Delta CEO: Troubled Airline Faces 'Critical Year'

When Delta Air Lines was pushed into bankruptcy court last September by soaring fuel costs and shrinking cash reserves, it had little left but a plan to get out of trouble, said its chief executive.

"We had consumed all of our assets," Delta CEO Gerald Grinstein said. "All we had to offer was a business plan."

Four months into Delta's Chapter 11 bankruptcy case, Grinstein believes that plan will still lead the ailing airline and local corporate icon back to financial viability.

Grinstein met last week with The Atlanta Journal-Constitution for his first extended interview since Delta filed. He said the company's plan is on track and should start to reverse a tide of red ink later this year. Grinstein thinks Delta can emerge from Chapter 11 by mid-2007, which would make its trip much swifter than that of United Airlines, which has spent more than three years in court.

But he also said Delta's course is far from certain. The company faces a March 1 deadline for a permanent cost-cutting deal with pilots, and jet fuel costs remain above projections. Delta is still working on what Grinstein calls the "most aggressive stretch of all" --- a $1.1 billion bet on retooling its fares and flight network. It faces tough internal issues, including retention of talented managers.

This will be a "critical year" for Delta, Grinstein said. Here is an edited account of the interview:

Q: When do you expect to come out of Chapter 11?

A: My aspiration would be to come out in the spring or summer of '07. Certainly [we] don't want to stay in as long as United. ... We're right on the plan that we laid out ... [but] fuel is now more costly than we projected.

Q: Does your plan have the flexibility to handle the higher fuel costs?

A: Yes, we believe it does. I mean, if it stays at [current levels] through the course of the year, there are going to have to be combinations of things that we would do. Among those is you have to plan on some fare increases.

Q: Since filing, you've reported $1.3 billion in losses. How soon do the changes you've made start to reverse that?

A: We expect it to be about the third quarter of '06. I would expect us to be better than break even by the fourth quarter. ... The plan does have some points where we're fairly close in terms of liquidity to some of our covenants [financial restrictions in Delta's debtor-in-possession loans]. ... April is a point in time where the projected performance is above, better than covenant, but we don't have the same margin as we otherwise would have. But as long as we're staying on plan, I think we're OK.

Q: Two years ago, you indicated you expected to be CEO three years or less. Has Chapter 11 changed your view? How long do you want to be CEO of this company?

A: [Laughs] I want to stay long enough ... so that I know we're going to achieve what I believe we will achieve, which is the certainty of life, and not mere survival but vitality. Second, I want to make sure that we have the right people succeeding me. I think those two can come together, because this team is now ... reasonably well-seasoned.

Q: Do you feel a responsibility to stay CEO until the company is out of Chapter 11?

A: No. I feel responsible to stay until I know that it's going to emerge and be healthy.

Q: A downside of bankruptcy from management's perspective is a loss of control. How much control have the creditors and debtor-in-possession [DIP] lenders had in setting your course?

A: As long as we report to the [DIP lenders] regularly and as long as we are on plan, there is no problem. ... In terms of the creditors' committee ... everything that we've tried to work through with them . . . has all been fine.

Q: Judge Prudence Beatty recently gave up the Delta case to take a medical leave. Are you happy that a new judge, Adlai Hardin, has taken the case?

A: You know I'm not going to answer that question.