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Gangwal may remain with US Air despite UAL debacle

Despite an ominous ending to a New York Times article, Wall Street analysts feel that Rakesh Gangwal's position with US Airways is secure, though its $4.3-billion merger with United Airlines has all but failed.

However, there is no word on whether Gangwal will remain with the airline.

It was reported by the Wall Street Journal in May that he would quit if the merger went through. He also said in April that the airline had no other plan if the merger didn't go through.

The Times reported on Tuesday that the airline's pilots and labour workers are disappointed with Gangwal, chief executive, and Stephen Wolf, US Airways' chairman.

"They have the competitive tools within the current labour contracts to do the job," Roy Freundlich, a spokesman for the US Airways branch of the pilots union, told the Times. "They just haven't executed well."

Another unnamed US Airways union officer was quoted as saying that "people have just had it with them and would like to see them go."

Such criticism comes on the heels of a Monday announcement that the merger, which would have made United the largest airline in America, is unlikely to occur because of anti-trust concerns.

Under terms of the deal, United would have paid $4.3 billion in cash for US Airways stock, or about $60 a share. It would have been a coup for US Airways, considering that its stock now trades under $20.

Instead, US Airways will have to make difficult decisions to stay alive, analysts say, including cutting jobs, decreasing flights and routes as well. Wolf has said the airline isn't big enough to survive on its own.

Any of those actions would bring unfavorable attention within to Gangwal, a majority stock holder in the airline. The graduate of the Indian Institute of Technology, Kharagpur and Harvard Business School can take heart, though, that he has defenders on Wall Street.

"If you look at things operationally, US Airways has improved every month," said CIBC World Market analyst Sal Colak.

"Before Gangwal came, US Airways was a much weaker company," he continued. "But it improved on-time performance, baggage handling, got new planes and increased its flight service area.

"There are many points of light which he can look to. I think he's done a fine job, given the current economic situation."

Goldman Sachs analyst Glenn Engel felt that Gangwal and the rest of US Airways' management made a valiant effort to join a stronger company.

"If you're a US Airways stockholder, you're not going to hold Gangwal at fault for trying to maximize your stock value," Engel said.

"It's not their fault that the deal didn't get approved," he continued. "It was the government who didn't like the deal. I don't think shareholders view Gangwal and Wolf responsible."

Gangwal was unavailable for comment, company officials said.

United's president is another Indian American, Rono Dutta, who has been with the company since 1985. Gangwal and Dutta were colleagues at United before the former moved to US Airways six years ago.

Dutta apparently has escaped the wrath of the rumor mill thus far. Analysts say James Goodwin, chairman and chief executive of United's parent UAL Corp., may be under the gun for the failed merger.

The future for both airlines is also up for speculation.

UAL, based in Chicago, employs 96,000 people and operates 594 jets, carrying about 87 million passengers in 1999, on 2,330 daily flights to 139 destinations in 26 countries.

US Airways, based in Arlington, Virginia, has 40,000 employees, 383 jets, and ferries 56 million people, with an average of 4,500 flights daily.

United faces some bad numbers, reporting a first quarter loss in 2001 of $313 million on revenues of $4.42 billion, and expecting more losses in the second quarter.

It also signed a pilot contract last year, assuming the merger would be completed, that would raise their salaries 45 per cent over four years.

Colak reflected what many investors think United and Goodwin must do: "They have to refocus on getting the airline back on track, and profitable, fast."

United also must contend with the sting of being second-biggest. American Airlines became the world's largest recently after buying Trans World Airlines, saving it from bankruptcy.

American is now the only airline that can boast coast-to-coast coverage.

"I think that was a stealthy move," said an airline industry analyst, who did not wish to be named.

"That deal seemed like such a less significant thing at the time, compared to the proposed US Airways-United merger."

If US Airways cannot find another partner to merge with, some predict that it will be sold in pieces.

"I do think US Airways has a problem," Engel concluded. "Everyone in the company wanted it to grow, because that would mean employees would be paid more. Making cuts will be a harder sell to employees."

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