United's board is scheduled to meet today to review options that also include entering into an alliance with Continental (CAL), although a source with knowledge of the situation said no decision is imminent.

Parker's chase began in 2004, when America West bid for troubled ATA Airlines. "That was the first indication that Parker was going for market size, trying to break into the Chicago market," says aviation consultant Robert Mann. The effort failed because ATA's aircraft lessors determined they could get more value for their planes from foreign operators than from America West.

The next year, he hit pay dirt, getting a deal between America West and US Airways, which had a strong East Coast presence and a lower cost structure after two bankruptcies. Investors wanted Parker to run the company, while US Airways CEO Bruce Lakefield wanted to save jobs. Everybody got what they wanted.

In 2006, its first full year of operation, the merged carrier made $303 million and was the most profitable legacy airline. Flush with success, Parker launched a hostile bid for Delta, then the third-largest carrier. Delta fought him off and the effort was dropped.

So Parker laid low, encouraging consolidation while acknowledging that US Airways was nobody's first choice as a partner. But when Continental spurned United last month, the push was on.

Shades of Lorenzo

Parker's ascent brings to mind another airline executive whose star rose through a series of mergers. Like Parker, Frank Lorenzo started with a small airline, Texas Air -- it eventually became Texas Air Group and was briefly the world's biggest airline company.

In most other ways, however, Lorenzo, who chose to fight his employees rather than his competitors, was Parker's opposite. In fact, in terms of employee relations, Parker communicates through charm offensives, often traveling to employee gatherings.

The approach worked at Phoenix-centric America West, and initially at US Airways, where Parker was first viewed as a hero. But it also feeds into the bigger question: are Parker and his management team, mostly holdovers from America West, capable of running one of the world's biggest airlines? "As the targets get bigger and bigger, that's got to be the issue," Mann says.

Mike Flores, president of the US Airways chapter of the Association of Flight Attendants, says that today at US Airways, "It is mostly [former America West] managers making decisions based on west past practices. They were running a regional carrier and tried to bring that same regional mentality."

For instance, he says, "instead of looking to see how US Airways handled European flying or configured aircraft, they said 'we know how to do it better.' If they do that at United, and try to tell United how to fly to Asia, then we will have a major problem."

US Airways spokesman Phil Gee says that in integrating thousands of policies and procedures, managers sought the best from both America West and the old US Airways, in stark contrast to what happened during many previous airline mergers where the acquirer dominated.

"The old US Airways had certain unique strengths, as did America West," Gee says. "We combined those, and now have the best of both carriers."

While it was successful early on, the US Airways merger began to wear thin with some workers, reflecting a controversial pilot seniority ruling that continues to provoke deep disagreement among pilots, deteriorations in passenger service and a tumbling stock price.

In Parker's defense, he is paying the price for the seniority ruling despite having had nothing at all to do with it. And the service decline, reflecting a botched switchover to a single reservations system and a flawed international ramp-up in Philadelphia, has ceased. US Airways' on-time ranking was 18th of 20 airlines in 2007, but surged to second among 19 airlines in the first quarter of 2008.

The share price, though, remains a disappointment. After reaching a high of $63.27 in November 2006, it fell nearly 90%. On Thursday, it was trading below $8. During the same period, the Amex Airlines Index fell by about 63%.

One cause for the decline has been that international capacity is about 20% at US Airways and twice as much at the five other legacy carriers. This is a problem that a merger with Delta or United would address. In that sense, Parker is doing what he has always done, finding a carrier with assets he lacked -- a Chicago hub at ATA, a Northeast presence at US Airways -- and going for it.

Talking to reporters at US Airways media event in February, Parker spoke of the lessons learned from consolidation: You can't make everyone happy, expect some operational disruption, be more decisive than usual, leadership team-building is critical and challenging, and communicate, communicate and communicate with your employees.

He may soon have another chance to apply those lessons.

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