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Gangwal exits US Airways

CEO's move shocks observers, leaves Wolf at helm

Wednesday, November 28, 2001

By Frank Reeves, Post-Gazette Staff Writer

US Airways President and Chief Executive Officer Rakesh Gangwal, in a surprise move that comes as the carrier is struggling with losses and cutbacks, resigned yesterday as head of the nation's sixth-largest carrier.

Chairman Stephen Wolf will assume the additional duties of CEO -- duties he turned over to his longtime lieutenant three years ago, the Arlington, Va.-based airline said.

The airline said Gangwal, 48, was leaving "to work in the field of private equity and venture capital."

Gangwal was unavailable to comment or elaborate.

His exodus comes at a time when US Airways, Pittsburgh's dominant carrier, is still reeling from a plunge in air travel following the Sept. 11 terrorist attacks.

The company has cut operations 24 percent and announced plans to eliminate 11,000 jobs, including 1,900 in Pittsburgh. During the third quarter ended Sept. 30, it lost $433 million, its sixth straight money-losing quarter.

Gangwal's departure also comes just a few months after US Airways and United abandoned efforts to merge. The $11.6 billion deal was dropped after the U.S. Justice Department said it would oppose the merger because of antitrust concerns.

Gangwal's resignation caught many off guard and left them wondering what it means for the struggling airline.

"It may not mean very much in particular," said Darryl Jenkins, director of George Washington University's Aviation Institute. "It could be good for US Airways. Wolf is a good strategist, and that's what they need at the helm. I know he's not popular with labor. I don't envy his job."

Calling Wolf a "master turnaround artist," ABN Amro analyst Ray Neidl speculated that Wolf "decided to roll up his sleeves and dig in."

Frank Schifano, president of the International Machinists Union Lodge No. 1976, said he had a "good working relationship with Gangwal" despite the inevitable disputes between labor and management.

Schifano said he was at first worried that Gangwal's resignation was the beginning of a wholesale departure of the US Airways top management at a critical time for the airline. But Schifano said he had been reassured that Wolf and Lawrence Nagin, US Airways vice president for corporate affairs and general counsel, intend to remain at the helm.

Allegheny County Chief Executive Jim Roddey said he did not expect the leadership change to affect the county's negotiations with the airline to build a maintenance center at Pittsburgh International Airport or the airport's status as the carrier's largest hub.

"Our relationship and discussions will continue as if nothing had changed, and I'm encouraged by that," he said.

Still, Roddey found Gangwal's exit troubling.

"I don't see anything really positive about it because any time there is turmoil in an already tumultuous industry, I think it does not help the situation. But certainly Stephen Wolf is an experienced CEO and I don't think the airline will dramatically change its direction," Roddey said.

Nor, Roddey said, does he see the resignation helping to ease the strained relationship between US Airways management and its unions. If anything, he said, Gangwal probably had a closer relationship with the unions than others in top management.

"I don't see this as helping that situation, certainly," Roddey said. "But we're committed to doing everything we can to ensure that US Airways survives, that they have a significant presence here."

The Allegheny County Airport Authority will continue to work with the airline, state and federal legislators, economic development organizations and labor to maintain the US Airways hub and advance the maintenance project, Executive Director Kent George said.

Gangwal was part of the management team brought in by Wolf in 1996 and was considered the chairman's right-hand man who oversaw day-to-day operations and labor negotiations. Wolf first brought Gangwal on board as president and chief operating officer, before persuading the US Airways board of directors to elevate Gangwal to CEO in 1998.

Both men had previously worked at United Airlines, where Gangwal had been part of the management team that brokered an employee buyout of the airline.

"Rakesh has contributed significantly to US Airways during his time with the company. While we are disappointed with his decision to seek a new career path, we wish him and his family all possible success in their future endeavors," Wolf said.

Despite the airline's staggering losses, Gangwal was upbeat during a telephone meeting last month with Wall Street analysts.

He said cuts in operations, the abandonment of unprofitable routes, elimination of jobs and a slow rise in passenger traffic had put US Airways in a position to move ahead as an independent carrier.

Gangwal had a reputation as a man who was accessible to labor leaders, in contrast to Wolf, who was often considered at once aloof and confrontational.

But even Gangwal's charm couldn't solve what some see as US Airways' enduring problem -- industry-high labor costs that make it unable to compete effectively with other carriers.

US Airways and its pilots union are still at loggerheads over the company's desire to increase the number of smaller, less costly jets it can fly on mainline routes. Last week, the company rejected a proposal by the Air Line Pilots Association that would have permitted the airline to triple the number of regional jets it can operate from 70 to 189.

"We're reserving judgment on whether Gangwal's departure is good or bad. Wolf can be combative. We're not interested in another round of 1930s labor-management relations," said Roy Freundlich, spokesman for the pilots union.

Had Gangwal resigned a month earlier, he would have been eligible for a change-in-control severance package related to the failed United merger that would have tripled his salary and bonuses from the past three years and accelerated his retirement benefits, making him eligible for a payout totaling roughly $21 million.

As it stands, Gangwal, who earned $12.12 million last year in cash and stock-related compensation, will be eligible to receive at least $675,000, his annual salary, as well as roughly 2.1 million shares of stock valued at $16.8 million.

Post-Gazette staff writer Mark Belko contributed to this report.

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