Delta Takes Flight
How CEO Gerald Grinstein piloted a major airline through bankruptcy
Corrected 5/23/07. In a previous version of this story, the accompanying graphic incorrectly stated Delta's reduction in aircraft.
Twenty months ago, Delta Air Lines was a flying cliche: a bloated airline that had slid into bankruptcy. Costs were too high. Cash was scarce. The wrong planes flew the wrong routes. Pilots were threatening to strike. And Wall Street analysts were invoking the "L" word, suggesting that if Delta liquidated, it might finally help solve the airline industry's chronic overcapacity problem.
There's still an overcapacity problem, but now it's up to some other troubled airline to go bust and solve it. When Delta emerged from Chapter 11 on April 30, analysts applauded its rapid transformation into a modern, competitive carrier. Most creditor claims against the company have been resolved-in near-record time. Pilots and other employees are content. And unlike other companies in bankruptcy, Delta managed to restructure its operations while avoiding prolonged battles with unions and other creditors. "We probably haven't seen a bankruptcy as successful as Delta," says Serguei Netessine of the University of Pennsylvania's Wharton School. "Typically you see months of litigation. The company did an excellent job."
Two Paths out of Bankruptcy: Delta vs. United
Delta Air Lines, which exited bankruptcy on April 30, has earned plaudits for rapid Chapter 11 proceedings that entailed minimal litigation and rewarded thousands of employees—not just a select group of executives—with equity in the new company. Here's how Delta stacks up against United Airlines, which exited bankruptcy in February 2006:
 |
 |
|
|---|---|---|
| Revenue 2006 | $17.1 billion | $19.3 billion |
| Number of aircraft (approx.) | 600 | 460 |
| Employees | 47,000 | 57,000 |
| Time in bankruptcy | 585 days | 1,146 days |
| Reduction in fleet | 82 aircraft | 100 aircraft |
| Reduction in workforce | 6,000 | 25,000 |
| Reduction in operating costs (annual) | $3 billion | $7 billion (by 2010) |
| Bankruptcy-related fees paid to law firms | $137 million | $335 million |
| Payment on pilot pensions (est.) | 65-85 cents on the dollar | 30-50 cents on the dollar |
| Employees offered public shares as incentives | 1,200 executives plus 39,000 noncontract workers | 400 executives |
Compiled by Serguei Netessine, the Wharton School, University of Pennsylvania
There was no template for a model bankruptcy when Delta entered Chapter 11 in September 2005. In the aftermath of the 9/11 terrorist attacks, which sent the air-travel industry into a tailspin, US Airways had declared bankruptcy twice. By the time Delta filed, United Airlines had been plodding through Chapter 11 for nearly three years. Northwest Airlines declared bankruptcy the same month. "The general experience in bankruptcies was not good," recalls Gerald Grinstein, Delta's CEO.
Doubts. One thing Grinstein and his management team did know was that for the ship to fly smoothly, speed was critical. "We knew that the longer you stay in bankruptcy, the harder it is to adapt to the environment once you come out," Grinstein says. He and his executives targeted early spring of 2007 as Delta's emergence date. It was an ambitious goal, one Delta never announced publicly. But there was plenty of skepticism internally. Chief Financial Officer Ed Bastian, made point man for the restructuring effort, reinforced the goal repeatedly. At one point, Marshall Huebner, Delta's lead outside lawyer, told Bastian it was the fastest possible timetable, and it would probably slip. "Thank you for the first part," Bastian said, "but we're not going to slip."
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