NYTimes.com Article: Chief Executive of US Airways Quits Amid Strife

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Chief Executive of US Airways Quits Amid Strife

April 20, 2004
 By MICHELINE MAYNARD





The chief executive of US Airways, David N. Siegel, who
vowed last month that he would not run from the airline's
deepening financial problems but had reached a logjam with
its unions, resigned yesterday.

Bruce Lakefield, a former Lehman Brothers executive who is
a member of the board at US Airways Group, the airline's
parent, will succeed him.

Mr. Siegel's resignation was apparently sought by the
airline's chairman, David G. Bronner, according to people
briefed on the conversation. The request came at the
beginning of a three-day meeting by the US Airways board in
Montgomery, Ala., where Mr. Bronner runs Alabama's pension
fund.

Mr. Lakefield, the former chief executive of the
international operations of Lehman Brothers, joined the
board last year as one of eight members chosen by Mr.
Bronner, whose Retirement Systems of Alabama became the
airline's biggest shareholder in 2002.

Mr. Lakefield, a graduate of the Naval Academy who served
on submarines during his military career, has worked
closely with Mr. Bronner during his months on the board and
has been chairman of two key committees, helping him to
forge ties with the airline's unions. He retired from
Lehman Brothers in 1999; he had led its international
operations in London for four years.

In a statement, Mr. Siegel said he took advantage of an
escape clause in his contract with US Airways, which he
joined in 2002. Under it, Mr. Siegel had the option to
leave during a 30-day window, which began on March 31, and
keep a bonus of about $5 million.

"I have great affection for the airline and its outstanding
employees, and I want to see the company succeed," Mr.
Siegel said in a statement that the airline released late
yesterday afternoon. "Unfortunately, the past two years
have been difficult for all of us, and I believe our
ability to move forward and make additional changes require
a change in leadership." He said he hoped his departure
would be "a first step in a healing process that will
enable the company to complete its restructuring."

As recently as March 23, Mr. Siegel vowed that he would
stay to help the struggling airline avert another brush
with bankruptcy, telling employees on a telecast he would
stay and fight for the airline's survival. "I'm not going
to cut and run," he said. In fact, he said he had met
recently with Mr. Bronner to discuss a new, presumably
lower pay package similar to those received by chief
executives at low-fare airlines.

Mr. Siegel's short tenure was tumultuous. Only four months
after his arrival, US Airways filed for Chapter 11
bankruptcy protection in July 2002. The move came less than
a year after the Sept. 11 attacks in Washington and New
York that devastated its traffic, which is overwhelmingly
concentrated on the East Coast.

But Mr. Siegel led a swift overhaul of the airline, cutting
costs by $1.9 billion a year and reducing its total debt by
$2 billion. Backed by Mr. Bronner's $500 million
investment, US Airways emerged from bankruptcy in April
2003 after obtaining $900 million in loan guarantees from a
federal board.

In hindsight, analysts have criticized the airline for
coming out of bankruptcy too quickly and not taking steps
to fend off competition from low-fare carriers like
Southwest Airlines and JetBlue Airways.

That threat became evident last October, when Southwest
announced plans to begin service from Philadelphia, one of
US Airways' three hubs. The others are Pittsburgh and
Charlotte, N.C.

Mr. Siegel, on the employee telecast, declared that
Southwest was "coming to kill us" and pressed unions to
grant a third round of contract concessions on top of two
sets of wage and benefit cuts they gave while the airline
was in bankruptcy protection.

Indeed, Mr. Siegel had been scheduled to present a business
plan to the US Airways board today that was to have
outlined steps the airline would take to reduce its costs
to the level of low-fare carriers, particularly Southwest.

It was not clear whether that plan would be considered.
Indeed, some analysts have raised the question of whether
the airline will have to again seek bankruptcy protection,
a fate Mr. Siegel had vowed to avoid with further cuts.

Yet US Airways' unions, who would have contributed roughly
half the cost cuts Mr. Siegel said were necessary to make
the airline as lean as its low-fare rivals, resisted
loudly. Only its pilots union agreed to negotiate, and even
the pilots called for Mr. Siegel's resignation last year.

However, its mechanics, flight attendants, and ground
personnel refused to open talks, even though Mr. Siegel
wanted to have the negotiations completed by summer.

Leaders of the unions, which hold four seats on US Airways'
board, had met with Mr. Bronner in recent months to voice
their dismay and appeared to have forged a bond with him,
although his state is noted for its right-to-work laws.

Their refusal to discuss further concessions led to Mr.
Bronner's request on behalf of the board that Mr. Siegel
step aside, the people briefed on the conversation said. In
a statement, Mr. Bronner said Mr. Siegel had "done an
admirable job leading the company through a critical
period."

Mr. Bronner and Mr. Lakefield declined to comment last
night through a US Airways spokesman. Union officials said
Mr. Siegel's departure was the right move.

Even as Mr. Siegel clashed with unions, US Airways'
financial position deteriorated, putting in default of the
covenants of its federal loan guarantees, prompting it to
renegotiate those terms earlier this year.

Should it seek another round of bankruptcy protection, it
would be in default once more. A complicating factor is
that the federal government holds 10 percent of the airline
under terms of the loan package.

Analysts said the airline needed to take steps to shore up
relations with its corporate customers, some of whom have
defected from US Airways in recent months as low-fare
carriers have expanded their East coast service.

Peter Buchheit, director of travel services for the Black &
Decker Corporation, based in Towson, Md., said he wanted to
see US Airways remain a "viable entity."

But long term, Mr. Buchheit said, the airline needed to be
run by an experienced airline executive.

Kevin P. Mitchell, chairman of the Business Travel
Coalition, which represents corporate travel departments
and business travelers, added the airline required "someone
known and respected, who can put a complete and viable plan
on the table quickly and who has the leadership skills to
execute," Mr. Mitchell said.

http://www.nytimes.com/2004/04/20/business/20air.html?ex=1083467032&ei=1&en=d8d56073b97d2c3f


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