|US Airways CEO Doug Parker|
TEMPE, Ariz. TheStreet) -- No industry was impacted more by the Sept. 11 attacks than the airline industry, and no airline saw its course change more than US Airways ( LCC). Only US Airways filed twice for bankruptcy, then entered a merger where management of the smaller airline took over the operation and moved the headquarters. "The social issues," as they are called, were resolved in a dramatically different fashion than in other mergers, and brought Doug Parker -- now chief of US Airways -- into the ranks of major airline CEOs. Since then, Parker and his team have shaken up the industry, pushing for consolidation at every turn.
When the first airplane crashed into the World Trade Center, Parker, then CEO of America West, was at home in Paradise Valley, Ariz., getting ready to go to work. Just ten days earlier, he had replaced retiring Bill Franke, now chairman of Spirit ( SAVE). In the weeks that followed, the 40-year-old CEO underwent a baptism by fire, presiding over a nearly-broke airline that was carrying barely any passengers in a badly damaged airline economy. That morning, the phone calls came in, first from Parker's sister-in-law, who mentioned a crash, and then from the airline's operations control center, which said the Federal Aviation Administration had grounded all commercial flights. As he quickly drove the half dozen miles to work, Parker said, "my first concern was making sure all our people were safe." That turned out to be the case.
Another concern was not so easily resolved. America West, the ninth-largest airline, was about to run out of money. It had been negotiating with GE Capital and Airbus for a financing package; term sheets had been signed, but not definitive documents. The events of Sept. 11 dramatically reduced air travel, which constituted a "material change in events" leading GE Capital and Airbus to pull out of the financing deal. After a three-day shutdown, flights resume, but travel did not. "We were flying 10% loads," Parker said. "I would go to the airport and walk into the crew rooms. Our employers were there. They put on their uniforms and went to work. They weren't afraid." Unfortunately, the public was. From a Phoenix conference room, Parker joined in conference calls with top executives from other airlines and government officials, who discussed how to save the industry. The strangest part, Parker said, was that no airplanes flew by the windows, which looked out on the flight path for Phoenix Sky Harbor Airport. "It was a weird three days," he said. "You didn't see any airplanes all day." Within a few days, Parker was in Washington, attending series of meetings with other airline executives. They gathered at the Air Transport Association, at the White House and at a session of the House Aviation Subcommittee. Carriers had different issues, Parker said. American ( AMR) and United ( UAL) needed federal insurance after each lost two aircraft to terrorists. Every airline needed federal loan guarantees. And America West, which cut back its schedule by 15%, needed cash immediately. "We were the most in need," Parker said.
On Sept. 22, Congress approved a $15 billion bailout for the airline industry. Parker said he "literally lived in Washington from September to December," fighting for a share. In October, America West got a $60 million federal grant, as funds were allocated to carriers according to their capacity. Then in December, America West received a $380 million loan guarantee from the Air Transportation Stabilization Board, becoming the first carrier to get an ATSB loan guarantee. Funding enabled America West to reach a new deal with Airbus and GE Capital. In 2002, the carrier restructured its fares, eliminating Saturday night stay and round-trip purchase requirements. It was in business to stay. US Airways' Problems In the meantime, the Sept. 11 attacks ensnared US Airways in a different set of difficulties. Among them, Washington Reagan National Airport, a profit center for the airport, was closed for 23 days following the attacks before reopening gradually. Travel in the Northeast, site of the bulk of US Airways operations, declined because newly-introduced, cumbersome security procedures convinced many that land travel was preferable to air travel. Within months, the carrier cut capacity by 24% and eliminated 11,000 jobs. US Airways, bigger than America West, secured a $331 million share of the industry bailout, and later, a $1 billion ATSB loan guarantee. Unlike America West, US Airways suffered a run of management shakeups, including the turnover of five CEOs during a three-year period. In November, 2001, CEO Rakesh Gangwal suddenly resigned, forcing predecessor Steven Wolf back into the job, for which he had groomed Gangwal. In 2002, David Siegel
took over as CEO. He led the carrier into a quick bankruptcy that ended in 2003. US Airways secured about $1.9 billion in 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. So Siegel sought more cuts, which made him unpopular with employees and led to his departure. "I knew when I went to the second round that it would be tough for me to survive politically," Siegel said in a 2006 interview with TheStreet.
Bruce Lakefield, a former Lehman Brothers executive, replaced Siegel and, in 2004, led the airline into a second bankruptcy, when it secured another $1.5 billion in annual cuts. Lakefield, now vice chairman, said his mission was to save jobs. "I didn't really come into this for anything but that reason, and that mission was accomplished," he said in a 2006 interview with TheStreet . In 2004, Parker and his team made their first public effort at a merger, bidding for troubled ATA airlines. The effort failed because ATA's aircraft lessors determined they could get more value for their planes from foreign operators than from America West, and because Southwest could pay more for ATA's facilities at Chicago Midway. Afterward, "somewhere along the line we decided we should talk with US Airways about a merger," Parker said. "We were a small airline, with a cost advantage driven by labor costs. We saw United and US Airways in bankruptcy, getting their labor costs down to our level, and we knew it would be difficult to compete, given their revenue premiums. We saw US Airways as a way to mitigate some of that effect." Given the reduced costs, Lakefield was able to find investors willing to bet on the carrier and on the America West management team, leading to the 2005 merger. Lakefield's willingness to step aside as CEO resolved what is often a major "social issue," while the synergies of the deal were clear, because America West was a West Coast airline while US Airways had a strong East Coast presence. Negotiations were complicated, given the necessity to secure labor concessions, find investors, satisfy debtholders and put the airlines together. Initially, they were conducted in secret, but word of the talks eventually leaked to the media, so the September 2005 announcement surprised no one. The merger is generally considered to have been successful, despite a failure to integrate pilot groups due to a controversial seniority ruling. But most experts say US Airways needs yet another merger, because its hubs still aren't big enough to compete globally. Parker is
working on that . -- Written by Ted Reed in Charlotte, N.C. . >To contact the writer of this article, click here: Ted Reed >To follow the writer on Twitter, go to http://twitter.com/tedreednc. >To submit a news tip, send an email to: firstname.lastname@example.org.