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US Airways’ CEO Doug Parker has been moving toward this merger his whole life

Feb 11, 2013 5:29 am

Skift Take

If Parker has indeed learned all the lessons of failed previous merger attempts, as well as where other airlines succeed and fail at the process, then we should have a smooth coupling in store.

— Jason Clampet

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Kevin Lamarque  / Reuters

A US Airways Express plane takes off with the U.S. Capitol in the background at Ronald Reagan National Airport in Washington April 23, 2012. Kevin Lamarque / Reuters


US Airways Group Inc. Chief Executive Officer Doug Parker, after three failed attempts at major mergers, is closing in on a deal to combine with AMR Corp.’s American Airlines and form the world’s biggest carrier.

Parker, 51, has applied lessons from his previous efforts, shifting tactics in pursuing the bankrupt AMR. The two companies are working on final details and their boards may vote on the deal later this week, people familiar with the matter have said. Parker would lead the combined company, the people said.

The deal would mark a career achievement for Parker, the longest-serving CEO among large U.S. airlines. It would also complete the industry consolidation that he began in 2005 when his America West Holdings Corp. merged with US Airways, reduce the number of full-service U.S. carriers to just three and bolster 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 post-merger leadership and the division of equity, people familiar with the matter have said. Parker would become CEO, and American’s Tom Horton would become non-executive chairman, the people said.

Top spot

With US Airways now the fifth-biggest U.S. airline, a tie- up with No. 3 American would 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, New York. “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.

‘Great manager’

“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, whom US Airways declined to make available for an interview, 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.”

Falling behind

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.

“It’s important in an ideal world to have the company, the constituents of the bankruptcy, principally labor, on your side,” Kirby said in a March airline conference.

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.

Investors have been betting that Parker would succeed, even before he publicly acknowledged interest in AMR. US Airways has more than tripled since Nov. 28, 2011, the day before AMR’s bankruptcy filing. The stock closed at $14.75 on Feb. 8, and closed at a 52-week high of $15.16 on Jan. 8.

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.

Service turnaround

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.”

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.

Halloween costumes

Parker met his wife, Gwen, when she was working as a flight attendant at American, which recruited him when he was earning his masters of business administration degree from Vanderbilt University in Nashville, Tennessee. One of his co-workers at American was Horton.

A former football player and track athlete as an undergraduate at Albion College in Albion, Michigan, Parker and his executives join US Airways employees each year in dressing up for Halloween.

Parker appeared last year as South Korean rapper Psy — of “Gangnam Style” video fame — complete with baby blue tuxedo jacket, black pants and sunglasses, and danced in the US Airways headquarters parking lot. Isom and Chief Financial Officer Derek Kerr, both wearing yellow jackets, joined him.

“He’s got the right personality to lead a team,” Bethune said. “He would do a great job at American, and probably give it the juice it needs.”

With assistance from Mary Jane Credeur in Atlanta . Editors: Ed Dufner, Kevin Miller. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net. To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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