Delta’s Unorthodox Fix-It Man Is Feuding With Rivals Again

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Richard Anderson
Delta Air Lines CEO Richard Anderson. Photographer: Michael A. Schwarz/Bloomberg

In the past few years, Delta Air Lines’ CEO offended some Middle Easterners with a reference to Sept. 11, pitted the carrier against Boeing Co. in a trade issue and upset conservatives at home in Georgia.

Is this any way to run an airline?

It is for Richard Anderson, who in almost eight years as chief executive officer has taken Delta from bankruptcy to record profits and soaring customer satisfaction rankings. With Delta prospering, the 60-year-old Anderson now is advocating a cause that could cement his legacy -- or tarnish it.

Anderson says the rapid U.S. growth of the Persian Gulf airlines stems from billions of dollars in market-distorting subsidies from their governments. He is urging the Obama administration to freeze new flights into the U.S. In this fight, some admirers see Anderson growing into a blunt-speaking industry statesman, a role vacant since American Airlines’ chain-smoking, in-your-face chief Robert Crandall retired in 1998.

“Richard Anderson has balls, Bob Crandall has balls,” said former Continental Airlines CEO Gordon Bethune. “Both of them were not afraid to tell you what they think.”

Anderson’s efforts to watchdog the Gulf carriers’ expansion may be his biggest public challenge since he led Delta’s purchase of Northwest Airlines seven years ago -- and his most contentious.

Conflicting Constituencies

The travel and aviation industries are far from united on curbing Persian Gulf flights. Airports and travelers benefit from more service. JetBlue Airways Corp. jumped in this week with a letter to three Cabinet secretaries saying Delta and its peers received “indirect subsidies associated with bankruptcy protection.” In February, executives at FedEx Corp. and United Parcel Service Inc. joined in writing the same officials to warn against restricting “legitimate competitive opportunities for foreign carriers.”

It’s dicey whether Anderson will get help from Washington. Lawmakers will be lobbied by conflicting constituencies while the administration may not want to stir already-muddled Middle East politics.

“We’ve got a lot of folks in this country, not in the airline industry obviously, who want to keep those flights coming in,” said Senator John Thune, a South Dakota Republican, who nonetheless said he was concerned about Delta’s allegations.

Delta’s Renaissance

Anderson came to Atlanta-based Delta Air Lines Inc. in 2007 after three years at insurer UnitedHealth Group Inc., preceded by 14 years as CEO and other management roles at Northwest. He faced a grim future with an airline just out of bankruptcy and an economy headed into a deep recession. By 2014 Delta reported $2.8 billion in adjusted income and had the highest customer rating among the big three U.S. carriers.

Delta’s renaissance coincided with the emergence of the Persian Gulf airlines -- Emirates, Qatar Airways Ltd. and Etihad Airways PJSC -- as industry heavyweights.

Since 1998, Emirates has surged to the world’s largest airline by international capacity from No. 30, according to figures compiled by Delta, American and United. Qatar went to 10th from 90th, while Etihad is 13th. It didn’t exist in 1998.

Behind that expansion, according to Delta: hidden cash grants, no-interest loans and assumptions of losses on fuel hedging contracts by the governments of the United Arab Emirates and Qatar.

Forensic Accountants

Delta deployed teams of forensic accountants around the world to investigate the carriers’ finances, turning up what Anderson calls evidence of more than $42 billion in subsidies and other anticompetitive benefits.

This violates fair-competition rules in the agreements that govern where and how often Gulf airlines can fly to the U.S., Delta says. It eventually enlisted American and United in its campaign to highlight the alleged violations, and the threesome presented a 55-page report on their findings to the Obama administration in January.

“These are not airlines in the sense that we think about airlines,” Anderson said of the Gulf carriers in a March interview. “They’re countries that run airlines. It’s just a department of the oligarchy. And we respect that right. It’s just that it’s got to have some reasonable limitations.”

The Gulf carriers say their home nations give them equity investments, not subsidies, and their success comes from modern jets, customer service and Middle Eastern hubs conveniently situated midway between Europe and Asia.

Etihad’s Response

“Etihad Airways did not seek this fight; we focus on making money by providing world-class, innovative, re-imagined and value for money product and services to our guests,” the Abu Dhabi-based airline said May 31 in a letter to the Obama administration.

No one predicts a quick resolution. The administration is probably deeply conflicted, said Joseph LeBaron, U.S. ambassador to Qatar from 2008 to 2011. The White House’s desire to preserve relationships with U.A.E. and Qatar, important allies in a region where the U.S. has few friends, is balanced against protecting a vital domestic industry, LeBaron said.

Yet even sticking up for U.S. workers is more complicated than just favoring the nation’s largest airlines.

“If these Gulf airlines are buying lots of Boeing planes, that’s creating American jobs,” said Jon Alterman, director of the Middle East Program at the Center for Strategic and International Studies, a Washington policy group.

JetBlue’s Criticism

JetBlue shares customers with the Gulf trio through so-called code-sharing agreements that allow airlines to book passengers on each other’s flights, and it broke ranks with its U.S. peers in their dispute.

JetBlue objected to a practice employed by the big three U.S. airlines: forging transatlantic partnerships such as Delta’s tie-up with Air France-KLM Group. Those arrangements let U.S. and European airlines set prices and plan routes with immunity from antitrust concerns.

Even before he took on the Gulf carriers directly this year, Anderson was mounting a flank attack. In 2012, Delta lobbied Congress against renewal of the U.S. Export-Import Bank, whose low-interest loans help foreign carriers -- including the Gulf group -- buy Boeing wide-bodies to compete on international routes.

Now, with the Ex-Im Bank up for renewal, Anderson’s at it again with a proposal to prevent the financing of long-haul jets for creditworthy airlines. The bank “turned into just essentially a free source for anybody that is not an airline based in the United States, the U.K., Germany or France,” Anderson said.

Texas Prosecutor

As he takes on a more public role, Anderson’s straight-talking style can give his company a P.R. headache on occasion. His outspokenness is a vestige of his days as a young Texas prosecutor, said former Harris County District Attorney John Holmes, who was once Anderson’s boss.

In December, Anderson urged a group of Atlanta business leaders not to be “chicken” about supporting a state tax increase for roads.

“That just rubs a lot of people the wrong way,” said Steve Brown, a self-described conservative county commissioner from Peachtree City, Georgia, home to many Delta employees.

In February, Anderson told CNN that it is a “great irony” that Gulf carriers would accuse U.S. airlines of getting their own government handouts. Some of the Sept. 11 terrorists who crippled U.S. airlines hailed from the region, Anderson said.

Delta later apologized. Qatar Airways CEO Akbar Al Baker said Anderson “should be ashamed to bring the issue of terrorism to try to cover his inefficiency in running an airline.” In various publications, Al Baker later said Anderson “has no dignity” and is a “weak personality.”

Anderson could laugh at his own expense over the issue in March, cracking a wry smile when a reporter mentioned how colorful the Qatari chief is.

“He is,” Anderson chuckled. “I like Akbar.”

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