New Course for US Airways

Updated from 10:05 a.m. EDT

As bankruptcy fears swirl, the sudden resignation of US Airways ( UAIR) CEO David Siegel could improve the company's chances of winning critical wage cuts from pilots.

After two years at the helm of the nation's seventh-largest airline, Siegel announced his resignation at a board meeting late Monday, putting the company further under the control of David Bronner, US Airways' non-executive chairman and CEO of the Retirement Systems of Alabama, which has a $300 million, or 37%, equity stake in the company. One of the pension fund's representatives to the board, Bruce Lakefield, former Chairman and CEO of Lehman Brothers, will replace Siegel as CEO.

With the company pushing to gain another round of wage cuts from unions, analysts largely viewed the news as a positive for US Airways, telling investors the company was in a better position to wheedle concessions from unions despite Lakefield's inexperience in the airline industry.

Shares of US Airways were off 2 cents, or 0.6%, to $3.40, hitting a 52-week low of $3.31 shortly after the open of trading on Tuesday.

" Siegel had become a lightning rod for union criticism, and his departure will probably be cheered by much of the company's union leadership, and put them in more of a mood to be cooperative," said Jim Higgins, analyst at Credit Suisse First Boston, in reaction to the news. We will just have to wait and see, however, how the company fares under a CEO we believe has limited airline experience."

Siegel's departure comes as the airline tries to stave off a second bankruptcy filing in as many years. Siegel had told employees the company needs to reduce labor costs by another 25% to be competitive, but after giving up their pension and billions of dollars in wage concessions, unions have balked at the request to cut their pay again. In December, pilots called for Siegel's resignation, while flight attendants sued the company for breach of contract.

"I have great affection for the airline and its outstanding employees, and I want to see the company succeed. Unfortunately, the past two years have been difficult for all of us, and I believe our ability to move forward and make additional changes require a change in leadership," Siegel said in a statement Monday. "I hope that today's announcement is the first step in a healing process that will enable the company to complete its restructuring."

One major issue to be settled is Siegel's severance package, which is valued at more than $4.5 million. Under the terms of his deal, revealed in an April 9 proxy statement, Siegel would be entitled to a big payout if he left the company before April 30. In March, Siegel vowed to stay on at US Airways and fight the company's problems, telling employees he wasn't going to take his golden parachute.

The airline industry has undergone a management shake-up in the two-and-a-half years since the World Trade Center attacks. Five airlines have announced the resignation of their CEOs, with Delta Air Lines ( DAL), Continental Airlines ( CAL) and US Airways announcing shake-ups in the last six months.

With Siegel out, US Airways needs to regroup in order to take on Southwest Airlines ( LUV), which plans on debuting service from Philadelphia, a US Airways hub, in May. Last month, Siegel warned the impact of competition could be dire, in an address to employees. "They're coming for one reason: they're coming to kill us," he said. "They beat us on the West Coast, and they beat us in Baltimore. If they beat us in Philadelphia, they're going to kill us."

Indeed, Southwest recently announced plans to boost the number of cities it will serve from Philadelphia, not only smelling blood, but also saying advance bookings have been the strongest they've ever seen for a new city. The low-cost carrier will expand its initial daily service from six cities and 14 departures to 14 cities and 28 departures.

While Siegel's departure could improve management's relationship with labor, the situation at US Airways is getting bleak. In order to raise cash, the carrier is already looking into the sale of some assets, including hubs and its east coast shuttle. The carrier continues to post losses; it has seen its credit rating fall; and last month, it almost defaulted on a $1 billion loan guaranteed by the Air Transportation Stabilization Board.

In a worst-case scenario, US Airways may have to file for Chapter 7 bankruptcy protection and liquidate its assets. While this might help the overall industry by taking out some excess capacity, Higgins said that Southwest would be the big winner in the event of liquidation. But US Airways' regional partner, Mesa Airlines ( MESA), which two months ago expanded its contract to fly on behalf of US Airways, would likely be the big loser.

Southwest rose 27 cents, or 1.9%, to $14.80, while Mesa gained 6 cents, or 0.8%, to $7.81.

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