US Airways gave $35 million in pension payments to top 3 former executives
PITTSBURGH (Post-Gazette) - As it was careening into financial ruin and ultimately Chapter 11 bankruptcy, US Airways paid $35 million in lump-sum retirement benefits to its former top three executives.
Stephen Wolf, who ran the airline for seven years and now serves as chairman of the board, received $15 million. Wolf is no longer employed by the carrier. His protege, Rakesh Gangwal, who resigned as president and CEO in November 2001, also received $15 million, and Lawrence Nagin, the airline's longtime executive vice president and general counsel who retired last March, received $5 million.
Although the payouts apparently took place at the time each of the executives retired, they didn't come to light until this week during a bankruptcy court hearing in Alexandria, Va. Disclosure of the payments was tucked into documents filed with the court last September and October.
During the first half of their tenure, Wolf and Gangwal were praised for their role in turning around an airline that in the mid-1990s teetered on the brink of bankruptcy. But their reputations faded as their growth strategy became undone by a recession that hit all carriers and sharp drop-off in air travel after the Sept. 11 terrorist attacks.
The three men were entitled to receive the retirement benefits as part of the employment contracts they negotiated with US Airways' board of directors. But the payouts drew immediate fire from airline employees suffering from lost jobs, benefits and pay cuts and from some outside analysts.
The payments are yet another example of "outsized compensation to management that borders on looting," said William Lauer, chairman of the Tarentum-based Allegheny Capital Management, a former investor in the airline.
The issue of the retirement benefits was raised this week during a hearing before U.S. Bankruptcy Judge Stephen Mitchell on the airline's request to terminate the pension plan for its unionized pilots and replace it with another plan.
The airline has contended that unless it can reduce its pension expenses -- what it must pay over the next seven years to cover its unfunded pension liabilities -- it won't be able to obtain the federal loan guarantee and equity funding it needs to survive. The airline hopes by scrapping the current plan and replacing it with another, it can significantly cut its expenses.
While being cross-examined by the unionized pilots' attorney, US Airways' Chief Financial Officer Neil Cohen testified that Wolf, Gangwal and Nagin received their million in lump-sum retirement payments.
The Air Line Pilots Association's spokesman, Roy Freundlich, said the testimony, which the union immediately posted on its Web site, confirmed what many pilots suspected: that the airline's top executives were protecting their pensions while sacrificing those of other employees.
The disclosure of the retirement payouts came in a time that has seen the airline's ranks slashed by more than 16,000 and management wrest more than $1 billion in annual wage and benefit concessions from its unionized workers.
The pilots, which as a group have agreed to $565 million in annual concessions, contend that if their pension plan is abolished and taken over by the federal Pension Benefit Guaranty Corp., they could lose as much as 65 percent of their benefits.
This isn't the first time that Wolf and Gangwal have been criticized for their salary and benefits.
In August 2001, when the deal to merge with United Airlines fell through, Wolf, Gangwal and Nagin agreed to forgo their contractual rights to resign that fall -- a move that would have made them eligible for severance packages totaling a combined $45 million. The three made the move amid protests from workers.
In the next month, Wolf and Gangwal came under fire again from labor unions for retaining their full salaries at a time the airline was slashing its work force and seeking concessions from its employees following the 9/11 attacks. The pair later agreed to give up their salaries and benefits for the last 15 weeks of 2001, moves that cost them nearly $200,000 apiece.
In 2000, Wolf's compensation from all sources totaled $11.6 million, including $7.6 million in reimbursement for taxes paid on restricted stock received over the years. Gangwal earned $12.1 million in total compensation, including a $7.2 million reimbursement for tax liabilities.
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