A Surprising New Pilot For Delta
By Dean Foust
When Us Airways Group (LCC ) shocked Delta Air Lines (DALRQ ) with a hostile bid last year just as the Atlanta-based carrier was working its way out of bankruptcy, Delta's creditors were giddy. The bid offered a 25% premium above where Delta's debt was trading, giving most of those creditors a chance to recoup a big chunk of their losses.
But Delta CEO Gerald Grinstein dug in against US Airways and cut many creditors out of the vote on the bid, infuriating many of those stakeholders. Eventually, Delta did emerge from bankruptcy with its independence, but in return for the creditors' approval of his exit plan, Grinstein allowed them control of the board. Now they've taken their revenge. On Aug. 21 the Delta board named a company outsider, ex-Northwest Airlines (NWACQ ) CEO Richard H. Anderson, to head Delta, bypassing the two internal candidates Grinstein had championed. "I think Jerry [Grinstein] didn't anticipate that he'd lose control of the new board," says an Atlanta executive who is a friend of the retiring chief.
Anderson's appointment clearly signals that those creditors-turned-shareholders are calling the shots at the third-largest U.S. carrier. It raises speculation that, with an outsider in the cockpit, Delta may in time be open to a merger, if not with Northwest, then with United Airlines (UAUA ) or Continental Airlines (CAL ). Delta management "really did give creditors the middle finger when they turned down US Airways' bid, and I think there was some residual resentment among the creditors," says Roger E. King, a senior analyst at CreditSights Ltd., an institutional research firm in New York. "Merging Delta with another airline could take out a lot of capacity and make the combined airline much more profitable."
Anderson, 52, says he didn't take the job to package Delta for a sale--a pledge he made during a meeting with Delta's pilots' union hours before his hiring was announced. "I asked him point-blank about that, and he reassured me he isn't here to facilitate a merger with Northwest," says Lee Moak, chairman of the executive committee of the union.
Anderson says he wants to build on the progress that Grinstein & Co. made in the bankruptcy. Thanks to Chapter 11, Delta now boasts the strongest balance sheet of any major carrier, and its aggressive push into profitable international markets such as Venice and Bucharest helped the airline turn a $1.8 billion profit in the second quarter, vs. a $2.2 billion loss in the same period last year. "Delta has a strong position in the industry and will remain in control of its own destiny," says Anderson, who built a solid industry reputation at Northwest, slashing costs while maintaining the airline's grip on the Heartland.
Still, he'll enjoy no honeymoon at Delta. Anderson needs to win over a workforce built on the notion of the "Delta family," one that vividly remembers that its only other outsider CEO, Leo Mullin, was a bust. At Northwest, Anderson did earn a reputation for being attuned to the needs of his ground troops. When Northwest was looking to pare costs as traffic plunged following the 2001 terrorist attacks, Anderson backed an employee proposal to let 2,400 flight attendants who volunteered to take leaves retain their medical benefits. He also put an "Ask Richard" button on Northwest's internal Web site that let workers e-mail him with questions. "He actually came out and listened to employees," says Kevin Griffin, a 27-year Northwest flight attendant. "I think [Delta] got a better deal. If we could trade [CEOs, we'd] do it in a heartbeat."
Rallying workers is only half the battle. On the operations side, Anderson must make a decision initiated by previous management on whether to sell or spin off regional feeder carrier Comair. And with the pilots' contract set to expire at the end of 2009, Anderson must soon start talks with pilots who feel they bore the brunt of the pay cuts management insisted were necessary to get Delta out of the red. At least Anderson knows the board has his back.
With Justin Bachman in New York