CEO Is Being Closely Monitored at Ailing US Airways
By Dan Fitzpatrick, Pittsburgh Post-Gazette
Mar. 6--Could David Siegel's days be numbered at US Airways?
The airline's chief executive officer is 3 1/2 weeks from being able to walk away from the Arlington, Va.-based carrier for any reason and collect $4.5 million in severance pay. This window, built into his contract during bankruptcy last year, is available for only 30 days, starting April 1.
Siegel maintains he is not going anywhere in April -- at least not voluntarily. "While my contract contains protections should I resign from my position in April, I -- intend to stay and work with the board and our employees to complete our restructuring."
Whether others want Siegel to stick around longer isn't as certain.
His future really is in the hands of US Airways' chairman and largest stockholder David Bronner, who backed his highest-paid employee when the pilots union late last year called for Siegel's ouster . More recently, however, the Alabama state pension fund chief has told people privately that he is reconsidering the management issue as US Airways inches closer to Bronner's summer deadline for a turnaround .
Another potential check on Siegel's future is the pilots union. Although it backed off from its public call for Siegel's resignation, the pilots are using their recent agreement to reenter concessionary talks as leverage to change the "corporate culture" of the nation's seventh-largest airline, implying the removal of the CEO.
Asked about Siegel this week in an interview, Bronner said Siegel's job was safe -- for now. "You can't consider it at this time with the difficulties you are in," he said, adding it would be "foolish on my part to say any more than that." Bronner also made it clear he would be watching Siegel closely and grading him on his performance.
"If he is successful and he wants to stay, you absolutely stay with him forever," he said. "If he is not successful, you have to make a change. No different than any other organization. It is just the real life in the real world we all live in."
Bronner was not Siegel's first choice as savior of US Airways. He had wooed David Bonderman, a wealthy Texas investor who turned around Continental Airlines while Siegel worked there in the 1990s and picked Siegel to lead that airline's Continental Express division.
But after Siegel solicited a $200 million bid from Bonderman's Texas Pacific Group in 2002, Bronner stepped in with a better offer. He also argued that the relationship between Siegel and Bonderman constituted a "sweetheart deal" and cast doubt on whether US Airways could fairly evaluate competing bids.
Siegel, said local airline analyst Bill Lauer, is in an "awkward position of working for a company whose largest shareholders are strangers to the original engagement." Bronner's "definition of success may be very different than what David Bonderman's might have been."
After one of his first meetings with Siegel, in September 2002, Bronner said he was "very impressed -- I think he is very capable of making US Air successful." He let Siegel run the airline without any interference from the top and, according to Bronner, there were "long months" when the pair did not talk at all beyond regular board meetings after the airline emerged from bankruptcy last spring.
Only in recent months have the two men started to talk on a more regular basis, with Bronner in the last two weeks assuming more of a leadership role usually reserved for the CEO. He convinced the pilots to join negotiations following months of rancor between that union and management, and offered fellow US Airways board member Bruce Lakefield as a potential liaison between the two sides.
In winning over the pilots, Bronner tried to convince them that his pension fund did not invest $240 million so that Bronner could make a lot of money personally -- striking a contrast between himself as two other airline investors, Carl Icahn and Bonderman, Siegel's old boss.
He also admitted that mistakes had been made by management, a frank admission that surprised some pilots. After the Feb. 20 meeting, the pilots quickly granted authority to enter wide-ranging contract negotiations with the company.
"In one two-hour presentation, Bronner solicited more action from the pilot group than David Siegel has in all his presentations," said pilots spokesman Jack Stephan.
The rare outreach by a chairman to unions showed that "Bronner is willing to take his own management and hang them out to dry," said Lauer, the local airline analyst.
Bronner is showing a "willingness to take management as a group and taint them as a mutual enemy," and the pilots' overtures to Bronner have "resulted in marginalizing management and David Siegel," Lauer said. The pilots "wanted him gone. In many respects, they now have him gone. They are dealing right with the voice from Alabama on this."
Asked in an interview to assess Siegel, Bronner said Siegel "has done magnificently" in a crisis situation and "I think we have a spectacularly great management team.
"Did they make some mistakes from an outsider point of view? Of course. Everybody makes mistakes." But, "when you look at the financial things they have been able to pull off, it is incredible."
Siegel, Bronner said, has "certain areas where (he is) better than in other areas." He said he realizes that Siegel, who declined to discuss his relationship with Bronner, is as frustrated as the unions are. But, he added, at some point both management and labor need to put aside their disappointments and deal with the situation.
As an example, he cited the labor techniques of Minnesota meat-packer George A. Hormel, the subject of a Bronner college thesis. Hormel, who built a national business from a plant in southern Minnesota in part though good relations with employees.
Bronner admitted that he and Siegel come from different perspectives. "He is younger, hard-driving and he works his people really hard," Bronner said.
By comparison, Bronner described himself as a "confused bureaucrat" who is more of a public official than he is a deep-pocketed investor. His hero, he said, is former Manhattan District Attorney Robert Morgantheau, who took on the mob in New York.
Bronner, through an assistant, declined comment about Siegel's contract, which allows him to leave for any reason in April and still receive $4.5 million in severance plus three years of pension and health benefits.
The April provision, added to Siegel's three-year contract during last year's bankruptcy, gives Siegel more freedom to leave the company if he wishes to do so.
Prior to that, to collect his severance, he would have to be fired, have his duties diminished or his salary reduced involuntarily.
Siegel, who signed a three-year contract in 2002, makes $600,000 a year in salary, down from the $750,000 he agreed to originally due to a voluntary cut in pay. He also has more than 1 million in stock options that do not vest until 2006.
If Siegel stays, he and Bronner still have a lot to work out.
The money-losing airline currently is in danger of defaulting on $900 million in loans it received as part of its back-from-bankruptcy recovery plan, and Bronner said there are discussions under way with the federal Air Transportation Stabilization Board, which backed the loans that lifted US Airways out of bankruptcy last March. "We are working on something that basically allows us more flexibility and allows them to get some of their money back," Bronner said.
The chairman is giving the airline until summer to straighten things out, or he may have to consider more drastic actions, such as the sale of some assets. The company already has solicited bids that range from $250 million to $400 million.
But JetBlue Airways Chief Executive Officer David Neeleman, who expressed an interest in the assets, last week said he doesn't think "US Airways is serious about selling any of their assets" and is using such talk to pressure unions into more concessions. The pilots and the company are scheduled to start wide-ranging contract talks Tuesday. The Mechanics have also agreed to join those talks.
Siegel, who in 2002 got off to a great start with US Airways workers amid praise for their many union sacrifices and his promises of frank dialogue, has lost what popularity he once had, now that he is approaching unions for yet another round of concessions as part of a plan to cut $1.5 billion in expenses.
Can he repair the relationship? "It is up to those people, really," Bronner said.
"Once you get into a battle, I always want to stay with that person," Bronner said. But sometimes, "people's feelings get hurt." The way to recover from that is to "get into the trenches" and "share the problems of getting from a situation of 'I', 'I', 'I' to 'we', 'we', 'we.' "