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Delta Air Lines


Honeymoon is over for new Delta CEO Anderson

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Jan 27, 2008

Many newly minted CEOs enjoy a brief honeymoon with their companies — a laid-back chance to kick the tires and look things over before really taking the wheel.

Not Delta Air Lines Chief Executive Richard H. Anderson.

Five months into the job, the 52-year-old Anderson is on a raucous ride that started the moment he took command of the nation's No. 3 airline. He's replaced legal, financial and marketing advisers. He's signed deals to expand international reach. Now he's engaged in a high-stakes hunt to find Atlanta-based Delta a flying partner.

That deal would create a mega-airline, the largest in the nation and possibly the world. The result would reach far beyond Atlanta, to the entire financially battered airline industry, which has seen fuel prices soar and stock prices tumble.

The idea is this: Combine two carriers, cut costs through economies of scale, focus on superior and highly profitable international routes and streamline less-lucrative regional routes. Basically, outflank your competitors before they can outflank you.

Anderson and his top Delta lieutenants have been working 14-hour days trying to cobble together a merger with either Minnesota-based Northwest Airlines — he used to be its CEO — or Chicago's United Airlines. Some top Delta officials privately worry that a merger could fall apart, but many analysts bet that a Delta-Northwest deal could emerge in the coming days, a union they say is more likely to survive regulatory scrutiny than a Delta-United merger.

Delta's last CEO, Gerald Grinstein, worked to stop a merger, helping derail a $10 billion hostile takeover bid by U.S. Airways in early 2007. Creditors stopped it amid vigorous opposition by employees, politicians and Delta management.

Delta's current market value now is about half of U.S. Airways' bid. Combined, Delta and Northwest would have a market value of about $8.5 billion, based on Friday's closing stock prices.

"If Delta and Northwest merge, we will not even recognize the new airline in three years," said Minneapolis-based airline consultant Terry Trippler, a friend of Anderson's who insists he has not discussed a potential merger with his old pal. "It will be a lean, mean flying machine and a force to be reckoned with. Everybody in the business will be playing catch-up to Delta."

The man leading the charge is seen by those in the industry as a fast-paced, no-nonsense leader, a general whose calm exterior masks a hard-charging ambition to change the face of the aviation industry.

A "Rules of the Road" internal memo from Anderson to senior Delta leaders a month after he arrived as CEO gives some insight into the way the former Texas prosecutor operates. The memo contains the usual "fly safe" and work-as-a-team mantras. Under a section titled "Face Reality" Anderson states bluntly: "Speed Wins. Be decisive and do not delay. Speed in execution is the difference between success and failure."

Those who work with Anderson day-to-day say he takes pride in reciting the smallest details. Tony Charaf, Delta's senior vice president for technical operations, was showing Anderson around an engine shop recently when Charaf pointed to a Pratt & Whitney 2037, used to power Delta's 757s. Charaf, an "old engine guy," was aware that model had experienced gearbox problems a decade back but didn't want to bore Anderson with the details.

"When I walked by I said, 'This is a 2037 that goes on our 757's,' and he said, 'I know that. Are you still having any problems with the gearbox?'" Charaf recalled. "I was amazed."

During private conversations, Anderson often uses the term "sustainable" when he talks about possible consolidation in the airline industry. He makes no secret of his view that the six legacy carriers — Delta, Northwest and United are among them — that existed before deregulation will be winnowed to four or fewer within a few years. If oil prices continue to soar and the economy continues to soften, he has said, that could happen sooner rather than later.

"We have to be able to look back and say we solved the business-model problem," Anderson told The Atlanta-Journal Constitution just after he was named CEO. "The continual up and down of concessions and restructuring has to change. We have the best chance to do that at Delta of any airline in the country."

Those who have dealt with Anderson up close regard him as a shrewd lawyer on top of his game in any negotiation. Mark McClain, a veteran Northwest pilot and union leader, dealt with Anderson for a decade in Minnesota. Anderson, McClain said, is disarmingly easy-going, a demeanor that has its benefits when the talking gets tough.

"I won't say he'll smoke one by you intentionally, but you better know what you're doing if you negotiate with him," McClain said in an interview just after Anderson took the Delta job. "He's all business beneath that affable exterior. He'll do what's necessary."

Anderson is not talking publicly about a potential merger. Last week, he prefaced an earnings conference call with Wall Street analysts by warning that he would not discuss potential deals.

He has been absent from community meetings and award ceremonies such as the recent "Salute to Greatness" Martin Luther King Jr. commemoration dinner, where Anderson was scheduled to pick up an award for Delta.

His silence, however, hasn't stopped the financial press, politicians and business leaders from weighing in. A man who shuns publicity, Anderson is fast becoming one of the most talked-about airline CEOs in recent memory.

Anderson and his wife, Susan, have bought a house in Atlanta's Garden Hills neighborhood, where they live with an aging Labrador retriever named Cooper. Their two children attend college out of state. The Andersons have not sold the family's home in Minneapolis — perhaps more a sign of a soft real estate market than reluctance to break old ties.

He is an avid reader who recently polished off Taylor Branch's "Parting the Waters," a history of the civil rights movement. He and his wife recently took a self-directed tour of the King Center near downtown Atlanta, after breakfast at The Flying Biscuit Café. The couple like to bike and take walks around their tree-lined neighborhood, and Anderson occasionally enjoys preparing Italian dishes from scratch, something he has said brings back memories of his grandmother, an Italian immigrant.

To some in Atlanta's business community, Anderson, a native Texan who has spent much of his working life in Minnesota, is an outsider. He was brought in by Delta's 10-member board, most of whom were chosen by creditors whose goal is to maximize the carrier's profits and stock price.

"There is a concern about the board being mostly made up of creditors and people who are not that familiar with our metro Atlanta market," said Tom Bell, chairman and CEO of Cousins Properties. "But the board is going to do what's in the best economic interest of themselves and shareholders. And we feel that Richard is in a position to demonstrate that a headquarters in Atlanta would be the best economic proposition for any combination that might occur."

Anderson has gone to great lengths to assure key business and political leaders that he wants Delta to be the survivor of any merger and that he wants to retain the Atlanta headquarters. He publicly stated that to more than a dozen local power-brokers at Joel, a tony Atlanta eatery, just after he arrived in the city. He has also made the same promise to U.S. Sen. Johnny Isakson (R-Ga.) during two separate conversations.

Delta represents about 80 percent of the business at Hartsfield-Jackson International Airport, the nation's busiest airport and the financial engine for much of the region. The airport provides a direct economic impact to the region of $23 billion, according to airport General Manager Ben DeCosta. Delta provides 25,000 jobs in Georgia, most of them in metro Atlanta.

A mega-airline based in Atlanta could super-size that impact.

"If we have a Northwest merger, hallelujah," said Sam Williams, president of the Metro Atlanta Chamber of Commerce. "We get instant access to much of Asia, Japan, India and all of the growth that comes with that."

Anderson, meanwhile, is beginning to look a lot like a deal-maker in an industry where deals are hard to hammer out and even harder to bring to reality as the new airline must figure out how to combine fleets, routes and computer systems. In the case of Northwest and Delta, airline leaders would have to merge a heavily unionized Northwest with Delta, where only the pilots and "flight supervisors" are unionized.

"In this business there will be consolidation at some point in the future," Anderson said just after he took Delta's reins. "The important thing for Delta is to be in control. You have to secure your own future. You will be very insecure in this business if someone else is in control of your future."

ajc.com

Honeymoon is over for new Delta CEO Anderson
John Spink / AJC



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