US Airways’ Parker: A Smart Bid for American

by Susan J. Aluise | April 24, 2012 10:38 am

US Airways (NYSE:LCC[1]) Chairman and CEO W. Douglas Parker knows firsthand how it feels to be a wallflower at a wedding reception — and he doesn’t like it. That’s why the tenacious Parker is upping his game to secure what likely is the last major U.S. airline merger: acquiring rival American Airlines (PINK:AAMRQ[2]) out of bankruptcy.

Parker announced last Friday that LCC has reached agreements with American’s three largest unions — pilots, flight attendants and ground workers — on collective-bargaining agreements for a possible combined airline. Employee support is critical if LCC is to have a realistic shot at pulling off a deal that would create the world’s largest airline.

But that will be much harder than it might seem because American’s CEO, Tom Horton, is fighting to keep the storied legacy airline independent. On Monday, American began a courtroom battle to cancel all of its union contracts. More than 300 airline employees protested outside the federal bankruptcy court on Monday.

Last month, I pointed out that Horton’s move to void the union contracts could result in an employee backlash that inadvertently opens the door to US Airways[3]. That’s exactly what seems to be happening now.

Parker has been here before. Since the merger of US Airways and America West in 2005, he has courted two attractive merger partners: Delta Air Lines (NYSE:DAL[4]) and United (NYSE:UAL[5]), both of which left him at the altar.

Parker started his airline career at American. With a degree in economics from Albion College and an MBA from Vanderbilt, Parker worked in finance and management positions at American before heading to Northwest Airlines.

Over his four-year tenure there, he rose to become Northwest’s vice president and assistant treasurer. He moved to America West in 1995 as chief financial officer. As a reward for helping to put the struggling carrier back on track, Parker was elevated to the top job in September 2001 — 10 days before 9/11.

Parker stepped up to the task of leading America West into a challenging future. His lobbying efforts helped his airline secure funds it desperately needed: a $60 million federal grant and a $380 million loan guarantee[6].

Once America West’s immediate financial crises were past, Parker began work on growing the business. He knew the value of consolidation in a capital-intensive industry and set his sights on US Airways, which was in bankruptcy for the second time. When the merger was approved, Parker headed up the merged carrier, which adopted the US Airways name. On paper, it was a great fit: West meets East in an expanded route structure, and the economies of scale to compete with both low-cost carriers and larger legacy competitors. But combining the two airlines’ employees and cultures proved to be anything but smooth. Even seven years later, US Airways doesn’t have combined contracts for both groups of pilots and flight attendants.

Parker’s failed hostile takeover of Delta further advanced his education. Delta was in bankruptcy in 2007 when Parker tried to woo creditors with what eventually would be a $10 billion bid. The deal foundered largely on intense opposition from Delta’s unions. In the end, Delta spurned LCC’s advances and merged with Northwest instead.

After the failed merger and in the midst of contentious labor negotiations with his own two groups of employees, Parker took another hit: He was arrested for driving while intoxicated and going 20 mph above the speed limit. Hours later, his mug shot was all over the news.

“You need to know embarrassed and sorry I am about this,” he wrote in a letter to US Airways employees. “I have let down all of you and also my family. And that is something I will have to live with irrespective of the outcome.”

Parker remained committed to his search for the right merger partner. In 2010 he turned to United. But in the eleventh hour, United chose to merge with Continental Airlines, leaving Parker at the altar yet again.

In announcing the score, UAL CEO Jeffery Smisek couldn’t resist a jab at Parker’s expense: “I recognized that United was the best partner for Continental,” he said. “And I didn’t want him [United CEO Glenn Tilton] to marry the ugly girl; I wanted him to marry the pretty one.”

Parker fired back in a letter to US Airways employees: “As one of you simply put it, ‘Why are we the ugly girl?’ The answer, of course, is we are not, and there’s no better evidence of that than our recent performance,” he said.

The bottom line: In his 11-year tenure at the helm of LCC, Doug Parker certainly has endured William Ernest Henley’s[7] “bludgeonings of chance,” but he has always emerged even tougher. He’s passionate, focused and at times seems bigger than life. When he commits to a task, he gives it all he’s got — and that includes the play for American.

Make no mistake: A lot of things have to happen on all sides before any deal could get done. Parker noted in a letter to US Airways employees that “the news does not mean we have agreed to merge with American Airlines. It only means we have reached agreements with these three unions on what their collective bargaining agreements would look like after a merger, and that they would like to work with us to make a merger a reality.”

But Parker is far better-positioned to bring off this deal than he was when he made his Delta and United bids. First and foremost, he’s reaching out to the unions and has gained their preliminary support. Second, American’s Horton may have shot himself in the foot with his bid to void union contracts, cut 13,000 jobs and radically slash wages and benefits.

It doesn’t hurt that Parker’s plan would save more than 6,000 of the jobs American plans to cut while boosting its ability to compete with other major carriers.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

Endnotes:
  1. LCC: http://studio-5.financialcontent.com/investplace/quote?Symbol=LCC
  2. AAMRQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAMRQ
  3. an employee backlash that inadvertently opens the door to US Airways: http://investorplace.com/2012/03/did-american-airlines-thrust-itself-into-us-airways-arms/
  4. DAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DAL
  5. UAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=UAL
  6. a $60 million federal grant and a $380 million loan guarantee: http://www.thestreet.com/story/11231339/2/us-airways-ceo-how-911-changed-our-airline.html
  7. William Ernest Henley’s: http://constitution.org/col/invictus.htm

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