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Fly Like a Siegel

How's an exciting CEO to survive on a mere $4.5 million?

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That sound you heard last week was the other shoe dropping -- from a cruising altitude of about 30,000 feet.

US Airways disclosed that Pittsburgh will lose its status as a hub airport, part of a company-wide restructuring for the long-suffering airline, in the early days of May. But the first shoe fell in mid-April, when David Siegel "resigned" as CEO for a $4.5 million severance package. It's not the fact that Siegel was forced out that was a bad omen: It's the paltry amount he got to take with him. I mean, $4.5 million is airplane peanuts compared to what his predeccessor walked away with: Former board chairman and CEO Stephen Wolf finagled himself $15 million in pension money alone before leaving the airline. You know times are tough when a chief executive is allowed to leave with a mere seven-digit sum in his pocket.

 

More worrisome still, US Airways can't even seem to buy a new employee-relations handbook. Its CEOs come and go, but the rhetoric they use never seems to change.

 

In a message to employees last November, Siegel insisted "I did not come here to oversee a going-out-of-business sale." By that point, Siegel had little credibility with the unions or anyone else, having sprung a series of unpleasant surprises about the airline's long-term plans. But just last week his replacement, Bruce Lakefield, offered the familiar solace that "I am not interested in breaking up the company and selling it in chunks." The message doesn't sound any more reassuring the second time, especially with the company trying to force unions to make more contract concessions -- again.

 

In fact, the same week Lakefield offered this reassurance, US Airways filed finanical documents warning that it might, well, break up the company and sell it in chunks. Unless US Airways can get concessions from unions, a Securities and Exchange Commission filing warns, circumstances "will force the Company to reexamine its strategic options, including but not limited to asset sales or a judicial restructuring." (For "judicial restructuring" read "bankruptcy" -- the same kind of restructuring the airline emerged from just over a year ago. If only US Airways could turn around flights as quickly as it could bankruptcy filings.)

 

Among the "factors contributing to these losses," the SEC filing says, are higher fuel prices and "the increasing transparency of fares available through Internet sources." In other words, it's getting harder to charge people exorbitant fares without them catching on -- which to date has been a key component of the airline's business strategy. The biggest problem, though, is "the rapid growth of low-fare low-cost airlines...such as JetBlue and America West." US Airways' biggest competitor is Southwest, though somewhat comically the SEC filing never mentions it by name; perhaps Southwest's incursion into Philadelphia is just too painful for execs to talk about.

 

Judging by its recent announcement, US Airways plans to compete with those discounters by stealing their business plan. Instead of relying on hub airports that force passengers to transfer from one aircraft to another, US Airways will shift to more "point-to-point" direct flights. Fewer takeoffs and landings mean lower costs, but it also means a drastic cut in local US Airways flights, perhaps by as much as one-half. This despite all that unions have sacrificed in wages and benefits, and everything state and local officials were willing to do to keep US Airways here.

 

Who could have seen this coming?

 

Just about everyone, actually. Former Allegheny County Executive Jim Roddey, who negotiated with the airline in its bankruptcy phase, was openly contemptuous of US Airways' prospects for the future. And Perry Hayes, head of the airline's flight attendants union, recommended junking the hub way back in November 2003, when Siegel e-mailed employees to rally them against the threat of Southwest.

 

Hayes was unimpressed. "Southwest offers a simple product, i.e., transportation from point A to point B. Novel idea, but no one on this management team seems to want to try that concept," he replied tartly. "If you want to compete with Southwest, then become more like them....We have a hub-and-spoke system that is more inefficient and costly to operate."

 

Maybe Hayes should be in charge of the airline, having called for the shift six months before the airline publicly announced it. (And unlike Siegel, he's probably not used to getting $4 million for quitting, so there'd be savings built in.) But he and other labor leaders might soon learn to be careful what you wish for. For many rank-and-file members, the shift from a hub system will likely mean dislocation at best, new work rules and layoffs at worse.

 

Still, there's a lot of talk about how US Airways' departure could be a good thing. With the airline no longer controlling three-quarters of the airport's gates, optimists note, Pittsburgh will be more accessible to discount carriers like America West and the Airline-Whose-Name-Must-Not-Be-Spoken. It's possible, although this sunny assessment of local problems is wearing a little thin. We've already been using it for years to put a smiley face on our population loss: "All our vacant properties mean housing is cheap here!" People keep leaving anyway, though according to the optimists' argument, the fewer people who live here, the more livable we get.

 

But one benefit the US Airways announcement does have is that it will clear the air -- and not just of Boeing 737s.

 

Ever since the collapse of the steel industry, we've been blaming ourselves for every employer that leaves town. Even in this supposedly labor-friendly city, lots of people are always ready to blame the "overpaid" unions, and if not them, then intrusive government or the fact that we have an elected Recorder of Deeds. US Airways, though, proves that you can't save a failing business no matter how hard you try. County officials practically walked the streets at night to raise money for the airline. And as the Post-Gazette's Dan Fitzpatrick reported in April, labor is a smaller percentage of US Airways' operating expenses than those at Southwe-- well, you know who I mean.

 

The decline of US Airways does bear a striking similarity to the collapse of local steel, but not for the reasons people think. Like Big Steel, US Airways is competing in an industry plagued by overcapacity, and it's doing so without modern equipment or a business plan that took economic conditions into account until it is too late -- too late to be anything other than a shell of its former self. Like the steel industry of old, it's led by guys who make bad decisions no contract concession can reverse, judgments no amount of tax subsidies can bail out. When they screw up, they screw up so badly that hardly anyone can possibly fix it.

 

That's why they make the big bucks, I guess. Even when they're on their way out the door.

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