Article By Jeff Bailey of The New York Times
Published: January 12, 2007
TEMPE, Ariz. — A good mood can be infectious, and W. Douglas Parker, chief executive of US Airways, with a sunny disposition and a $10.5 billion takeover proposal for Delta Air Lines, has helped make the airline industry feel better about itself again.
Gone for the moment are dreary laments about sky-high fuel costs, about fractious labor relations that can bring airlines to a virtual halt, and about the inevitable economic downturn that could very well plunge one or more of the thinly capitalized domestic carriers back into bankruptcy.
Indeed, the usual downer talk about airlines is being drowned out by the sweet murmurings of speculation, as an industry that for many reasons should be loathed by investors regains a little glamour on Wall Street.
Will Mr. Parker succeed in buying Delta and in carving out his promised $1.65 billion in cost savings, or will someone else pay even more? Will United Airlines and Continental Airlines, fearful of being left behind, also merge, and force a wholesale streamlining of the industry that might help smooth out the wrenching ups and downs of the past?
Mr. Parker, more than any other industry player, sparked this turnaround in sentiment with what appears to be a startlingly successful merger of the old US Airways, a carrier that was in bankruptcy twice since 2001, and his America West Airlines, a much smaller company that itself badly needed a cash infusion.
He raised $866 million from outside investors, and brought the airlines together in time to catch an updraft in ticket pricing that has restored the industry to rare profitability.
US Airways’ market capitalization now stands at $5.4 billion. Since the merger, its new shares have tripled in value from a first-day close of $20.21 on Sept. 29, 2005, to $61.20 on Thursday.
“We are the first post-Sept. 11 success story,†said Jack Stephan, a captain and head of the union chapter that represents pilots from the old US Airways side.
It has not hurt, in navigating the merger, that “Doug Parker is charming,†Mr. Stephan added.
Mr. Parker, 45 and boyish — pilots and others call him Doogie, after the television teenage doctor “Doogie Howser, M.D.†— has, with a combination of self-deprecation and a quiet determination about the economics of mergers, made investors see airlines as a troubled industry that can be profitable instead of just a troubled industry.
Delta is still in bankruptcy, recovering from years of missteps like entering into a costly pilots’ contract just before the last downturn, and flying big planes on routes better served by smaller craft.
But the price offered by US Airways puts Delta within $3 billion of the market value of Southwest, the lone big airline that has bragging rights for consistent profitability. A lot must keep going right for Delta, and much of the rest of the industry, to justify investors’ confidence.
“Currently, the market is priced for perfection,†said Roger King, an analyst at CreditSights. “Investors have Doug Parker to thank.â€
Mr. Parker, in an interview at US Airways headquarters here, said the success of his initial merger — and the market’s embrace of the proposed Delta combination — had nothing to do with superior management skills and everything to do with the savings from combining two airlines.
“We’d like to attribute it to management, but it’s due to the merger,†he said. When congratulated for sounding modest while arguing for the Delta combination, he smiled and declared, “Just the sweet spot I was trying to hit.â€
In pursuing Delta before the earlier merger is completely integrated, Mr. Parker is trying to take advantage of Delta’s stay in bankruptcy, where a company can jettison assets and obligations and reshape its operations more easily than outside bankruptcy. He is also moving on to the new target before negotiating more expensive labor contracts with US Airways workers, who gave up a lot to keep the airline in business.
On the US Airways-America West merger, “Doug threw the Hail Mary pass,†the chief executive of a much larger airline said, admiringly. “He’s smart enough to know, ‘I’ve got this really low cost structure, which is temporary. Because when these people storm the barracks, I’m going to have to appease them after what they’ve been through.’ â€
The merger of US Airways and America West remains a work in progress. The reservations systems operate separately, for the most part. The company still lacks an operating certificate from the Federal Aviation Administration to run the airlines as a single operation, so pilots and flight attendants remain bound to their old airlines (the certificate is expected this year).
And some of the merger steps have not gone well. An effort to combine the two carriers’ Web sites led to weeks of malfunctions last year.
But reducing the overlap in corporate staffs and grounding about 60 planes resulted in huge savings. At the same time, because many airlines were shrinking their fleets, US Airways was able to raise fares domestically by about 15 percent last year without a drop in traffic.
For the first nine months of 2006, US Airways reported net income of $292 million on revenue of $8.77 billion.
The Delta proposal is also based on grounding planes — about 10 percent of the combined fleet — while maintaining the same level of traffic. The carriers’ operations overlap through much of the Eastern states.
Pilots and flight attendants at US Airways want higher pay in their new contracts to reflect the airline’s success. “Just because the company is making money doesn’t make me happy,†said Mike Flores, head of the chapter of the Association of Flight Attendants that represents workers at the old US Airways. “I need to make money, too.â€
Lucy Mosby, a flight attendant in Charlotte, N.C., said she was paid $36,000 last year by US Airways. After two bankruptcies that involved worker concessions, “I feel like I’m where I was when I started†eight years ago, she said. “I just picked up a part-time job. I do sales at Crate & Barrel.â€
To date, Mr. Parker has kept unions at US Airways from outright opposing the Delta takeover. He tells workers that the combination would make the companies more profitable, and thus more stable for employees.
“Given the track record of Parker and his team, I’d think he’d have a good idea of what’s going to happen,†said Gary Richardson, who heads the chapter of the Association of Flight Attendants representing workers from the old America West.
While Mr. Richardson is frustrated by the slow pace of negotiations, and wants a big pay increase for historically low-paid flight attendants at the airline, he remains a Parker admirer. “He’s a great guy,†Mr. Richardson said. “An incredible man.â€
Mr. Parker joined the airline industry right out of college, working first in finance at American Airlines and then Northwest Airlines before joining America West, where he was promoted to chief executive just 10 days before Sept. 11, 2001. The airline was nearly out of cash and survived only by securing the first government loan guarantee.
Mr. Parker nonetheless went looking for acquisitions. He was outbid by Southwest for some assets of ATA Airlines. That left America West free to pursue much larger US Airways, which was teetering near liquidation, in 2005.
Though little known outside the industry, he was able to persuade investors that his young management team could run the merged airlines.
That takeover battle was so busy, he said, he wasn’t able to run regularly. During this effort, he is making time to run to stay healthy.
The good will he enjoys among many workers, including union officials, is in part because of the upward swing that America West and US Airways enjoyed shortly after he became chief executive.
But it is also because of his manner. He steers away from management-speak, uses plain language and often discusses a situation from the other person’s perspective. And he laughs easily at himself.
His wife, Gwen, is a former flight attendant and union activist at American. And, as Mr. Parker said in an interview last year, if he comes home complaining that workers need to make concessions, “it’s not going to make for a nice evening at home.â€
Among airline executives, said Mr. Stephan, the pilots’ union official, “Doug is probably the closest thing to an airline guy.â€
Published: January 12, 2007
TEMPE, Ariz. — A good mood can be infectious, and W. Douglas Parker, chief executive of US Airways, with a sunny disposition and a $10.5 billion takeover proposal for Delta Air Lines, has helped make the airline industry feel better about itself again.
Gone for the moment are dreary laments about sky-high fuel costs, about fractious labor relations that can bring airlines to a virtual halt, and about the inevitable economic downturn that could very well plunge one or more of the thinly capitalized domestic carriers back into bankruptcy.
Indeed, the usual downer talk about airlines is being drowned out by the sweet murmurings of speculation, as an industry that for many reasons should be loathed by investors regains a little glamour on Wall Street.
Will Mr. Parker succeed in buying Delta and in carving out his promised $1.65 billion in cost savings, or will someone else pay even more? Will United Airlines and Continental Airlines, fearful of being left behind, also merge, and force a wholesale streamlining of the industry that might help smooth out the wrenching ups and downs of the past?
Mr. Parker, more than any other industry player, sparked this turnaround in sentiment with what appears to be a startlingly successful merger of the old US Airways, a carrier that was in bankruptcy twice since 2001, and his America West Airlines, a much smaller company that itself badly needed a cash infusion.
He raised $866 million from outside investors, and brought the airlines together in time to catch an updraft in ticket pricing that has restored the industry to rare profitability.
US Airways’ market capitalization now stands at $5.4 billion. Since the merger, its new shares have tripled in value from a first-day close of $20.21 on Sept. 29, 2005, to $61.20 on Thursday.
“We are the first post-Sept. 11 success story,†said Jack Stephan, a captain and head of the union chapter that represents pilots from the old US Airways side.
It has not hurt, in navigating the merger, that “Doug Parker is charming,†Mr. Stephan added.
Mr. Parker, 45 and boyish — pilots and others call him Doogie, after the television teenage doctor “Doogie Howser, M.D.†— has, with a combination of self-deprecation and a quiet determination about the economics of mergers, made investors see airlines as a troubled industry that can be profitable instead of just a troubled industry.
Delta is still in bankruptcy, recovering from years of missteps like entering into a costly pilots’ contract just before the last downturn, and flying big planes on routes better served by smaller craft.
But the price offered by US Airways puts Delta within $3 billion of the market value of Southwest, the lone big airline that has bragging rights for consistent profitability. A lot must keep going right for Delta, and much of the rest of the industry, to justify investors’ confidence.
“Currently, the market is priced for perfection,†said Roger King, an analyst at CreditSights. “Investors have Doug Parker to thank.â€
Mr. Parker, in an interview at US Airways headquarters here, said the success of his initial merger — and the market’s embrace of the proposed Delta combination — had nothing to do with superior management skills and everything to do with the savings from combining two airlines.
“We’d like to attribute it to management, but it’s due to the merger,†he said. When congratulated for sounding modest while arguing for the Delta combination, he smiled and declared, “Just the sweet spot I was trying to hit.â€
In pursuing Delta before the earlier merger is completely integrated, Mr. Parker is trying to take advantage of Delta’s stay in bankruptcy, where a company can jettison assets and obligations and reshape its operations more easily than outside bankruptcy. He is also moving on to the new target before negotiating more expensive labor contracts with US Airways workers, who gave up a lot to keep the airline in business.
On the US Airways-America West merger, “Doug threw the Hail Mary pass,†the chief executive of a much larger airline said, admiringly. “He’s smart enough to know, ‘I’ve got this really low cost structure, which is temporary. Because when these people storm the barracks, I’m going to have to appease them after what they’ve been through.’ â€
The merger of US Airways and America West remains a work in progress. The reservations systems operate separately, for the most part. The company still lacks an operating certificate from the Federal Aviation Administration to run the airlines as a single operation, so pilots and flight attendants remain bound to their old airlines (the certificate is expected this year).
And some of the merger steps have not gone well. An effort to combine the two carriers’ Web sites led to weeks of malfunctions last year.
But reducing the overlap in corporate staffs and grounding about 60 planes resulted in huge savings. At the same time, because many airlines were shrinking their fleets, US Airways was able to raise fares domestically by about 15 percent last year without a drop in traffic.
For the first nine months of 2006, US Airways reported net income of $292 million on revenue of $8.77 billion.
The Delta proposal is also based on grounding planes — about 10 percent of the combined fleet — while maintaining the same level of traffic. The carriers’ operations overlap through much of the Eastern states.
Pilots and flight attendants at US Airways want higher pay in their new contracts to reflect the airline’s success. “Just because the company is making money doesn’t make me happy,†said Mike Flores, head of the chapter of the Association of Flight Attendants that represents workers at the old US Airways. “I need to make money, too.â€
Lucy Mosby, a flight attendant in Charlotte, N.C., said she was paid $36,000 last year by US Airways. After two bankruptcies that involved worker concessions, “I feel like I’m where I was when I started†eight years ago, she said. “I just picked up a part-time job. I do sales at Crate & Barrel.â€
To date, Mr. Parker has kept unions at US Airways from outright opposing the Delta takeover. He tells workers that the combination would make the companies more profitable, and thus more stable for employees.
“Given the track record of Parker and his team, I’d think he’d have a good idea of what’s going to happen,†said Gary Richardson, who heads the chapter of the Association of Flight Attendants representing workers from the old America West.
While Mr. Richardson is frustrated by the slow pace of negotiations, and wants a big pay increase for historically low-paid flight attendants at the airline, he remains a Parker admirer. “He’s a great guy,†Mr. Richardson said. “An incredible man.â€
Mr. Parker joined the airline industry right out of college, working first in finance at American Airlines and then Northwest Airlines before joining America West, where he was promoted to chief executive just 10 days before Sept. 11, 2001. The airline was nearly out of cash and survived only by securing the first government loan guarantee.
Mr. Parker nonetheless went looking for acquisitions. He was outbid by Southwest for some assets of ATA Airlines. That left America West free to pursue much larger US Airways, which was teetering near liquidation, in 2005.
Though little known outside the industry, he was able to persuade investors that his young management team could run the merged airlines.
That takeover battle was so busy, he said, he wasn’t able to run regularly. During this effort, he is making time to run to stay healthy.
The good will he enjoys among many workers, including union officials, is in part because of the upward swing that America West and US Airways enjoyed shortly after he became chief executive.
But it is also because of his manner. He steers away from management-speak, uses plain language and often discusses a situation from the other person’s perspective. And he laughs easily at himself.
His wife, Gwen, is a former flight attendant and union activist at American. And, as Mr. Parker said in an interview last year, if he comes home complaining that workers need to make concessions, “it’s not going to make for a nice evening at home.â€
Among airline executives, said Mr. Stephan, the pilots’ union official, “Doug is probably the closest thing to an airline guy.â€
