US Airways loses its chief executive

Troubled airline's chairman will fill both positions

Bankruptcy is possible

Carrier has laid off 11,000 workers, seen heavy losses of cash

November 28, 2001|By Paul Adams | Paul Adams,SUN STAFF

Rakesh Gangwal resigned yesterday as president and chief executive of US Airways Group Inc., leaving behind a troubled labor situation and a struggling airline that many say could succumb to bankruptcy as early as next year.

The Arlington, Va.-based airline - the nation's sixth-largest and the second-biggest at Baltimore-Washington International Airport - announced that Gangwal's longtime mentor, US Airways Chairman Stephen M. Wolf, will take over both positions effective immediately. A brief statement released by the company said Gangwal's departure "is based upon his decision to work in the field of private equity and venture capital."

The management shake-up comes as US Airways is attempting to restructure in the wake of record losses, which reached $766 million in the third quarter. Even before the Sept. 11 terrorist attacks sent airline profits tumbling, the carrier was hemorrhaging cash and reeling from its failed merger with UAL Corp.'s United Airlines.

Airline analysts were not surprised by the news, but were divided over whether the resignation would be the first of many high-profile departures as US Airways seeks to rebuild investor confidence. The company's stock closed down 41 cents, or 4.9 percent, yesterday at $8 per share.

"I would imagine that things are extremely rocky on US Airways' board given the widespread predictions that it will likely run out of cash here before the middle of next year," said Paul Stephen Dempsey, a University of Denver transportation law professor and chairman of Frontier Airlines. "In those circumstances, heads often roll."

Financial details of Gangwal's departure were not disclosed; however, he received total compensation of about $12 million in 2000, including restricted stock, according to a company filing with the Securities and Exchange Commission.

Gangwal will not be able to collect on a lucrative severance package approved last year as part of US Airways' merger negotiations with United. Under their contracts, Wolf, Gangwal and General Counsel Lawrence Nagin would have been able to share $45 million in severance benefits if they left during a 30-day window that ended Nov. 12.

Raymond Neidl, an analyst with the investment firm ABN-Amro, said the management change may mean that Wolf is planning to dig in and turn the airline around. Until the United merger deal fell apart in July, critics have said, Wolf and Gangwal were focused on a strategy that involved merging the company with United, rather than running it as an independent carrier.

"There are probably only a handful of executives that have the experience and skills for turning around a troubled airline, and Wolf is one," Neidl said.

Analysts said Wolf - who has made a career of restructuring troubled airlines - will face his biggest challenge to date. US Airways laid off 11,000 employees and cut capacity by 23 percent after the Sept. 11 attacks. While most airlines followed a similar path, US Airways' bottom line was especially hard hit because federal regulators shuttered Washington's Reagan National Airport for three weeks. National is home to the airline's profitable Washington-New York-Boston shuttle operations.

The airline is burdened with the highest operating costs of any major airline, making it vulnerable to attack from budget carriers like Southwest Airlines, JetBlue Airways and AirTran Airways. Meanwhile, the carrier is under fire from union leaders, who have criticized management's staffing cuts as draconian and unnecessary.

Labor leaders said they are taking a wait-and-see approach to the management change in the hopes that it will lead to progress in disputes over staff reductions and the introduction of more regional jets into US Airways' route system. But Wolf has a reputation for being intractable, labor leaders said.

"Over the years he's been less accessible and more elusive than Gangwal, and he has a history of being combative and playing the blame game against employees," said First Officer Roy Freundlich, a spokesman for the US Airways unit of the Air Line Pilots Association.

Analysts said Wolf faces the most difficult negotiations of any airline executive in the industry.

"He is feared by the unions, so him being more involved, depending on your viewpoint, may be better or worse," said Darryl Jenkins, executive director of the George Washington University Aviation Institute.

Wolf engineered the recovery of Republic Airlines, which was later merged with Northwest Airlines, and Flying Tiger Airlines, which combined with Federal Express. He went on to broker the sale of United Airlines to employees in the early 1990s. It was during those years that Wolf and Gangwal began their long partnership.

Wolf left United in 1994, taking Gangwal with him to consult for Air France in Paris. When Wolf departed that job in 1996 to head USAir - later renamed US Airways - Gangwal was not far behind.

"He's been joined at the hip with Stephen Wolf for all those years," said Michael Boyd, an Evergreen, Colo., aviation consultant.

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