Chief executive Gerald Grinstein predicts major changes for the struggling carrier at the airline's annual meeting Friday.
By STEVE HUETTEL
Published April 24, 2004
ATLANTA - Excuse employees and shareholders if they weren't in a party mood for Delta Air Lines' 75th birthday.
Against a backdrop of staggering losses, lingering anger over executive compensation and a potential bankruptcy reorganization, chief executive Gerald Grinstein predicted major changes for Delta at the airline's annual meeting Friday.
Delta can adapt to changes in the airline business or end up in the ranks of failures like Braniff, Eastern and Pan Am, he said.
"Delta's 75 years of flying ... (gives it) an opportunity but does not guarantee success," said Grinstein, 71, a longtime board member who took over as CEO Jan. 1. "The ones that lacked flexibility, speed and determination have disappeared. The challenges Delta has now are revolutionary in nature."
Started as a crop-dusting service, Delta flew its first passenger from Dallas to Shreveport, La., on June 1, 1929. The airline marked the anniversary by parking a replica of its original Travel Air plane and a renovated DC-3 outside the meeting hotel.
But the recent history of Delta, the nation's No. 3 airline and the biggest at Tampa International Airport, is one employees, shareholders and customers would rather forget.
Delta lost $773-million in 2003, it third year of deep losses, and it was $383-million in the red for this year's first quarter.
The company must reduce its cost structure, cut debt and come up with a new operating strategy, Grinstein said.
He provided few details. A strategic review won't be ready until late summer. The airline wants to substantially cut pilot costs, the highest in the industry, but remains at an impasse with the pilots' union.
Grinstein said Friday that Delta won't back off its proposal for a 30 percent pay cut, plus benefit reductions and changes in work rules. He doesn't want to settle for less and have to come back for more later, as US Airways has done with employees.
"The last thing I want to see is us wind up like US Air," Grinstein said. "We've got to get it done (at) one time."
But pilots, whose contract runs until 2005, aren't ready to accept anything near that large a reduction.
"While cutting costs is appropriate given today's environment, simply slashing workers' pay and benefits is not a business plan by itself," John Malone, Delta captain and head of the union, said at the meeting.
Employees voiced continued resentment over some $63-million in bonuses and bankruptcy-proof pension guarantees that Delta paid chief executive Leo Mullin and other executives since 2002 while it laid off thousands of workers.
Stanley Barczak, a baggage handler at Delta's Cincinnati hub, made a proposal urging the board to prohibit pay increases for any executive during a quarter when the airline loses money.
"Is it too much to ask the company's management to participate in the same sacrifices as employees?" he asked. "I can't help but wonder if loyalty hasn't been the missing ingredient (at Delta)."
Many in the audience stood and cheered. Shareholders rejected his proposal. But they approved one by a Delta pilot urging the board to require a shareholder vote to give senior executives "extraordinary retirement benefits," such as providing credit for years not actually worked.
Grinstein acknowledged that relations between management and workers - "a very delicate social contract" - had been damaged and must be restored.
Others in the audience raised a variety of other complaints. Frequent flier Howard Shatzman said Delta's key customers felt ignored because the airline cut perks such as upgrades.
Patrick Kelly, speaking from a wheelchair, told about how there was no gate agent to get him aboard a plane in Salt Lake City and about how he sat 25 minutes before someone helped him off another flight.
Grinstein pledged to work on the problems. But he drew the line at an objection to the most recent tail art on Delta jets, described by a flight attendant as a paint job with colors that ran together.
"If there's one thing I'm not going to fiddle with, it's the livery of the aircraft," he said.
Financial analysts say Delta isn't in danger of going into bankruptcy reorganization this year, barring an unexpected crisis like a terrorist attack or a big jump in fuel prices, already at sky-high levels,
But some experts predict the airline's unrestricted cash, at $2.2-billion March 30, could drop $1-billion more by next year. That could force Delta executives to try to fix the problems in bankruptcy court, they say.
In answer to a pilot's question, Grinstein declined to talk about what might happen in a reorganization. Executives are concentrating all their efforts on keeping that from happening, he said.
"We're going to have an interesting year together," he said. "But I think it will be a year that puts us on the road to our 100th anniversary in better shape."