Delta Takes Flight
How CEO Gerald Grinstein piloted a major airline through bankruptcy
Parker upped his bid to $10 billion. Delta's resistance hardened. But more than that, the Airways bid unified players on the Delta side. "The takeover attempt brought the pilots, executives, and employees together," Moak says. "It focused the senior executives on the fact that the company was very vulnerable."
Goodies. Action followed. Delta promptly announced that it had obtained $2.5 billion in funding to make the leap out of bankruptcy. The creditors' committee officially rejected the US Airways bid. Another boost came when Delta announced a $58 million operating profit for 2006, its first since 2000. And then in March, Delta announced that 39,000 nonexecutive employees would get raises and stock incentives once the company emerged from bankruptcy-spreading the largess far more broadly than had United, which limited incentives to 400 executives when it emerged from bankruptcy in 2006.
Grinstein believes that the heat applied by US Airways provided a giddyap that hastened Delta's emergence from bankruptcy. "The US Airways bid galvanized everyone," he says. "That was a critical, pivotal decision." Delta also benefited from good timing. With the industry poised to enjoy a profitable year in 2007, "the creditors wanted resolution," says Bill Warlick, an analyst with Fitch Ratings. Airline stock values had been rising, he points out, which was a strong incentive for creditors, who would end up holding the majority of Delta's new shares, to push the company out of bankruptcy.
Delta finally exited Chapter 11 on April 30. On May 3, company executives rang the opening bell on the New York Stock Exchange to commemorate the relisting of the company's shares. "Welcome to Independence Day," crowed Bastian, a lead candidate to become CEO once Grinstein retires this summer.
The celebration may be short lived. Rising fuel prices could crimp the industry's flash of profitability. And cutbacks in consumer travel will probably lead to lower fares, shrinking airline revenue. Delta's shares are already trading about 13 percent below the official offering price on May 3. And some big bills are coming. Delta's aircraft are older than those of low-cost competitors, which could require costly recapitalization just as the industry hits another downdraft. And even after six years of widespread restructuring, the airline industry remains troubled. "This is still an industry with a defective structure that's crying out for consolidation," argues Warlick.
For now, Delta looks like a survivor. But in this business, there's no such thing as a steady cruising altitude.
A Q&A with Delta CEO Gerald Grinstein is on the Web at usnews.com/deltaceo
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