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Delta in a fight for survival

By HARRY R. WEBER
The Associated Press

Delta CEO Gerald Grinstein warns of low revenues.

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In a speech at an investor conference in New York, CEO Gerald Grinstein said low-fare rival AirTran Airways has, for the most part, been able to call the shots on ticket prices in many of the markets in which the two compete.

"We have no pricing power and yields are continuing to erode," said Grinstein, a longtime Pacific Northwest power figure and president of the University of Washington Board of Regents who took over as CEO after Leo Mullin resigned in November. He added, "We have to learn to live in the revenue environment that we're in."

That makes getting wage cuts from its pilots "a crucial first step" in Delta's turnaround plan, Grinstein said. He reiterated that the Atlanta-based company would consider bankruptcy only as a last resort.

"À la Mark Twain, the reports of our death are premature," Grinstein said.

But, he said, "Delta, as it's now structured, cannot survive in the marketplace. It has to completely change the way it does business."

Some analysts believe Delta, the nation's third-largest airline after American and United, has only six to nine more months to get the wage cuts or face bankruptcy. The airline has lost more than $3 billion and laid off 16,000 employees in the past three years.

"If they don't have a deal by the first quarter of next year, then it's going to be all over," said Ray Neidl, an analyst with Blaylock & Partners in New York.

Delta is asking for a 30 percent wage cut from pilots, who are offering to take a 9 percent cut and to forego a 4.5 percent raise they received in May. Delta's pilots make between $100,000 and $300,000 a year, according to the company.

Formal negotiations between the two sides have been stalled since late January.

Grinstein said he hopes Delta's pilots will decide "that it is time to re-engage and get the discussions back on track."

The chairman of the pilots union's executive committee, John Malone, suggested in an open letter to all Delta employees last week that management has engaged in "divide and conquer" tactics as part of its negotiating strategy. He said the union is willing to negotiate, but it believes the company must develop a business plan that involves more than just cutting wages.

Grinstein told analysts at yesterday's Merrill Lynch Global Transportation Conference that Delta is working on a top-to-bottom review that should be complete in August. He did not offer any new details of his plan to return the company to profitability.

"We are looking at everything we do, every plane type we fly, every hub, every marketplace," Grinstein said. "Any speculation now about what is going to come out of that is truly conjecture. We are working through that very methodically."

Shares of Delta fell 24 cents, or 4 percent, to close at $5.71 on the New York Stock Exchange.

Copyright © 2004 The Seattle Times Company

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