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US Airways Defends Its Executives

The company's board speaks out after pilots call for the resignation of the CEO and CFO.
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The board of directors of

US Airways


defended its executives Tuesday night, after pilots called for Chief Executive David Siegel and Chief Financial Officer Neil Cohen to resign.

David Bronner, chairman of the board, said the company has "complete confidence in the management team," and that the managers have "done a remarkable job and earned the confidence of the investment community for their leadership in tackling difficult issues." The company also touted the carrier's successful emergence from Chapter 11 bankruptcy protection and significant improvements to revenue and cost.

On Tuesday afternoon, a brewing conflict between the company's 5,000 pilots, represented by the Air Line Pilots Association, and the company bubbled over, with union leader Bill Pollack calling for the resignation of Siegel and Cohen. In ALPA's view, US Airways' management hasn't done enough to improve the company, despite employee wage concessions.

While Seigel has led US Airways out of bankruptcy, by management's own admission, results have been underwhelming. Coming off a strong summer travel season, rival network carriers


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eked out profits without the help of bankruptcy protection, while a newly restructured US Airways posted a net loss of $90 million. In the third quarter earnings release, CFO Cohen termed the quarter "disappointing."

Since Sept. 11 and throughout the bankruptcy, US Airways has pared down operations significantly, eliminating pilot positions and reducing their benefits.

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"US Airways' labor costs already are at or below industry standards. The problem is not labor -- the problems are high operating costs and low revenues resulting from failed business strategies," said Pollock, the union leader. "We've emerged from fiscal bankruptcy, but we're hamstrung by a management that remains bankrupt of vision, leadership, management skills and ideas."

The pilots point out that as a percentage of revenue, labor costs are already quite low, on par with low-cost rival


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. In the first half of 2003, according to ALPA, US Airways spent 38 cents on labor out of every revenue dollar, while Southwest spent 40 cents -- a sign of how deep the pilot sacrifice has been.

But while labor costs are down, overall costs at US Airways are still quite high. In the third quarter, US Airways reduced labor costs to $656 million from $748 million -- a 14% fall. But a host of nonlabor expenses, which account for two-thirds of US Airways' costs in the third quarter, didn't show this level of improvement. Costs for aircraft maintenance were up 4.2% year over year and selling expenses were up 3.1%, while aviation fuel costs and other rent and landing fees were down by smaller margins.

In fact, cost per available seat mile, or CASM, which is the metric Wall Street analysts use to view expenses, shows that US Airways' overall costs still lag Southwest by a wide margin. On a CASM basis, US Airways spent 9.52 cents in the third quarter, down 6.8% over the previous year, when the effects of restructuring are factored out. In comparison, Southwest's CASM came in at 7.51 cents in the third quarter, 2 cents cheaper.

ALPA's call for the removal of US Airways' upper management comes just weeks after


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CEO Leo Mullin announced his resignation from the company. Earlier in the year,



, parent of American Airlines, was faced with a similar situation with its unions, which gave wage concessions only after the removal of former CEO Don Carty.

US Airways stock was down 17 cents, or 2.8%, at $5.98 early Wednesday morning.