Delta's Grinstein on Exiting Bankruptcy
In 2004, Gerald Grinstein came out of retirement to become CEO of Delta Air Lines, just as the company was sinking into a financial crisis. Delta declared bankruptcy in September 2005. Over the next 18 months, Grinstein shepherded the airline through deep cost cutting, including pay cuts for pilots and other employees, along with major route restructurings and a 16 percent reduction in the company's aircraft fleet. Grinstein also rebuffed a $10 billion takeover bid by US Airways. Delta emerged from bankruptcy on April 30. Grinstein spoke with Deputy Business Editor Rick Newman about how the company used bankruptcy to its advantage.
Q: Delta got through bankruptcy very quickly, earning praise for keeping litigation to a minimum, sustaining a pretty big chunk of pilot pensions, and issuing incentive packages to thousands of employees when you finally emerged. How'd you do it?
A: Well, it wasn't just me; it was a combination of people putting this together. But a few things made this work. We absolutely set a target of about 18 months. I said, "I hope it doesn't take that long, but that's our target." At the time, in the fall of 2005, there were some amendments to the bankruptcy law, and one thing was, they gave an 18-month period of exclusivity to debtors in bankruptcy. That didn't apply to us, but 18 months seemed like a good target. ... But the real burden of persuasion was with the creditors. We tried to make everything as brief as possible, just to make it easy to understand.
Q: Was there some kind of template that you followed? Was there anything you modeled on United Airlines, which was already in bankruptcy at the time?
A: I don't think we fixated on United. And there was no real template, not from an airline industry point of view. The general experience in airline bankruptcies is not good. There's no real model. ... But from a practical notion, we knew that the longer you stay in bankruptcy, the harder it is to adapt to the environment once you come out. With the US Airways [hostile takeover] bid last November, for instance, we felt it would lengthen our stay in bankruptcy. That's one of the reasons we were so adamantly set against it.
Personally, I thought there was no way the Department of Justice would approve it, and when US Airways had talked about merging some of their operations [back in 2000], negotiations took 18 months. And that was without bankruptcy. And after all that, the government turned it down. We didn't want that to happen. We thought it will just extend our stay and produce nothing but delay.
Q: What about litigation? How did you keep a lid on that?
A: At the beginning, we said, "Let's not fight everything; let's solve as much as we possibly can without litigation." The bankruptcy process is usually a bunch of pit bulls fighting each other. In that environment, everybody is angry, sharp of tongue. We didn't want to get into that.