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From Businessweek
New Culture
The airline taps ex-Northwest chief Richard Anderson as its new CEO, spurning retiring Gerald Grinstein's picks and fueling merger chatter by Dean Foust
When US Airways Group (LCC) shocked Delta Air Lines (DAL) with a hostile bid last year—just as the Atlanta-based carrier was working its way out of a wrenching bankruptcy—Delta's creditors were jubilant. With US Airways offering those creditors a hefty 25% premium to where Delta's debt was trading at the time, most would have recouped a big chunk of their losses.
But when Delta's management team, led by Chief Executive Officer Gerald Grinstein, dug in against US Airways' bid and cut many unsecured creditors out of the vote, many of those stakeholders were furious. Now, with Delta out of bankruptcy, and those creditors controlling Delta's reconstituted board, they finally extracted their revenge when the airline named its new CEO Aug. 21. While Grinstein, 75, had publicly lobbied for one of his two top lieutenants to succeed him following his retirement this summer, Delta's new board spurned his wishes, picking former Northwest Airlines (NWA) CEO Richard Anderson, himself a member of the new board, as its new chief executive.
Simmering Resentment
While Anderson arrives with sterling credentials—as Northwest CEO he pared back the airline's cost structure while fending off challenges to its Heartland stronghold—his appointment is nonetheless taken by a number of Delta watchers as a clear sign that the creditors are calling the shots at the nation's third-largest carrier.
Anderson's appointment also raises speculation that, with an outsider at the helm, Delta may reverse its "go it alone" strategy and pursue a merger with either United Airlines (UAUA), Continental Airlines (CAL), or Anderson's former employer, Northwest, with whom Delta held exploratory talks during bankruptcy. What's more, since Northwest left bankruptcy May 31, the carrier has been beset by horrendous relations with its employees, who are angry over deep pay cuts and executive compensation. The airline was forced to cancel dozens of flights in June and July after pilots began calling in sick, hurting profits and boosting the pressure on CEO Doug Steenland.
Delta management "really did give creditors the middle finger when they turned down US Air's bid, and I think there was some residual resentment among the creditors," says Roger King, senior analyst for CreditSights, an institutional research firm based in New York. "Merging Delta with another airline could take out a lot of capacity and make the combined airline much more profitable."
For his part, the 52-year-old Anderson says he isn't coming on as an agent of change, nor does he plan to package the airline for a long-rumored merger with his former employer—a vow he made during a meeting with Delta's pilots' union earlier in the day. "I asked him point-blank about that, and he promised me he isn't here to facilitate a merger with Northwest," says Lee Moak, chairman of the executive committee of Delta's pilots' union.
In an interview, Anderson was firm that he wants to continue the strategic course that Grinstein and Co. set during bankruptcy: lessening Delta's dependence on cutthroat domestic routes by expanding aggressively into more lucrative international markets like Venice, Kiev, and Bucharest. "Delta has a strong position in the industry and will remain in control of its own destiny," says Anderson.
Still, the board's choice of an outsider came as a shock for many of Delta's rank-and-file workers, who were expecting to see either of Grinstein's top aides, Chief Operating Officer James Whitehurst or Chief Financial Officer Ed Bastian, named to the job. Delta management has long put stock in preserving a culture built around the "Delta family," and both Whitehurst and Bastian had pushed to make sure Delta employees received $350 million in stock to compensate for the pay cuts they took during bankruptcy, a move that generated grumbling among more than a few creditors and may have led to their efforts to consolidate power on the board. "I think Jerry [Grinstein] didn't anticipate that he'd lose control of the new board," says one Atlanta executive who is a friend of Delta's retiring CEO.
Indeed, the board's selection of Anderson, a no-nonsense lawyer by training who once worked as a Texas prosecutor, suggests that the board wanted an outsider who would bring a dispassionate focus on Delta's bottom line. "There's going to be a culture shock at Delta," says one airline industry executive who has worked with Anderson. "He is not the kind of CEO who shows up at an employee rally and hugs all the workers. He is all business."
Board Has His Back
And more management changes may yet come. While Anderson moved quickly to name Bastian as his new president and CFO, he didn't indicate what Whitehurst's new role would be, prompting speculation that Whitehurst could be next to depart. (In an e-mail response to a query from BusinessWeek, Whitehurst said, "I want to assure you that I have NOT resigned and have no intention of resigning.")
While not a Delta insider, Anderson nonetheless has some familiarity with the carrier by dint of his years at Northwest. The two airlines, along with Continental, have a "code sharing" agreement that allows, for instance, Delta to book passengers on connecting flights to cities that it doesn't serve, with Continental or Northwest actually flying the last leg. What's more, Delta and Northwest also participate in an international code-sharing agreement that allows the two carriers to tap into the route structures of foreign-based airlines like Air France (AKH), Aeroflot, and Korean Air.
But there will be no honeymoon for Anderson at Delta. For one, the new CEO has to begin winning over employees who remember that the airline's only other outsider CEO—Leo Mullin—ended with the carrier filing for bankruptcy. But if Anderson builds the same goodwill at Delta that he did at Northwest, the rank and file will likely come around on their new CEO. Northwest employees say that during his years at the Minnesota-based airline, Anderson earned a reputation as an executive who was attuned to the needs of the ground troops. When Northwest was looking to cut costs following the 2001 terrorist attacks, Anderson endorsed an employee proposal to let 2,400 attendants who agreed to take leaves retain their medical benefits. He also built an "Ask Richard" button on Northwest's internal Web site that let workers e-mail him with questions. "He'd get back to you," says Kevin Griffin, a 27-year flight attendant. "He actually came out and listened to employees. I think [Delta] got a better deal. If we could trade, [we'd] do it in a heartbeat."
But for Anderson, rallying employees at Delta is only half the battle. On the operations side, he has to make a decision initiated by the previous management team on whether to sell or spin off regional feeder carrier Comair as part of its ongoing restructuring. And with the pilots' contract up for renewal in 2010, Anderson—who analysts credit with smoothing out Northwest's chronically poor relations with its unions during his two years as CEO there—must begin negotiating with Delta pilots who feel they bore the brunt of the pay cuts management insisted were necessary to get Delta back into the black. But as an outsider, Anderson won't be as wedded to Delta's culture as the other candidates. And he'll know that this board has his back.
New Culture
The airline taps ex-Northwest chief Richard Anderson as its new CEO, spurning retiring Gerald Grinstein's picks and fueling merger chatter by Dean Foust
When US Airways Group (LCC) shocked Delta Air Lines (DAL) with a hostile bid last year—just as the Atlanta-based carrier was working its way out of a wrenching bankruptcy—Delta's creditors were jubilant. With US Airways offering those creditors a hefty 25% premium to where Delta's debt was trading at the time, most would have recouped a big chunk of their losses.
But when Delta's management team, led by Chief Executive Officer Gerald Grinstein, dug in against US Airways' bid and cut many unsecured creditors out of the vote, many of those stakeholders were furious. Now, with Delta out of bankruptcy, and those creditors controlling Delta's reconstituted board, they finally extracted their revenge when the airline named its new CEO Aug. 21. While Grinstein, 75, had publicly lobbied for one of his two top lieutenants to succeed him following his retirement this summer, Delta's new board spurned his wishes, picking former Northwest Airlines (NWA) CEO Richard Anderson, himself a member of the new board, as its new chief executive.
Simmering Resentment
While Anderson arrives with sterling credentials—as Northwest CEO he pared back the airline's cost structure while fending off challenges to its Heartland stronghold—his appointment is nonetheless taken by a number of Delta watchers as a clear sign that the creditors are calling the shots at the nation's third-largest carrier.
Anderson's appointment also raises speculation that, with an outsider at the helm, Delta may reverse its "go it alone" strategy and pursue a merger with either United Airlines (UAUA), Continental Airlines (CAL), or Anderson's former employer, Northwest, with whom Delta held exploratory talks during bankruptcy. What's more, since Northwest left bankruptcy May 31, the carrier has been beset by horrendous relations with its employees, who are angry over deep pay cuts and executive compensation. The airline was forced to cancel dozens of flights in June and July after pilots began calling in sick, hurting profits and boosting the pressure on CEO Doug Steenland.
Delta management "really did give creditors the middle finger when they turned down US Air's bid, and I think there was some residual resentment among the creditors," says Roger King, senior analyst for CreditSights, an institutional research firm based in New York. "Merging Delta with another airline could take out a lot of capacity and make the combined airline much more profitable."
For his part, the 52-year-old Anderson says he isn't coming on as an agent of change, nor does he plan to package the airline for a long-rumored merger with his former employer—a vow he made during a meeting with Delta's pilots' union earlier in the day. "I asked him point-blank about that, and he promised me he isn't here to facilitate a merger with Northwest," says Lee Moak, chairman of the executive committee of Delta's pilots' union.
In an interview, Anderson was firm that he wants to continue the strategic course that Grinstein and Co. set during bankruptcy: lessening Delta's dependence on cutthroat domestic routes by expanding aggressively into more lucrative international markets like Venice, Kiev, and Bucharest. "Delta has a strong position in the industry and will remain in control of its own destiny," says Anderson.
Still, the board's choice of an outsider came as a shock for many of Delta's rank-and-file workers, who were expecting to see either of Grinstein's top aides, Chief Operating Officer James Whitehurst or Chief Financial Officer Ed Bastian, named to the job. Delta management has long put stock in preserving a culture built around the "Delta family," and both Whitehurst and Bastian had pushed to make sure Delta employees received $350 million in stock to compensate for the pay cuts they took during bankruptcy, a move that generated grumbling among more than a few creditors and may have led to their efforts to consolidate power on the board. "I think Jerry [Grinstein] didn't anticipate that he'd lose control of the new board," says one Atlanta executive who is a friend of Delta's retiring CEO.
Indeed, the board's selection of Anderson, a no-nonsense lawyer by training who once worked as a Texas prosecutor, suggests that the board wanted an outsider who would bring a dispassionate focus on Delta's bottom line. "There's going to be a culture shock at Delta," says one airline industry executive who has worked with Anderson. "He is not the kind of CEO who shows up at an employee rally and hugs all the workers. He is all business."
Board Has His Back
And more management changes may yet come. While Anderson moved quickly to name Bastian as his new president and CFO, he didn't indicate what Whitehurst's new role would be, prompting speculation that Whitehurst could be next to depart. (In an e-mail response to a query from BusinessWeek, Whitehurst said, "I want to assure you that I have NOT resigned and have no intention of resigning.")
While not a Delta insider, Anderson nonetheless has some familiarity with the carrier by dint of his years at Northwest. The two airlines, along with Continental, have a "code sharing" agreement that allows, for instance, Delta to book passengers on connecting flights to cities that it doesn't serve, with Continental or Northwest actually flying the last leg. What's more, Delta and Northwest also participate in an international code-sharing agreement that allows the two carriers to tap into the route structures of foreign-based airlines like Air France (AKH), Aeroflot, and Korean Air.
But there will be no honeymoon for Anderson at Delta. For one, the new CEO has to begin winning over employees who remember that the airline's only other outsider CEO—Leo Mullin—ended with the carrier filing for bankruptcy. But if Anderson builds the same goodwill at Delta that he did at Northwest, the rank and file will likely come around on their new CEO. Northwest employees say that during his years at the Minnesota-based airline, Anderson earned a reputation as an executive who was attuned to the needs of the ground troops. When Northwest was looking to cut costs following the 2001 terrorist attacks, Anderson endorsed an employee proposal to let 2,400 attendants who agreed to take leaves retain their medical benefits. He also built an "Ask Richard" button on Northwest's internal Web site that let workers e-mail him with questions. "He'd get back to you," says Kevin Griffin, a 27-year flight attendant. "He actually came out and listened to employees. I think [Delta] got a better deal. If we could trade, [we'd] do it in a heartbeat."
But for Anderson, rallying employees at Delta is only half the battle. On the operations side, he has to make a decision initiated by the previous management team on whether to sell or spin off regional feeder carrier Comair as part of its ongoing restructuring. And with the pilots' contract up for renewal in 2010, Anderson—who analysts credit with smoothing out Northwest's chronically poor relations with its unions during his two years as CEO there—must begin negotiating with Delta pilots who feel they bore the brunt of the pay cuts management insisted were necessary to get Delta back into the black. But as an outsider, Anderson won't be as wedded to Delta's culture as the other candidates. And he'll know that this board has his back.
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