Delta Takes Flight
How CEO Gerald Grinstein piloted a major airline through bankruptcy
To meet the goal, Delta would have to find a way to avert time-consuming litigation. "The bankruptcy process is usually a bunch of pit bulls fighting each other," Grinstein says. "We didn't want to get into that." The company encouraged creditors and other claimants to approach the airline out of court, and it set up a triage system to respond to every significant issue within days. "We said, 'We want anybody with an issue to call,' "Huebner explains. " 'Don't file papers, don't launch missiles; just call.'"
It took a while for the approach to catch on. In November 2005, Delta filed a petition to cancel its pilots' contract and exact pay cuts beyond a 33 percent reduction negotiated less than a year earlier. A predictable showdown with the pilots ensued. They just weren't buying the bonhomie from the lawyers. "A lot of people get paid a lot of money all through bankruptcy," insists Lee Moak, a 767 captain who is chairman of the Delta pilots union. "It's a cottage industry. Those people create conflict."
The pilots had little support from other creditors, however, and they had to swallow pay and pension cuts in April 2006, in exchange for future incentives in the restructured company. That gave management a tangible accomplishment to take to the creditors' committee, chaired by Boeing, and to the bankruptcy court in New York. The carrier's labor costs had been among the highest in the industry, and Delta had pledged to cut them by about $1 billion a year.
Grinstein's own, self-imposed pay cut helped win some converts, too. The CEO, a Delta director since 1987 who came out of retirement and moved to Atlanta from Seattle to take the controls in 2004, cut his own salary by 25 percent in November 2005, to $338,000. He also gave up millions in potential bonuses. Most of Delta's other top executives earned well under $500,000, while their counterparts at United and Northwest were earning multiples of that. "There has to be restraint on the part of management," Grinstein insists. "Everybody has made sacrifices, and incentives for management can't sound excessive."
With relief on labor costs, Delta started tackling an inefficient route structure and other problems. Before bankruptcy, the airline was running 64 widebody flights a day to South Florida from Atlanta, with lots of empty seats. The airline started to replace those with narrow bodies and move the bigger jets, mostly 767s, to international routes where the planes would fly fuller, at higher fares, serving cities like London, Athens, Mexico City, and Bombay. International routes, which had accounted for less than 20 percent of Delta's business prior to bankruptcy, now account for 39 percent of its seats.
Progress was steady but slow through the summer and fall of 2006, with the all-important creditors' committee casting a wary eye on every move. Then last November, US Airways made a brash $8.7 billion bid for Delta. US Airways CEO Doug Parker was trying to emulate a clever 2005 deal that allowed America West, a solvent carrier, to merge with US Airways while it was in bankruptcy and take advantage of Chapter 11 tools to rationalize the fleets and payrolls of both entities. But US Airways had been virtually insolvent at the time; Delta wasn't that desperate. Grinstein flatly rejected the offer. The creditors agreed with him.