US Airways Chief Describes Biggest Challenges
in AMR Settlement
Doug Parker Cites Keeping Executives—and His Wife—on Task After Government Filed Suit
CHICAGO (WSJ.com) - US Airways Group Inc. Chief Executive Doug Parker was checking email at his home in Paradise Valley, Ariz., early on Aug. 13 when he received a terse message at 6:43 that his company's planned merger was in serious trouble.
Mr. Parker had been engineering the combination with American Airlines since soon after its parent, AMR Corp.,filed for bankruptcy protection in November 2011. Now the Justice Department was suing on antitrust grounds to stop the biggest merger in airline-industry history.
"Business people aren't supposed to be surprised, but we were absolutely surprised," Mr. Parker says. The suit gave rise to "one of the hardest management situations I've had to work through."
In his first extensive interview since the skirmish with the Justice Department began, Mr. Parker says overcoming the government's objections was only part of his challenge. He also had to persuade executives and employees at both companies—and even his own wife—that the deal would go through. And now, that the deal has been cleared,US Airways already is working to take some of the starch out of American's buttoned-up corporate culture.
Mr. Parker and his colleagues reached a settlement with the government on Nov. 12 that will let the deal close next Monday. Mr. Parker will take the top job at the new American Airlines Group Inc., which will become the world's largest carrier by traffic.
The 52-year-old Mr.Parker, who started his airline career in 1986 in American's finance department, is the longest-sitting CEO currently running a U.S. airline. This will be his second merger, following the 2005 acquisition of US Airways when he was running America West Airlines.
Mr. Parker's team is experienced in merger integration. And "We've seen what other airlines did," he says. "But it's really difficult work. We're doing everything we can to do it as well as possible and not cause disruption to our customers."
The highest risk is moving US Airways to American's passenger reservation system, the nerve center for everything from passenger bookings to check in and frequent-flier accounts.
"It's an enormous endeavor that we didn't manage as well as we liked at America West-US Airways," he says. Their systems integration was marred by late flights, computer glitches,non functioning check-in kiosks, mishandled bags and customer complaints. The problems took months to resolve.
The longer-term challenge now is bridging cultural divides. There are stark differences in management style, Mr. Parker says. between US Airways, which is based in Tempe,Ariz., and AMR, of Fort Worth, Texas.
"Most of them are long-term American employees who haven't worked outside, which is both a plus and a minus," he says. "They are much more focused on structure and process, and the US Airways team less so. The American team makes sure everything is really, really ready to go before they pull the trigger. We have a bias for action with less preparation."
Mr. Parker says he saw an opportunity immediately when AMR filed for bankruptcy two years ago. He long had thought that a combination made sense and would offer a way to compete with bigger, already-merged rivals. Bankruptcy protection meant AMR's outsize costs would be addressed and potentially create a stronger competitor to US Airways."We knew we didn't want to sit around" and watch the larger airline restructure.
But he had to persuade other people, including a reluctant American management. American's unions came around first, then its creditors. Finally in the fall of last year, AMR's directors and CEO Tom Horton agreed to examine a merger.
The airlines agreed on a stock swap—valued at nearly $18 billion based on US Airways' share price on Friday—in February. The combined management team and a new board were selected in June, with Mr. Horton tapped to serve as non executive chairman. The airlines aimed to close the deal in late August.
When US Airways' board approved the deal, Mr. Parker told them, "Not once did we wake up and get an emergency phone call about something we didn't expect," he recalls."Our advisers gave us good advice along the way."
Then came Aug. 13 and Mr. Parker's email from Paul Denis, an antitrust lawyer for US Airways at Dechert LLP. A flurry of telephone calls ensued.
"We knew it was a possibility," Mr. Parker says of the government's challenge. "We'd been talking to them and they never said, 'Don't worry.' But we had five senior lawyers working on this thing and they never thought we'd be sued."
The Justice Department"came out with extremely bold, black-and-white statements that the only answer here was a complete injunction. Full stop," the CEO said."They didn't want to settle."
Beyond their response to the government, Mr. Parker and his colleagues had to quell anxiety within.Executives who hadn't been chosen to work for the combined company needed to stay on to run the separate airlines. Some of those people wondered if they should have new hope. And executives who had been looking forward to the merger thought, " 'How do I go back to this world I'm less excited about,' "Mr. Parker says.
Mr. Parker insisted that the integration planning teams continue their work. But some American employees thought that was futile and wanted to craft a new plan in case the company had to emerge from Chapter 11 alone.
"American had two primary goals: to run a great airline and get out of restructuring as soon as possible," an AMR spokesman says. "If the lawsuit meant we were not coming out…in the near future, we still had to run a great airline."
Mr. Parker feared the deal could unravel.
"We wanted to keep the excitement and momentum going," he says. "So we kept showing up at [AMR's] headquarters, even though we weren't invited. It was uncomfortable and awkward."
" 'We can't look like we don't have confidence,' " he recalls thinking. "It was fragile enough that if we had let it, it would have fallen apart."
His wife, Gwen, had already moved with their two youngest children from Arizona to a furnished rental home in a Dallas suburb. But she asked whether she really needed to get a Texas driver's license. " 'It's bad karma if you don't,' " he told her.
Mr. Parker says American's Mr. Horton has been "all in" since the two boards agreed to merge. "Tom had to call his team, many of whom were making big decisions about their future that didn't include working at American Airlines.[He told them], 'We can't have this company not being managed. You have tore-engage.' "
Initial settlement offers to the Justice Department went nowhere. But as both sides prepared for a Nov. 25 trial, renewed talks led to November's agreement. The Justice Department says that the concessions the airlines made—ceding slots and gates at several busy airports—will allow discount carriers to expand, fostering competition.
The more-relaxed US Airways already has made a mark on its merger partner. American recently dropped its strict dress code for what employees may wear on flights when they are traveling off duty. Shorts were barred except for children 6 years old and younger, as were leggings, T-shirts, warm-up suits and other casual wear."Now you can wear nice jeans in first class," Mr. Parker says.
And US Airways' company wide Halloween celebration, in which executives dress up as pop stars and perform skits for costumed employees, will be rolled out in Fort Worth.
"We do complain about it, but it's a great event," says Mr. Parker, whose birthday is Halloween.
"It helps all the employees see us out making fun of ourselves," he says. "People bring their kids. It helps create more of a family."
