A Leaner Delta Leaves Chapter 11

The nation's No. 3 airline flies into a competitive future with 6,000 fewer workers, a revamped board, billions in lower costs, and a new route strategy

Delta Air Lines waved farewell to bankruptcy protection Apr. 30 and touted the success of its 19½–month restructuring, a process that featured billions in cost cuts and a new focus on higher-yield international destinations.

The airline's new board of directors now has two immediate tasks: choosing a new chief executive officer to replace the departing Gerald Grinstein, and deciding whether to sell or spin off regional feeder carrier Comair.

Grinstein, 74, said in an interview during a bankruptcy exit celebration at Delta's headquarters that he expects choosing a successor to him to be the directors' first priority. He said he believes the board, which consists of seven new members, will spend May getting acquainted with the candidates and make a decision sometime after that. Grinstein will step down once his replacement is appointed.

Looking Inward

The top internal candidates for CEO are Chief Financial Officer Ed Bastian and Chief Operating Officer James Whitehurst. Bastian said he will stay on with Delta even if he isn't picked as the new CEO. Whitehurst said he has chatted informally with some of the board members, but hasn't had an interview.

"The important thing is it be an internal person," Bastian said. No external candidates have been mentioned.

As for Comair, which also emerged from bankruptcy Monday, senior Delta executives said there has been no timetable set on making a decision whether to shed it. Some analysts have suggested Delta will definitely sell Comair, and sell it quickly. Whitehurst said "it's not a foregone conclusion" that Kentucky-based Comair will be sold.

New-Look Planes

Atlanta-based Delta, the nation's third-largest carrier, also unveiled plans for a new paint job for its planes, featuring the company's three-dimensional red logo flying across a blue background on the tail of aircraft. The new logo will appear on more than 900 Delta and Delta Connection planes, at airports, and on Delta advertising. The primary color of the new logo is a solid red instead of the familiar red-and-blue color scheme.

It will take four years to put the new livery on all Delta and Delta Connection planes, spokeswoman Chris Kelly said. Delta jets will get the new design as they come in for scheduled maintenance.

"It's a new airline, it's a new day, so you might as well have a new color," said Ray Neidl, an airline analyst with Calyon Securities in New York.

Neidl gave Delta credit for trimming its cost structure while in bankruptcy and for modeling a business plan given the industry's current realities, after having suffered billions in losses the last six years. As part of its makeover effort, Delta shifted many of its long-haul aircraft from domestic to more lucrative international routes, opening new service to Africa and Eastern Europe, while also expanding its flights to Latin America and the Caribbean.

Long Road Back

Delta entered Chapter 11 on Sept. 14, 2005, amid high fuel prices and the burdens of high labor and pension expenses. Delta significantly reduced its labor force—by about 6,000 jobs—and pension costs while under court protection. As of Mar. 31, the company had 52,260 full-time employees, according to a regulatory filing Apr. 27. The figure includes subsidiary Comair.

The bankruptcy process has been expensive for Delta, which has run up more than $127.9 million in bills for fees and expenses for its lawyers, consultants and advisers through the end of January. It could spend tens of millions more once the final fee and expense requests are included.

The carrier also defeated a hostile takeover bid by Tempe, (Ariz.)-based US Airways Group (LCC). US Airways withdrew its $9.8 billion bid after Delta's unsecured creditors committee in January endorsed Delta's reorganization plan.

New Stock Offering

Delta's existing stock (DAL.WI) was canceled Apr. 30. Shares of new stock will be issued to creditors and begin trading publicly on the New York Stock Exchange on May 3 under the ticker symbol DAL. That day, Delta executives will ring the closing bell from the floor of the New York Stock Exchange.

The company says 400 million shares will be issued, putting the target initial public offering at $23.50 a share to $30 a share based on Delta's projected valuation of $9.4 billion to $12 billion.

Delta's reorganization plan gives unsecured creditors between 62 percent and 78 percent of the value of their allowed claims as shares of new Delta stock. Delta employees also will get a lump-sum cash payment from the airline based on a percentage of their salary and will receive an equity stake in the reorganized company. Checks to employees are to be issued May 1.

Near Unanimous Approval

More than 95% of creditors voted to endorse the plan for Delta to leave bankruptcy, and a federal bankruptcy judge in New York on Apr. 25 gave the airline the green light to exit Chapter 11 on Apr. 30. Conditions included closing on a $2.5 billion loan that was used to repay another loan that helped fund the airline's operations while in bankruptcy. The wire transfers were completed at midmorning, allowing Delta to formally emerge.

"This is an amazing day for an extraordinary company, which has reclaimed its heritage and has emerged from Chapter 11 as a fierce, determined and well-capitalized competitor," said Marshall Huebner, Delta's chief bankruptcy lawyer.

Michael Lloyd, a customer service agent in Atlanta, was among the throng of Delta employees at the company celebration Monday.

"We were all ground down to the point where we were trying to figure out how we would feed our family, but we stuck with it," he said.

By the Associated Press