How Northwest took over Delta

GogglesPisano

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from TheStreet.com 03/04/09

CHARLOTTE, N.C. -- It was said that Delta(DAL Quote - Cramer on DAL - Stock Picks) took over Northwest in October, but four months later it is reasonable to ask whether that is really what happened.
Officially, Delta acquired Northwest in a $2.8 billion stock swap. But after every merger, one company's culture predominates, while the other's seems to diminish in importance. In the case of the merger that created the world's biggest airline, the evidence abounds that the acquiree is in the captain's seat.

Start with the obvious, which is that Delta CEO Richard Anderson spent 14 years at Northwest, leaving as CEO in 2004. Furthermore, of Delta's top 10 officers, five, including Anderson, have worked at Northwest and one came last year from Continental(CAL Quote - Cramer on CAL - Stock Picks), where he worked with Anderson. Only four were at Delta prior to its 2005 bankruptcy.

In terms of cultures, Delta was always a Southern company, occasionally described in terms like "cordial," and "genteel" and, of course, lacking union representation except for its pilots and dispatchers.

By contrast, Northwest has long been considered the most aggressive of airlines, known for sometimes confrontational labor relations and for a fierce response to competitive intrusions. In the late 1990s, when AirTran(AAI Quote - Cramer on AAI - Stock Picks) started to expand at its Atlanta hub, Delta seemed to look the other way, allowing AirTran to flourish. It is widely felt that Northwest would have used the weapons a hub airline possesses, such as scheduling, pricing, amenities and frequent flier loyalties to crush AirTran in its infancy.

In Atlanta, Delta has been the archetypal home-town company, one that grew up with the city and the airport that has become the world's largest. Yet recently, Delta has been in a bitter public battle with the airport, even threatening to move flights to "more efficient" places, like Cincinnati or a Northwest hub, if the airport executes an expansion plan that could double per-passenger costs by 2016.

Simultaneously, Delta is in a pitched battle with its regional carriers -- two of which have filed lawsuits -- and with the American Society of Travel Agents, which objects to Delta's move last June to debit agents' accounts for ticketing mistakes.
"I keep telling people, Northwest took over Delta, using Delta's money and Delta's name," says a recently departed former Delta executive. "Once they put Richard Anderson on the board (in March, 2007), that was it."

To many, however, the selection of Anderson as CEO in September 2007 came as a surprise, particularly because outgoing CEO Jerry Grinstein -- a popular industry icon who rebuilt Delta as an international carrier and rallied employees partially by rejecting financial rewards he could have had -- had pushed for an internal candidate.

Anderson quickly began an effort to streamline Delta's regional operations, where several regional carriers flew as Delta Connection. The effort became more critical after the merger added even more regionals. The intent, Delta maintains, has been primarily to shed carriers with substandard on-time performance.

Some regional carriers saw it differently, saying Delta found ways -- even extending to contract violations -- to reduce costs. Two of the carriers, Mesa(MESA Quote - Cramer on MESA - Stock Picks) and SkyWest(SKYW Quote - Cramer on SKYW - Stock Picks), are suing Delta.

In a third case, Delta threatened to terminate a contract with Pinnacle(PNCL Quote - Cramer on PNCL - Stock Picks), but later backed down.

As for Mesa, Delta last spring sought to terminate a contract under which Mesa subsidiary Freedom operated Delta Connection flights. Delta said Freedom failed to maintain a 95% completion rate during a three-month period. Mesa sued Delta, saying it canceled flights at Delta's request, largely because Delta wanted to use the slots at New York's Kennedy Airport for other flights.
In May, a federal judge in Atlanta said Delta acted "in bad faith" and issued an injunction against it. "But for Freedom's cooperation with Delta's requested coordinated cancellations, Freedom's completion rate in October and December 2007 would have exceeded 95%," wrote Judge Clarence Cooper. Delta, which is appealing, subsequently terminated another contract, under which Mesa flew CRJ-900 regional jets.

Meanwhile, SkyWest sued Delta in Georgia state court, alleging that Delta withheld $32.4 million in payments that should have been reimbursed in connection with irregular operations.

"When you look back at Northwest, and how it treated its regionals, you see the same type of thing," says Mesa CEO Jonathan Ornstein. "Delta always had a reputation for treating everyone fairly, but what the (Delta) board is going to realize is that they destroyed one of the last airlines from the traditional school."

In its dispute with ASTA, Delta is accused of taking a hard line with travel agents.

"A year ago they started drafting travel agent accounts with debit memos for erroneous type things, like not canceling within 24 hours (and) they got very aggressive towards the end of the year," says ASTA President Chris Russo. "These are not cheap -- they are $100 a pop."

In November, Delta said it would discontinue the practice, but Russo says agents are still miffed that Delta wants disputes handled by email or fax. "You still can't talk to a real person," he says.

In one major respect, the new Delta differs from Northwest, because while Northwest frequently had conflicts with its unions, Delta continues to maintain a positive relationship with its pilots. The pilots backed the merger, which other unions opposed, and moved to quickly integrate seniority lists. As it always has, Delta is resisting other unions' efforts to organize workers, including workers who were union members at Northwest.

Delta spokeswoman Betsy Talton says Delta continues to have a "distinctly Delta culture that's been built over decades (and that) continues to be nurtured through positive, direct relationships and a philosophy of sharing successes with frontline employees through equity, profit sharing and monthly operational bonuses.
"From this foundation, we continue to integrate best practices and talent from companies at the top of their industry to build an even stronger Delta," she says. "Our merger provides the opportunity to incorporate best practices from Northwest including expertise that is the foundation of its reputation for strong operational performance."

Regarding the recent conflicts with the airport, ASTA and the regionals, Talton says: " We're constantly looking at every aspect of our business and enhancing policies and procedures to ensure a strong business mode -- one able to succeed through economic cycles and the changing landscape of the airline industry."

Aviation consultant Robert Mann says Delta has clearly seen a cultural transition, part of which naturally follows a merger creating the world's largest airline. "When you get to the size Delta is now, you can afford to be the 800-pound gorilla, and maybe they are getting used to that role," he says. "When the industry outperformed Delta by 13% in (revenue per available seat mile), how aggressive could you be with travel agents when someone was egregiously mispricing? How much did you want to (anger) the Atlanta airport, which wants to double the per passenger cost, when you only had one place where you could grow?"

"So part of it is evolutionary," Mann says. "The other part is the function of a rapid influx of some rather more brass-knuckled personalities from a decidedly more brass-knuckled corporate culture."

Shares of Delta were trading up 16 cents, or 3.8%, to $4.42 Wednesday.
 

SEVEN

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I still don't think that the General will admit that NWA has the upper hand indirectly. What say you General Lee?
 

Whine Lover

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He says: "Keep his Delta, HIS Northwest".


" Delta Dawn, what's that flower you have on
Could it be a faded rose from days gone by
And did I hear you say he was a-meeting you here today
To take you to his mansion in the skyyyy...."
 
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Max Powers

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Richard Anderson and his good ole boys do business by doing battle. This will never work in the end and over time will erode the company.
 

General Lee

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I still don't think that the General will admit that NWA has the upper hand indirectly. What say you General Lee?
Hey, I still wear the DL uniform, say the Delta callsign, did well in the SLI, and won't have to ever fly a DC9, so I don't really care. I look FANTASTIC as a Russian Sub Commander. Together, we are a bigger, stronger airline, and I am a part of it, and I am happy. With some of the recent Dalpa moves, I actually wouldn't mind some of the NALPA people moving in to the MEC and shaking things up a bit.


Bye Bye--General Lee
 

ACL65PILOT

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Well then Lee get our senior bottom to the LEC meeting on the 13th.
 

Schwanker

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Hey, I still wear the DL uniform, say the Delta callsign, did well in the SLI, and won't have to ever fly a DC9, so I don't really care. I look FANTASTIC as a Russian Sub Commander. Together, we are a bigger, stronger airline, and I am a part of it, and I am happy. With some of the recent Dalpa moves, I actually wouldn't mind some of the NALPA people moving in to the MEC and shaking things up a bit.


Bye Bye--General Lee
On the contraire-
Got new crappy Comrad Borad outfit with a hat which could float a Russian Sub! Got screwed in the SLI and the mudpipe is still bleeding! Changed to some gay sounding call sign--not that there is anything wrong with that! Now I'm stuck with some MGT LOVING push over MEC which will cave on scope!!! Besides that, all is great as we just concurred DAL!

Schwanker
 

Griswold

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On the contraire-
Got new crappy Comrad Borad outfit with a hat which could float a Russian Sub! Got screwed in the SLI and the mudpipe is still bleeding! Changed to some gay sounding call sign--not that there is anything wrong with that! Now I'm stuck with some MGT LOVING push over MEC which will cave on scope!!! Besides that, all is great as we just concurred DAL!

Schwanker
Don't forget to add your pay raise. Better bases and you still have a frozen pension.
 

crj567

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Excellent article.....

I have been telling people this would happen since the meger was first speculated on. DAL is gone now, and this new airline (800 lb gorilla) will work hard to piss off customers and passengers alike. It is truly a shame. DAL used to be a great company.

The new DAL (NWA) still has absolutely no idea how the traveling public thinks-there is no brand loalty anymore. You piss enough people off, and they will give you a collective kick to the nuts. Many here scoffed my past assertions which were all validated by this article.

Let me be clear in what I am asserting now: DAL (NWA) will now try and destroy AirTran. If they succeed, DAL will get SWA into Atlanta faster than you can drop a hot coal. At that point, DAL (NWA) will get the living hell kicked out of it, and will soon be bankrupt again. -Doubt me again? Go ahead if you wish-Gen., but time will prove me correct again.

I think it's great how the author ended the article. General Lee better watch his pompus butt. Apparently, he doesn't understand how big a bunch of scumbags used to run NWA. That brass ring the General has been chasing will suddenly morph into brass knuckes, indeed......

-Turn the other cheek, Gen.... Steenland's got a little somthin' fo' yo' punk ass!
 
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Schwanker

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Don't forget to add your pay raise. Better bases and you still have a frozen pension.
Gris,
All was TIC. Just having some fun. It all turned out fine. No complaints here as well.

Schwanker
 

ACL65PILOT

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SWA is going to be here in two years no matter what happens with AAI.
Now that SWA does not have a supreme hedge position, the costs on like routes will be quite similar.
 

SEVEN

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SWA is going to be here in two years no matter what happens with AAI.
Now that SWA does not have a supreme hedge position, the costs on like routes will be quite similar.
Airtran is the main course for DAL in 2010. It shouldn't take too long to finish them off.
SWA however, is a different story.
DAL and SWA will live semi-"peacefully" as no one wants to see a blood bath. The two will agree to co-exsist in the future. Stay on your side of the fence and peace will be possible....
 

nwaredtail

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Don't forget to add your pay raise. Better bases and you still have a frozen pension.
Pay Raise? If you are proud of that little thing Y'all call a pay raise, you should be embarrassed. Better bases? They all suck equally. Frozen Pension?, now let me talk real SSSLLLOOOWWWW so you get it, only about 20% of NWA will receive a frozen pension even worth mentioning.

I am at 13 years and will receive, sit down and get ready, a whopping 1785.00/month. Holy crap, Vegas here I come.

Don't be so frickin simple.
 

ACL65PILOT

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Airtran is the main course for DAL in 2010. It shouldn't take too long to finish them off.
SWA however, is a different story.
DAL and SWA will live semi-"peacefully" as no one wants to see a blood bath. The two will agree to co-exsist in the future. Stay on your side of the fence and peace will be possible....
Correct. And it has been stated as such. We will run rational competition with each other.

Both have done a SWORT analysis, and both can get killed by the other. Kind of like MAD.
 

General Lee

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Excellent article.....

I have been telling people this would happen since the meger was first speculated on. DAL is gone now, and this new airline (800 lb gorilla) will work hard to piss off customers and passengers alike. It is truly a shame. DAL used to be a great company.

The new DAL (NWA) still has absolutely no idea how the traveling public thinks-there is no brand loalty anymore. You piss enough people off, and they will give you a collective kick to the nuts. Many here scoffed my past assertions which were all validated by this article.

Let me be clear in what I am asserting now: DAL (NWA) will now try and destroy AirTran. If they succeed, DAL will get SWA into Atlanta faster than you can drop a hot coal. At that point, DAL (NWA) will get the living hell kicked out of it, and will soon be bankrupt again. -Doubt me again? Go ahead if you wish-Gen., but time will prove me correct again.

I think it's great how the author ended the article. General Lee better watch his pompus butt. Apparently, he doesn't understand how big a bunch of scumbags used to run NWA. That brass ring the General has been chasing will suddenly morph into brass knuckes, indeed......

-Turn the other cheek, Gen.... Steenland's got a little somthin' fo' yo' punk ass!

Steenland? Huh? I think he is now on the board, not in management anymore. But, you KNEW that....your expertise is overwhelming... Talk about pompous---at least know what you are talking about.

And, we are going to try to smash Airtran, but not wipe it away. We know the stakes, and the ex NWA guys have done a better job keeping the LCCs at bay. They now pretty much run the boat here (even though a Delta exec now runs NWA until SOC). Regardless, I will still do my new favorite route (Forteleza and Recife, Brazil) and ENJOY it. Bye now.


Bye Bye--General Lee
 

General Lee

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Pay Raise? If you are proud of that little thing Y'all call a pay raise, you should be embarrassed. Better bases? They all suck equally. Frozen Pension?, now let me talk real SSSLLLOOOWWWW so you get it, only about 20% of NWA will receive a frozen pension even worth mentioning.

I am at 13 years and will receive, sit down and get ready, a whopping 1785.00/month. Holy crap, Vegas here I come.

Don't be so frickin simple.
Come on now, you did get a pay raise, from the pittance you negotiated to allow those senior guys to keep their bigger frozen pensions. You did it to yourselves, and now you got a raise back to something better. As far as how much we all got---when you negotiate during $140 a barrel oil, it is called bad timing. IF you knew what was going to happen (over $100 less per barrel for gas and a depression looming) why didn't you tell everyone on CNBC? You are a genius DC9 Captain, so you know everything. And, your whopping $1700 something a month might be a lot better than the rest of us who left a lot of it in 401Ks. You might be a RICH DC9 Captain when you retire with an extra $1700 a month....


Bye Bye--General Lee
 

maxblast72

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SWA is going to be here in two years no matter what happens with AAI.
Now that SWA does not have a supreme hedge position, the costs on like routes will be quite similar.
Now that SWA pays the same for Jet A as Airtran, Airtran actually has about a 10% total CASM advantage over SWA. I don't know why Delta would want to play games with Airtran again. We saw where that got them the first time. They are not going to out low-cost the lowest cost LCC.

Delta should focus on building the strongest international system in the world and building monopolies on some of those routes (like their new routes to Africa). That is where their strength is. Delta will have better luck putting United or USAirways out of business than Airtran. Like the article said, Delta should have put Airtran out of business in the late 1990's. It is a little too late and expensive now.
 

General Lee

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Now that SWA pays the same for Jet A as Airtran, Airtran actually has about a 10% total CASM advantage over SWA. I don't know why Delta would want to play games with Airtran again. We saw where that got them the first time. They are not going to out low-cost the lowest cost LCC.

Delta should focus on building the strongest international system in the world and building monopolies on some of those routes (like their new routes to Africa). That is where their strength is. Delta will have better luck putting United or USAirways out of business than Airtran. Like the article said, Delta should have put Airtran out of business in the late 1990's. It is a little too late and expensive now.
Delta wants to run ATL at all costs, and will put DC9s on 717 routes instead of 50 seaters that always lose. Since the DC9s are owned outright, it should make it feasible. Sure, the 717s are nicer and have XM radio, but the DC9s have something that the 717s don't---a non-autothrottle out of sync sound for the engines that will lull everyone to sleep in woderful dreamland. And if NWAREDTAIL is flying it, you can guarantee that everyone will be lulled asleep, just like reading his posts here on FI.


Bye Bye--General Lee
 

Griswold

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Pay Raise? If you are proud of that little thing Y'all call a pay raise, you should be embarrassed. Better bases? They all suck equally. Frozen Pension?, now let me talk real SSSLLLOOOWWWW so you get it, only about 20% of NWA will receive a frozen pension even worth mentioning.

I am at 13 years and will receive, sit down and get ready, a whopping 1785.00/month. Holy crap, Vegas here I come.

Don't be so frickin simple.
I'm not proud of the pay raise, but you guys got a big bump. Let me talk real slow for you, about 0 guys at DAL have what you are talking about (1785 a month).

A NWA 320CA now can be 7ER CA. At NWA that was all he could hold.

So if really think about it ya'll got more. So stop your bitching.
 

Fly4hire

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And, we are going to try to smash Airtran, but not wipe it away. We know the stakes, and the ex NWA guys have done a better job keeping the LCCs at bay. They now pretty much run the boat here (even though a Delta exec now runs NWA until SOC). Regardless, I will still do my new favorite route (Forteleza and Recife, Brazil) and ENJOY it. Bye now.


Bye Bye--General Lee
Why not wipe it away? Don't knock a BHM layover until you try it. :)
 
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