US Airways, AMR would make largest carrier

BY MARY SCHLANGENSTEIN Bloomberg News
Sunday, February 17, 2013
2/17/13 at 7:31 AM

US Airways Group Inc. CEO Doug Parker, after three failed attempts at major mergers, appears to have closed the deal he's been dreaming about.

When final approvals are in place, US Airways will combine with AMR Corp.'s American Airlines and form the world's biggest carrier, the two firms announced last week.

Parker, 51, has applied lessons from his previous efforts, shifting tactics in pursuing the bankrupt AMR.

The US Airways CEO will lead the combined company. The deal marks a career achievement for Parker, the longest-serving CEO among large U.S. airlines. It also completes the industry consolidation that he began in 2005 when his America West Holdings Corp. merged with US Airways, reducing the number of full-service U.S. carriers to just three and bolstering airlines' ability to raise fares.

"He learns from his past mistakes," Gordon Bethune, the former CEO of Continental Airlines Inc., said in an interview. "He's done this the right way, and it's showing."

US Airways began its pursuit in January 2012, less than two months after Fort Worth, Texas-based AMR sought court protection.

The airlines agreed last week on details of a merger. Parker will become CEO, and American's Tom Horton will become non-executive chairman.

Top spot

With US Airways now the fifth-biggest U.S. airline, a tie-up with No. 3 American will push the combined carrier to the top spot by global traffic, passing United Airlines and Delta Air Lines Inc., both of which eluded Parker in the past.

"Parker has been the No. 1 backer of consolidation," said Bob Mann, a former American Airlines executive who now runs aviation consultant R.W. Mann & Co. in Port Washington, N.Y. "He doesn't mind getting his nose bloody if he thinks it's the right thing to do."

Hired in 1995 as America West's chief financial officer, Parker's tests began almost as soon as he became CEO in 2001, 10 days before the Sept. 11 terrorist attacks. Parker testified before Congress in support of a $15 billion airline-aid package as travel demand shriveled, saying America West risked bankruptcy. It secured a $380 million federal loan guarantee.

The man known as a fierce competitor at salsa-making contests and go-cart races at US Airways' annual media day drummed up $1.5 billion to fund the America West-US Airways deal from backers that included planemaker Airbus SAS, former Air Canada parent ACE Aviation Holdings Inc., and hedge funds Par Capital Management Inc. and Peninsula Investment Partners LP.

"He's not a distant, standoff-ish kind of guy," said Bethune, who was running Continental when Parker took the helm at America West. "He's a really bright, forward-thinking man and a great manager."

Parker had less success with his follow-on merger efforts.

His hostile 2006 bid for then-bankrupt Delta faltered after two months as creditors and employees balked. In 2008, former United parent UAL Corp. walked away from talks with US Airways, saying a combination wouldn't produce enough savings and that it wanted to explore a deal with Continental.

Parker was back in talks with United in 2010, only to be left at the altar again when Continental CEO Jeff Smisek jumped in and persuaded UAL's then-CEO, Glenn Tilton, to do the deal that created United Continental Holdings Inc.

"I didn't want him to marry the ugly girl," Smisek said at the time, as he became CEO of the new company. "I wanted him to marry the pretty one, and I'm much prettier."

Parker also saw Southwest Airlines Co., the fourth-biggest U.S. airline, widen its advantage over US Airways by buying AirTran Holdings Inc. in 2011. Southwest was already the largest operator on domestic routes, and a lack of trans-Pacific flights meant that US Airways also was falling further behind United, Delta and American and their international networks.

With no other targets left at the top of the U.S. industry, Parker set his sights on a weakened American in bankruptcy.

Parker and President Scott Kirby gained early support from American's unions, which were feuding with Horton. US Airways took an unprecedented step by securing tentative contracts with the labor groups in April, when Horton was still pushing for AMR to exit bankruptcy and then consider combinations.

Delta lessons

That was one lesson from the Delta experience. A second was to gain the backing of creditors of a bankrupt target as soon as possible. US Airways won support for an American merger from a group holding about $1.5 billion in AMR debt.

US Airways investors began betting that Parker would succeed, even before he publicly acknowledged interest in AMR. US Airways stock has more than tripled since Nov. 28, 2011, the day before AMR's bankruptcy filing.

That support marks a turnaround in perceptions of US Airways from the days of Smisek's jab, or even Horton's initial prediction last year that a takeover bid for AMR would "be every bit as successful as their prior three attempts."

US Airways' combination with America West has had more than its share of difficulties. A legal battle between the two airlines' pilot unions over how to mesh seniority lists has kept the groups working under separate contracts for more than seven years.

The combination also earned a reputation for poor operational performance, particularly at its Philadelphia hub. Parker's 2007 hiring of former Northwest executive Robert Isom as chief operating officer began a turnaround. US Airways flights were on time an average of 86.3 percent in 2012's first 11 months, compared with the 82.6 percent industry average.

"We made a lot of changes in our operation and have focused on execution ever since," Isom said in an interview. "Over the last five years, there's no carrier that's been better at operating on time and delivering baggage reliably. Doug likes to say now that is part of the fabric of who we are."

'Deal world'

US Airways, which has had three consecutive profitable years, pays workers a bonus for hitting specific targets for on-time arrivals, baggage handling and customer satisfaction. Through November, it had paid out $19 million, or $500 per employee.

"Doug has spent almost five years in the deal world," said Bill Franke, who was America West CEO when he hired Parker as CFO in 1995. "If they do this deal, they now have to return to running an airline. That takes a different sort of commitment. You have to now deal with the nitty-gritty day in and day out. I don't have any doubt they can do it."

Original Print Headline: US Airways CEO gets prize

Doug Parker

Full name: William Douglas Parker

Position: Chairman and CEO, US Airways Group.

Work history: Joined US Airways in 1995 as senior vice president and CFO (America West Airlines); was vice president at Northwest Airlines from 1991 to 1995; and was at American Airlines from 1986 to 1991.

Education: BA in Economics from Albion College and an MBA from Vanderbilt University.

Home: Paradise Valley, Ariz.

Associated Images:

US Airways CEO Doug Parker (left) and American Airlines CEO Thomas Horton: After last week's merger, Parker will lead the combined company as CEO and Horton will become non-executive chairman.