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Delta's chance of survival - Article

two leg commute

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Not sure if this is an old article? Some interesting information if accurate. Sorry if this has already been posted.............

To shed light on Delta's chance for survival, Nolan asks hard questions and gives straight answers from his unique position of access to Delta insiders and unpublished information not available to the press and other observers. His in-depth knowledge and refreshing objectivity is particularly valuable now that U.S. Airways has made a hostile offer to buy Delta while it is in bankruptcy. He concludes that new top management is needed immediately for Delta to survive as an independent airline.

Atlanta, GA (PRWEB) December 8, 2006 -- Can bankrupt Delta Air Lines, Inc. (Pink Sheets: DALRQ) survive as an independent carrier? Harry L. Nolan, Jr., noted business strategist and author of Airline Without A Pilot - Lessons In Leadership, addressed this question recently before Turnaround Management Association meetings in both Chicago and Atlanta. A summary of his remarks follows:

Don Quixotes of the inconsequential.
Delta's management decisions over the last 18 months parallel those of Braniff before its demise in the mid-1970s.

Like Braniff then, Delta has been expanding its international routes very rapidly. On top of over a year of dramatic international expansion, the airline plans to start 16 new routes to 14 cities in 22 days.

For months, Delta has rarely been able to deliver on-time performance, baggage delivery, denial of boarding and cancelled flight statistics as good as its low cost competitor AirTran, whose main hub is in Atlanta as well (negating any excuses that Delta's problems are primarily airport related).

A recent Delta flight from Atlanta to Newark arrived at its destination with no passenger baggage on board. The baggage had apparently never been loaded on the plane in Atlanta. Some of the baggage arrived on another flight about an hour later. Other passengers had to wait over two hours for their baggage to arrive on a third flight. In addition to the passenger inconvenience, this oversight apparently created a potential safety problem. Before every flight commercial pilots are given what is called a 'weight and balance' report. This report tells them how much weight the plane is carrying, including passengers, baggage, cargo and fuel. They need this information to make key decisions during the flight, particularly as it relates to the handling of the aircraft. Fortunately no problem happened on this flight. However, the incident underscores the ongoing difficulty Delta top management has in the basics of running an airline.

To Nolan, the irony of Delta's relatively poor on-time performance is underscored by the fact the COO Whitehurst was in charge of Delta's "Transformation Plan" beginning in January 1, 2004 when he started the job. A key piece of that plan, implemented in January 2005, was to make Atlanta, Delta's main hub, into a "continuous hub" to alleviate congestion during busy traffic times. The entire operation of Delta was turned upside down with the goal of significantly increasing on-time performance throughout its system, particularly in Atlanta. It hasn't happened.

Instead, Delta management talks about delivering a superior "customer experience" (words often repeated by COO Whitehurst), like Braniff, thorough amenities -- designer flight attendant uniforms, refurbished aircraft interiors (over the next several years) and "signature cocktails" like 'Mile High Mojito' and 'Mango Madness' (with other drinks to be added monthly in a contract signed with a cocktail consultant). Delta's Managing Director of Product Marketing has said that Delta's desire to be known as a "sophisticated" airline is the reason for this approach.

Other non-essential efforts Delta recently announced include providing access to free Nintendo video game demonstrations for passengers in their Atlanta terminal plus a 'Delta's Fly-In Movies' Film Contest to spotlight 'emerging filmmakers' and let passengers vote on the winner of 5 contestants. Delta has also teamed up with Apple to give people in-flight access to music on their iPods.

Recently Delta was a corporate participant, at an estimated cost of a half million dollars, in Fashion Week in New York City. Along with other corporate sponsors like UPS, Delta purchased tent space in Bryant Park to hobnob with people in the fashion business. When asked why Delta was participating in the event, Delta's marketing spokesman indicated that Delta desired to be known as the "stylish airline" when it emerged from bankruptcy. Later, Delta hired 3 of former James Bond movie girls to attend a party in New York City to kick off their London service.

This extreme focus on superficial aspects of running the airline, while failing to make the grade on the essentials -- on-time performance, delivered baggage, flights running as scheduled, seats sold being provided -- leads Nolan to suggest those at Delta making decisions now are "Don Quixotes of the inconsequential."

Delta spent an estimated $8 million out of pocket (not including salary costs and any customer revenue lost by flying those from other cities to Atlanta with a reserved seat) to bring in 12,000 front line employees to Atlanta, in small groups over a six months period, for 1 ½ days of introduction to the "New Delta." In addition to hearing standup presentations by senior executives, intended to create confidence in the management team, attendees were housed in expensive hotels and served meals and libation from an expensive catering company. When a flight attendant, several months after attending, was asked by Nolan what she gained from the experience, the answer was to learn about the "New Delta." She was told the "New Delta" would fly on time, have clean airplanes and provide the tools she needed to do her job. However, she went on to say that she had not seen that happen yet.

The financial disaster wreaked on Delta by the top management team in place speaks for itself. The current CEO, COO and CFO were all integral parts of deposed CEO Leo Mullin's team. This team grew Delta's real assets without a return from 1998 to 2005 which put Delta on the road to bankruptcy.

In the last 6 years, Delta has lost over $16 billion. This is close to the $17 billion total amount reportedly lost by the entire commercial aviation industry since the Wright Brothers flew their first airplane in 1903.

In 2004, when the CEO, COO and CFO assumed their current roles, Delta lost $5 billion, the largest single year loss in the history of commercial aviation. During that year, although Delta's finances were bleeding profusely, the COO-led Transformation Plan took 8 months to develop and another 4 to implement.

Then in 2005 Delta lost $2 billion, more than the loss of the rest of the industry combined. In September of 2005 Delta filed for bankruptcy.

Delta is still losing money, albeit at a slower rate in 2006, with a loss again projected for the total year.

Delta management has repeatedly said they intend to take the company out of bankruptcy as an independent carrier in 2007. With the same lack of urgency shown in creating the 2004 Transformation Plan, the company is now on its 3rd extension on the due date to file their reorganization plan with the bankruptcy court. However, they have the exclusive right to file a plan only until February 15, 2007. After the Delta plan has then been reviewed, the creditors can file one of their own.

Without taking a position on the U.S. Airways offer, Nolan believes that the track record documented above makes it highly unlikely Delta can survive as an independent carrier under its existing leadership. This is particularly true once Jerry Grinstein, who has credibility in the industry, Washington and elsewhere, retires as he had said he will do upon bankruptcy exit.

Anyone wanting to keep Delta independent must urgently consider a new top management team right now. The logical person is Hollis Harris, formerly Delta president, who should have been given the CEO job in 1987 instead of Ron Allen. Harris is a respected leader in the aviation industry. He had demonstrated his ability to turn around 3 different companies -- Continental, Air Canada and World Airways. Harris is an active, fit semi-retiree who lives near Delta headquarters. He has the respect of Delta people and could move in quickly to rebuild the business the current team has damaged so badly. Harris has the respect of and contacts with many key aviation industry executives and Delta retirees (some of whom have told Nolan they would come back and work for free if Harris returned). This would enable him to quickly establish a team of his own making, one that would surely include the best of the current team. In an August interview, Harris said he would consider the job if asked.

With Grinstein as Delta Chairman and Harris as Delta CEO, Delta could move forward to refocus the airline on doing the fundamental things that make an airline successful.

To survive as an independent carrier, Delta must get new leaders immediately who can convince the creditors, employees and customers they deserve to run the company and rebuild it into a successful airline like it used to be and has the potential to be again.

There are self-appointed industry experts who take a different view from Nolan's. However some of those who provide press quotes supportive of Delta management do so without disclosing they are paid advisors to Delta or otherwise have a direct financial interest. Therefore skepticism is in order.

The U.S. Airways offer is merely the first warning shot over the Delta bow. More are sure to come.

Continued below
 

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Continued:

The U.S. Airways offer is merely the first warning shot over the Delta bow. More are sure to come.

Delta continues to have many dedicated, professional people on the front line and at other levels up the organization. These people continue to try their best to do what they can to help save the airline. Now many wear big read buttons saying, "Keep Delta My Delta".

However, without new leadership, Delta unfortunately seems destined to be acquired, sold off in pieces like Pan An or else eventually be dissolved like Braniff.

-------------------------------------

Nolan is the founder and President of Management Advisory Services, Inc., a 25-year old Atlanta-based firm specializing in business strategy and leadership. He is a graduate of Duke University where he was an Angier B. Duke Scholar and studied under noted management expert Peter Drucker at NYU Graduate Business School. Nolan's book, Airline Without A Pilot - Lessons In Leadership, has consistently maintained a Sales Rank among the top 1% of books on amazon.com and barnesandnoble.com for 11 consecutive months. It is also achieving sales results online from amazon.com sites in Japan, UK, Canada, Germany and France. The publisher is now in foreign rights negotiations with publishers in India and Mexico. The author is available for media interviews by contacting the publisher at (404) 705-9093.
 

General Lee

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Yes, Grinstein will be retiring after we get out of BK. He has stated that. The other guys incharge were NOT the major players as we were losing all of that money ($15 billion). The CFO at the time, Michelle Burns, left about 15 months ago, and then went ot Mirant, an energy company in BK themselves. She petitioned the court after being there for 3 months to have bonuses for senior management (herself included), and got them. Fred Reid was also around during the major downfall. He is now at Virgin America, and he loved RJs at the time when he was President of DL. How did that work for us? Leo Mullin ofcourse is gone now too.

The guys still around have actually done a good job of pulling us back together and getting us through this BK. Whitehurst, the COO, has been a good communicator and will be a good leader. The CFO, Ed Bastian, although not a pilot favorite, has done a good job with the numbers and cutting costs. The article leaves out one of our newest stars: Hauenstein. He was potched from Alitalia, and before that he helped CAL get through rough times. He is incharge of Route Planning and Revenue management. He has helped raise the RASM and lower the CASM, and helped design our INTL expansion that will help us in the future.

Our old management did a poor job, and they are mostly all gone. The current crop has a better plan and wants to do it all alone. Let's hope they can, or atleast be paired up with someone complimentary. (no overlap)


Bye Bye--General Lee
 

two leg commute

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The current crop has a better plan and wants to do it all alone. Let's hope they can, or atleast be paired up with someone complimentary. (no overlap)

Not flaming here........ but what is their plan? No opinions please, is there an article or press release stating their plan moving forward. Or is that still reserved for the next bankruptcy hearing?
 

AA717driver

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The current crop has a better plan and wants to do it all alone. Let's hope they can, or atleast be paired up with someone complimentary. (no overlap)

Not flaming here........ but what is their plan? No opinions please, is there an article or press release stating their plan moving forward. Or is that still reserved for the next bankruptcy hearing?

Why, they're going to paint the airplanes in a cool, new livery and get new FA uniforms, of course... ;)

Jes kickin' back with a 6-pack and a bag o' pork rinds waiting for the show to begin. :D TC
 

General Lee

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The current crop has a better plan and wants to do it all alone. Let's hope they can, or atleast be paired up with someone complimentary. (no overlap)

Not flaming here........ but what is their plan? No opinions please, is there an article or press release stating their plan moving forward. Or is that still reserved for the next bankruptcy hearing?

Well, more INTL flying, thanks to the excess number of wideboides that were being used between ATL and MCO, TPA, FLL, etc. Those planes are now being redeployed to profitable city pairs, not just FLA cities to dump excess seats. We have switched aircraft on routes that were not profitable before, like some of the ex Song routes that could not sustain a 757. Those routes now are profitable on MD88s. We have raised fares to match our peers. We had a RASM 15% below CAL's, and now we are almost even. That has helped a lot. We have trimmed costs (pay cuts :( ), redone leases on aircraft and facilities(leases at LAX gates for example), and bought some more fuel hedges. We have gotten rid of gas guzzling fleets (737-200s and older 737-300s are gone now), and have ordered more fuel efficient ones with winglets that should help with gas bills (just ordered 10 737-700s--more on the way, plus our ex TWA 757ERs will have winglets too). We are adding first class seats with TVs to all of our 757s, and that product will beat JB's on any transcon.

So, have we been working on it? Yes.

The new plan should be heard soon, when DL gives it to the BK court sometime in the near future (mid DEC was mentioned).



Bye Bye--General Lee
 

Tomct

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I believe that the USA Today said by Dec 15th. Time will tell. Go BIG D!!!;)
 

FlyBoeingJets

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Delta is going to be sorry Grinstein turned down UAL for a merger.

The partners left are NWA and USAir. I think you guys are on the record on how you feel about USAir.


New mantra soon to be heard at Delta "Delta-NWA or bust"
 
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General Lee

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DL and NWA would be a good fit hub wise and route wise. They have ASIA and the upper Midwest, we have Europe, South America, the Carribbean, the South, the East, and a smaller hub in the West(SLC). The fleets aren't exactly the same, but the DC9s could be replaced by a nice Boeing order.

USAir and DL have almost the same routes, the same hubs (all within 200 nm of each other), European routes from a large NE city (NY and PHL), and no planes the same except 757s with different engines, that would give us 18 different aircraft types.

Hmmmmm, which would I chose? Which would the DOJ approve? Norm Mineta already hinted (before he left as Transportation SEC) that the Gov't would allow a NWA/DL merge. (at a conference in China) Oberstar just stated he would have to sit down and really look at the US/DL merge. It just misses the mark on so many levels, and they haven't even merged USAir and AWA yet... Come on now!


Bye Bye--General Lee
 

IAHERJ

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hmmm?
Let's just get these mergers on already. I'm sick of worrying about it. Delta and NWA and UAL and CAL and let it be done. Almost all of the carriers have just about recalled all the furloughees so let's just get the deals done and move forward already.
 

General Lee

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The only one that could result in major job layoffs is the US/DL merge, because they overlap and their hubs are so close. The other alternative, DL/NW, would preserve more jobs and keep the best assets, like the DL Shuttle (and call it the NW Shuttle???). USAir has known this from the start, and Parker is freaked out he will be left in the dust.


Bye Bye--General Lee
 
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