Sunday, September 7, 1997 - Page updated at 12:00 AM

E-mail article     Print

It's Down To A Science -- Paint Planes, Add Routes, Be Nice. Grow, Then Sell. Now Stephen Wolf Tinkers With A Winning Formula

Knight-Ridder Newspapers

Editor's note: This is one in an occasional series of profiles of airline industry leaders.

Stephen Wolf is a creature of habit.

And why not? During a 31-year career in the airline industry, the 56-year-old chairman of US Airways has established patterns of behavior that generally seem to have benefited not only himself but also the seven airlines where he has worked, their stockholders and many of the employees.

Wolf is a rare sort of industry captain, one who has run four companies in the same industry according to a consistent strategic blueprint.

The blueprint includes an emphasis on customer service: Answer the phone quickly. Make the planes fly on time. Paint them. "How you present yourself is important," Wolf says.

Then meet with employees to communicate the vision. That vision is not always popular because Wolf's arrival at the head of an airline has sometimes been followed by wage reductions.

Then grow: Buy airplanes and add routes.

Wolf's tenure at the first three airlines he ran - Republic, Flying Tiger and United - ended in a sale. Wolf, who eschews a high salary in favor of stock options, made millions of dollars from those sales.

But Wolf says he isn't looking to sell US Airways, and people familiar with him agree. After selling United to employees, they say, he would now like to finish the job of building a major airline. It would be his monument. "If he had his druthers, he would like to make his mark as an architect," says Vivian Lee, airline analyst for Banker's Trust. In fact, what happens at US Airways will likely determine Wolf's reputation, Lee says.

"Right now, he's got fans and detractors," she says. "Some would say that he fixes airlines up, then sells them. Others say they would bet their money on Stephen Wolf every time, on every project, because he always walks away a winner."

The 6-foot-6-inch leader in trademark red suspenders is sort of a rock star of the airline business. Only three other airline executives - American Airlines' Bob Crandall, Southwest Airlines' Herb Kelleher and Texas Air's Frank Lorenzo - have achieved similar fame in the postwar airline industry.

"You have to put him right up there in the top rank," said Dillon Read airline analyst Ed Starkman. "He has always walked right into the teeth of a difficult situation and managed, in almost every case, to do right by the company, the shareholders and, in the long run, the employees."

Wolf's father left their family when Wolf was 15, leaving him the sole support of his two sisters and his mother. Wolf asked the principal of Oakland (Calif.) High School for permission to attend school four hours a day so he could also hold a job. The principal said yes.

Wolf has not slowed down. At US Airways, he works 12-hour days and lives in a hotel close to its Arlington, Va., headquarters. "I do this, and this is all I do," he said, glancing at the desk in his sparsely furnished office.

If there are repetitive patterns in Wolf's career, it is largely because he is a man who appeared at a time of historic transition and perfected a method of dealing with it.

In 1978, Congress deregulated the airline industry. Change was imposed on the handful of carriers who, working closely with the federal government's Civil Aeronautics Board, had dominated air travel with a simple economic formula: When costs went up, they raised fares in unison. With deregulation, they had to bring costs down and operate in places where they could make a legitimate profit.

Wolf had a great seat to watch deregulation unfold.

After working his way through San Francisco State University with a job at United Parcel Service, Wolf joined American Airlines in 1966. He was in a 12-month management-training program but was made a supervisor after 12 weeks.

He left American Airlines as Western region vice president because he saw five people ahead of him on the corporate ladder, including airline President Crandall.

Wolf joined Pan Am in 1981 as a senior vice president, with the job of improving station service quality, which had declined dramatically after the 1980 merger with National Airlines.

"Wolf was a hard-nosed budget guy," said Al Topping, an assistant to the chairman who occupied a nearby office. "Once he was at a meeting and somebody brought in some coffee in Pan Am Clipper Club paper cups. Wolf got mad. He said, `These are for the customer; we should use plain paper cups.' "

Wolf liked Pan Am, but in 1982 Texas International Chairman Frank Lorenzo offered him the chance to be president of his Continental Airlines subsidiary. When Wolf told Pan Am Chairman and President Ed Acker that he was leaving, Acker offered him the presidency. Wolf badly wanted the job but felt he had given Lorenzo his word.

"I was at Continental three weeks and I realized I had made a very large mistake," Wolf said. He left after nine months rather than implement Lorenzo's plan to abrogate the airline's union contracts by filing for bankruptcy protection.

Wolf was out of work for five months, spending the time with American Airlines executive Delores Wallace, his longtime girlfriend, who became his wife in 1987. In February 1984, he joined Republic Airlines, the only available job where he could get full authority to run the airline.

Minneapolis-based Republic was close to bankruptcy after a series of mergers and overexpansion. The day before his appointment was announced, Wolf and a few other executives met with a half-dozen Republic pilot leaders in a Minneapolis hotel.

"He came into a room, and he took off his suit coat and put it on back of his chair," recalled Richard Brown, who was chairman of Republic's Air Line Pilots Association chapter. "He had on this starched white shirt with red suspenders. It was odd, because we kept our suit coats on. Afterward, we all remarked that he was coming on with this facade that he wanted to be friends."

When Wolf arrived, the employees were considering a $100 million concession package. They eventually accepted it, but not without rancor. Brown said Wolf threatened to file for bankruptcy protection unless the pilots took pay cuts. Wolf also painted the airplanes, moved planes into the airline's strongest cities and restored its profits.

His next move was a sale, but he didn't plan it that way.

In the spring of 1985, Wolf decided that Republic and Northwest Airlines, both in Minneapolis, should be put together - preferably through Republic acquiring Northwest. He arranged financing with Drexel Burnham and then called Northwest Chairman Steven Rothmeier to schedule a meeting and reveal his plan.

At the meeting, Rothmeier took a different tack: He wanted to acquire Republic. That would create far less debt than the $2.5 billion it would take for Republic to be the acquirer, and it would leave Wolf without a job.

The deal was done in January 1986, for $884 million. Wolf took home $2 million in options profits and $1 million in severance."

Next stop, Flying Tigers. The Los Angeles-based, all-cargo carrier was adapting to deregulation poorly. As Wolf was awaiting government approval of the Republic acquisition, he received two phone calls encouraging him to go to Flying Tigers. One came from ALPA officials in Washington, the other from financier Saul Steinberg, who controlled the airline.

Flying Tigers was on the verge of bankruptcy, and both parties wanted Wolf to fix it. The pilots even offered to take pay concessions if Wolf joined.

Besides reducing salaries, Wolf refinanced debt, expanded international flying and painted airplanes. Wolf lieutenant Larry Nagin recalls the Flying Tigers years as the best in Wolf's career, because once costs were reduced, improvements were made easily and resulted quickly in a turnaround. That made Flying Tigers an attractive acquisition candidate, and Fed Express launched a bid to buy it.

That's when United Airlines called, offering a job as chairman. Wolf took it, although he insisted on being allowed to conclude negotiations with Fed Ex while working at United. He received options on 250,000 shares of United stock as compensation for giving up his Tiger International options.

In 1987, United was a confused company. It suffered from high costs and had just gone through a pilots strike. Former Chairman Richard Ferris had tried to remold the parent company from an airline into a travel empire: He changed the name to Allegis and bought two hotel chains as well as Hertz rental cars. The employees, meanwhile, were trying to buy the airline.

Wolf was not greeted warmly. Pilots worried that by improving United he could upset their efforts to buy it. At one point, they refused to fly two new Boeing 747-400 jets because the job wasn't specified in their contracts.

"Those boys up there were goal-oriented," said David Morrow, a US Airways union official who is writing a book on Wolf. "They decided that the best way to deal with Wolf was to smack him right in the face and keep on hitting. Wolf laughed about it later. He told us, `Those pilots didn't give me a chance to earn their disdain; they bestowed it upon me.' "

Nevertheless, Wolf made improvements. He oversaw the sell-off of the hotels and rental car company but refused to champion an employee buyout that would have increased debt and prevented spending on growth.

Instead, he expanded United's international reach from 11 foreign destinations when he arrived to 33 when he left in 1994. He ordered hundreds of new airplanes, including the first 777 jets that Boeing produced. And he created a low-cost airline that began flying in California and has held its own in competition with Southwest.

Eventually, Wolf concluded that a sale to employees was the best way to cut costs. He joined pilots to negotiate concessions worth $4.9 billion in exchange for 55 percent employee ownership. After all the on-again, off-again conflict, the pilots didn't want him to stay. He left with $37 million in salary and gains from stock options and grants.

Said Wolf: "When I left, United was the best-positioned airline in the world by a wide margin. Under different conditions, I would very much have liked to stay and run the company."

Wolf went to work for investment banker Lazard Freres & Co. advising Air France. Then US Airways called.

Wolf was reluctant to renew his workaholic lifestyle and turned down the airline's first several approaches, but he then became intrigued with the challenge of making a major carrier out of an also-ran. In addition, he got the pieces that experience had taught him he wanted: Complete control. A commitment to build. And 325,000 shares of stock, vested by 1999, as well as options for 1.3 million shares at $12.1875, vested by 2000. At today's price, the package would be worth about $42 million.

Wolf says options are "more tasteful" than high salaries because "executive compensation should be linked to the performance of the institution."

In a sense, US Airways is absolutely the right place for Wolf, because it has been the last major airline to fully accept deregulation. Created by the merger of six smaller carriers, US Airways has rarely obtained the cost savings that consolidations are supposed to bring.

By most measures, Wolf has already made significant improvements at US Airways. The company has reported five straight quarters of profit, after years of losses. Wolf has increased on-time arrivals, painted the planes and boosted international service. He plans more expansion if he gets the labor cost concessions he is seeking.

The future of US Airways remains unclear, however. Wolf could build a global carrier, which he says is his preference. He could oversee a sale, as has occurred at his last three airlines. Or he could leave, perhaps for the "quasi large piece of property in the mountains" he says he wants, and turn the airline over to his protege, Rakesh Gangwal, who now acts as president.

Wolf says he wants to stay, although he's frustrated by the slow movement in contract talks with US Airways pilots. The negotiations are being conducted under the gun of a Sept. 30 deadline to confirm an order for 400 Airbus jets, while the airline seeks lower costs so it can compete with low-cost carriers.

Wolf's belief is that at every airline he has run, the pilots have benefited. Republic pilots now fly jumbo jets to Japan for Northwest; Flying Tiger pilots have senior jobs with Fed Ex, and United has expanded so fast that its pilots make captain in six years instead of the 19 1/2 it took when he arrived. The pilots ought to realize that they benefit from the blueprint, he says.

"I would like it to be," he says. "I came here because I was intrigued with the challenge. So far, it's been straight uphill. But if we're successful, it will be very satisfying. What I would like is to spend some number of additional years here, then put into place a management team to succeed me."

Copyright (c) 1997 Seattle Times Company, All Rights Reserved.


Get home delivery today!