Can Delta Survive as an Independent Carrier? Asks Strategist and Author Harry Nolan

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To shed light on Delta's chance for survival, Nolan asks hard questions and gives straight answers from his unique position of access to Delta insiders and unpublished information not available to the press and other observers. His in-depth knowledge and refreshing objectivity is particularly valuable now that U.S. Airways has made a hostile offer to buy Delta while it is in bankruptcy. He concludes that new top management is needed immediately for Delta to survive as an independent airline.

Don Quixotes of the inconsequential.

Can bankrupt Delta Air Lines, Inc. (Pink Sheets: DALRQ) survive as an independent carrier? Harry L. Nolan, Jr., noted business strategist and author of Airline Without A Pilot - Lessons In Leadership, addressed this question recently before Turnaround Management Association meetings in both Chicago and Atlanta. A summary of his remarks follows:

Delta's management decisions over the last 18 months parallel those of Braniff before its demise in the mid-1970s.

Like Braniff then, Delta has been expanding its international routes very rapidly. On top of over a year of dramatic international expansion, the airline plans to start 16 new routes to 14 cities in 22 days.

For months, Delta has rarely been able to deliver on-time performance, baggage delivery, denial of boarding and cancelled flight statistics as good as its low cost competitor AirTran, whose main hub is in Atlanta as well (negating any excuses that Delta's problems are primarily airport related).

A recent Delta flight from Atlanta to Newark arrived at its destination with no passenger baggage on board. The baggage had apparently never been loaded on the plane in Atlanta. Some of the baggage arrived on another flight about an hour later. Other passengers had to wait over two hours for their baggage to arrive on a third flight. In addition to the passenger inconvenience, this oversight apparently created a potential safety problem. Before every flight commercial pilots are given what is called a 'weight and balance' report. This report tells them how much weight the plane is carrying, including passengers, baggage, cargo and fuel. They need this information to make key decisions during the flight, particularly as it relates to the handling of the aircraft. Fortunately no problem happened on this flight. However, the incident underscores the ongoing difficulty Delta top management has in the basics of running an airline.

To Nolan, the irony of Delta's relatively poor on-time performance is underscored by the fact the COO Whitehurst was in charge of Delta's "Transformation Plan" beginning in January 1, 2004 when he started the job. A key piece of that plan, implemented in January 2005, was to make Atlanta, Delta's main hub, into a "continuous hub" to alleviate congestion during busy traffic times. The entire operation of Delta was turned upside down with the goal of significantly increasing on-time performance throughout its system, particularly in Atlanta. It hasn't happened.

Instead, Delta management talks about delivering a superior "customer experience" (words often repeated by COO Whitehurst), like Braniff, thorough amenities -- designer flight attendant uniforms, refurbished aircraft interiors (over the next several years) and "signature cocktails" like 'Mile High Mojito' and 'Mango Madness' (with other drinks to be added monthly in a contract signed with a cocktail consultant). Delta's Managing Director of Product Marketing has said that Delta's desire to be known as a "sophisticated" airline is the reason for this approach.

Other non-essential efforts Delta recently announced include providing access to free Nintendo video game demonstrations for passengers in their Atlanta terminal plus a 'Delta's Fly-In Movies' Film Contest to spotlight 'emerging filmmakers' and let passengers vote on the winner of 5 contestants. Delta has also teamed up with Apple to give people in-flight access to music on their iPods.

Recently Delta was a corporate participant, at an estimated cost of a half million dollars, in Fashion Week in New York City. Along with other corporate sponsors like UPS, Delta purchased tent space in Bryant Park to hobnob with people in the fashion business. When asked why Delta was participating in the event, Delta's marketing spokesman indicated that Delta desired to be known as the "stylish airline" when it emerged from bankruptcy. Later, Delta hired 3 of former James Bond movie girls to attend a party in New York City to kick off their London service.

This extreme focus on superficial aspects of running the airline, while failing to make the grade on the essentials -- on-time performance, delivered baggage, flights running as scheduled, seats sold being provided -- leads Nolan to suggest those at Delta making decisions now are "Don Quixotes of the inconsequential."

Delta spent an estimated $8 million out of pocket (not including salary costs and any customer revenue lost by flying those from other cities to Atlanta with a reserved seat) to bring in 12,000 front line employees to Atlanta, in small groups over a six months period, for 1 ½ days of introduction to the "New Delta." In addition to hearing standup presentations by senior executives, intended to create confidence in the management team, attendees were housed in expensive hotels and served meals and libation from an expensive catering company. When a flight attendant, several months after attending, was asked by Nolan what she gained from the experience, the answer was to learn about the "New Delta." She was told the "New Delta" would fly on time, have clean airplanes and provide the tools she needed to do her job. However, she went on to say that she had not seen that happen yet.

The financial disaster wreaked on Delta by the top management team in place speaks for itself. The current CEO, COO and CFO were all integral parts of deposed CEO Leo Mullin's team. This team grew Delta's real assets without a return from 1998 to 2005 which put Delta on the road to bankruptcy.

In the last 6 years, Delta has lost over $16 billion. This is close to the $17 billion total amount reportedly lost by the entire commercial aviation industry since the Wright Brothers flew their first airplane in 1903.

In 2004, when the CEO, COO and CFO assumed their current roles, Delta lost $5 billion, the largest single year loss in the history of commercial aviation. During that year, although Delta's finances were bleeding profusely, the COO-led Transformation Plan took 8 months to develop and another 4 to implement.

Then in 2005 Delta lost $2 billion, more than the loss of the rest of the industry combined. In September of 2005 Delta filed for bankruptcy.

Delta is still losing money, albeit at a slower rate in 2006, with a loss again projected for the total year.

Delta management has repeatedly said they intend to take the company out of bankruptcy as an independent carrier in 2007. With the same lack of urgency shown in creating the 2004 Transformation Plan, the company is now on its 3rd extension on the due date to file their reorganization plan with the bankruptcy court. However, they have the exclusive right to file a plan only until February 15, 2007. After the Delta plan has then been reviewed, the creditors can file one of their own.

Without taking a position on the U.S. Airways offer, Nolan believes that the track record documented above makes it highly unlikely Delta can survive as an independent carrier under its existing leadership. This is particularly true once Jerry Grinstein, who has credibility in the industry, Washington and elsewhere, retires as he had said he will do upon bankruptcy exit.

Anyone wanting to keep Delta independent must urgently consider a new top management team right now. The logical person is Hollis Harris, formerly Delta president, who should have been given the CEO job in 1987 instead of Ron Allen. Harris is a respected leader in the aviation industry. He had demonstrated his ability to turn around 3 different companies -- Continental, Air Canada and World Airways. Harris is an active, fit semi-retiree who lives near Delta headquarters. He has the respect of Delta people and could move in quickly to rebuild the business the current team has damaged so badly. Harris has the respect of and contacts with many key aviation industry executives and Delta retirees (some of whom have told Nolan they would come back and work for free if Harris returned). This would enable him to quickly establish a team of his own making, one that would surely include the best of the current team. In an August interview, Harris said he would consider the job if asked.

With Grinstein as Delta Chairman and Harris as Delta CEO, Delta could move forward to refocus the airline on doing the fundamental things that make an airline successful.

To survive as an independent carrier, Delta must get new leaders immediately who can convince the creditors, employees and customers they deserve to run the company and rebuild it into a successful airline like it used to be and has the potential to be again.

There are self-appointed industry experts who take a different view from Nolan's. However some of those who provide press quotes supportive of Delta management do so without disclosing they are paid advisors to Delta or otherwise have a direct financial interest. Therefore skepticism is in order.

The U.S. Airways offer is merely the first warning shot over the Delta bow. More are sure to come.

Delta continues to have many dedicated, professional people on the front line and at other levels up the organization. These people continue to try their best to do what they can to help save the airline. Now many wear big read buttons saying, "Keep Delta My Delta".

However, without new leadership, Delta unfortunately seems destined to be acquired, sold off in pieces like Pan An or else eventually be dissolved like Braniff.


Nolan is the founder and President of Management Advisory Services, Inc., a 25-year old Atlanta-based firm specializing in business strategy and leadership. He is a graduate of Duke University where he was an Angier B. Duke Scholar and studied under noted management expert Peter Drucker at NYU Graduate Business School. Nolan's book, Airline Without A Pilot - Lessons In Leadership, has consistently maintained a Sales Rank among the top 1% of books on and for 11 consecutive months. It is also achieving sales results online from sites in Japan, UK, Canada, Germany and France. The publisher is now in foreign rights negotiations with publishers in India and Mexico. The author is available for media interviews by contacting the publisher at (404) 705-9093.

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