US Airways Group Inc. (LCC:US) Chief Executive Officer Doug Parker, after three failed attempts at major mergers, clinched a deal to combine with AMR Corp. (AAMRQ:US)’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 for more than a year. The companies announced their $11 billion merger agreement today, putting Parker at the helm of the combined airline, which will retain American’s name.
The deal marks a career achievement for Parker, the longest-serving CEO among large U.S. airlines. It also completes the industry consolidation that he began in 2005 when his America West Holdings Corp. merged with US Airways, reducing the number of full-service U.S. carriers to just three and bolstering 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. Following the merger, American CEO Tom Horton, 51, will be chairman through the combined airline’s first annual meeting. Parker will be chief executive and take the title of chairman after Horton steps down from that role.
With US Airways now the fifth-biggest U.S. airline, the tie-up with No. 3 American will push the combined carrier to the top spot by global traffic, passing United Airlines and Delta Air Lines Inc. (DAL:US), 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 (EAD), former Air Canada (AC/B) parent ACE Aviation Holdings Inc. (ACE/H), and hedge funds Par Capital Management Inc. and Peninsula Investment Partners LP.
“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 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.”
Parker also saw Southwest Airlines Co. (LUV:US), 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.
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.
US Airways investors have been betting that Parker would succeed, even before he publicly acknowledged interest in AMR. US Airways has more than tripled (LCC:US) since Nov. 28, 2011, the day before AMR’s bankruptcy filing. The stock rose 1.1 percent to $14.82 at 7:43 a.m. in New York.
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.
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.
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.”
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